1

THE ECONOMICS OF MEGA-EVENTS

&
HOSTING THE LONDON OLYMPICS
2
Topicality:
Motivation, purpose and basis of the bid by
the UK, in the form of London, to host the
summer Olympic Games (and Paralympic
Games) in 2012, the costs of preparation
and fulfilment and the anticipated/assumed
benefits.



3
Tessa Jowell
(ex-Olympics Minister)
Had we known what we know now, would
we have bid for the Olympics? Certainly
not. (11/11/08)
Risky and a distraction.
However:
Given the changed economic conditions
the Games could prove to be economic
gold at a time of economic need.
(13/11/08)
4
Boris Johnson
(Mayor of London)
There is never a bad time to stage a
spectacular event like the Olympics and
Paralympics, and, in the current economic
climate, I believe London is extremely
fortunate to be hosting the Games. . The
case for the Games is stronger in
difficult times (13/11/2008)
5
Ken Livingston
(ex-Mayor of London)
Given that London will bear the brunt of
the recession worse than anywhere else in
Britain, the Olympics are going to soften
that and stave off the catastrophic
impact of the recession.
(13//11/008)
6
Andrew Boff
(Olympics spokesperson for
Conservative Assembly Group)

In an economic climate where the ability
of the government and the Olympic
Delivery Authority to attract private
investment to fund the Games is already
tough, to say that it was a mistake to
bid for the Games is utterly irresponsible.
(13/11/08)
7
Mega-events are large scale cultural
(including commercial) events which have
a dramatic character, mass popular appeal
and international significance. (Roche,
2001)
Mega-events are short-term events with
long-term consequences for the cities that
stage them. (Carlsen & Taylor, 2003)
8
Mega-events, by way of their size or
significance, are those that yield extraordinarily
high levels of tourism, media coverage, prestige,
or economic impact for the host community or
destination. (Getz, 1997)
Mega-events are those events that are so large
that they affect whole economies and
reverberate in the global media. (Bowdin et al.,
1999)
9
Although mega-events each have their
peculiarities, they also share a number of
characteristics: for example they are transient,
but often of great economic and cultural
significance; they employ drama and spectacle
to underline and promote values of local,
national or international importance, and they
throw light on the societies, institutions and elites
who are involved with them. (British Library,
http://www.bl.uk/sportandsociety/exploresocsci/sportsoc/
mega/articles/definingf.html
10
General points:
Consideration of mega-events involves more
than pecuniary calculations (and profit
maximisation motivations).
The scale and scope of such projects are more
extensive than those usually associated with
public sector projects.
Constituent parts of event geographically extend
beyond its natural boundaries. (e.g. beyond
London)
[Government support for crude political gain?
(and individual egos can also play a part)].
11
Key question:
With particular respect to the Olympics:
Assuming that a bid satisfies IOC criteria, does
hosting the Olympics represent an extraordinary
investment for cities and host nations, worthy of
extensive taxpayer and public funding support?
We focus on the perceived and potential
economic and social benefits of hosting the
event.
12
Specific issues:
The stakeholders.
Sports fans, general public, businesses, local authorities, media
(national governments?). Different motivations and differing rewards
anticipated (and, in some cases, costs).
Project feasibility.
Available capacity and related infrastructure.
Amount of new/additional, refurbished capacity and infrastructure
required.
Manageability and delivery developments on schedule, and operation of
event.
Benefits.
Economic impact.
Social impact.
Intangibles.
Costs.
Economic costs. Actual, explicit costs and opportunity costs.
Externalities and social costs.
13
In theory having obtained information on
potential economic benefits and costs, the
economic impact of the Olympic Games
can be assessed and the bid dismissed or
pursued on rational economic grounds.
But:
not all benefits/costs identifiable and/or
quantifiable
non-economic costs and benefits
incidence and distribution issues
14
An economic impact assessment alone cannot
justify public support for hosting mega-
sporting events.
A fuller cost-benefit analysis is required in order
to measure the net social utility for the
population.
(N.B. IOC requires host to assume financial
liability, and hosting the games involves
substantial financial risks).

15
It appears that there is often confusion between
the economic impact and the economic
efficiency of mega- sporting events.
Impact basically involves evaluating the increase
in value added or employment in the host
territory.
Efficiency requires measurement of the social
utility and net social benefit (or loss) of the
event.

16
An impact calculation on its own cannot
demonstrate the social return on a project.
It indicates that the project/event generates a
certain volume of economic activity and
employment BUT offers no grounds for
concluding whether or not it should be
undertaken.
Legitimacy of allocating public funds and
common resources cannot be based on impact
study alone.
17
A full Cost-Benefit Analysis is an aid to
decisions in making a choice, but an
economic impact study is not a decision-
making tool.

However, while the latter is very common
in assessing the potential of mega-events
the former is relatively rare.
18
WHY?
Serious bids for mega-events invariably
include a macro-economic evaluation of
the anticipated effects, because of:
ease of understanding the aims and
principles of the calculation,
easier to estimate the tangible benefits
the impressive results usually displayed
19
An economic impact assessment has a role to
play in presenting a case, but it is not the be all
and end all, and care must be taken in its
generalised use to legitimise the decision to bid
to host a mega-event.
Sole (or over-) reliance on an impact analysis,
can lead (and has led in past) to inappropriate
decisions by public decision makers (and may in
some cases be used to justify a decision already
taken or wished to be taken).
20
An appropriate decision should require
a positive correlation between
economic impact and net social benefit.

[Arguable (with some evidence) that
economic impact studies have over-
evaluated the results. (Intentionally or
not!)]
21

An assessment of the social utility to be derived from
hosting a mega-event requires a Cost-Benefit Analysis,
to compare the costs of the project/event for society as a
whole with the benefits that people derive from it in terms
of social well-being.
The analysis involves the estimation of intangible as well
as tangible costs and benefits.
22
Potential benefits:
Substantial inflow of income created during
preparation and construction, and during event,
through direct employment, attendance and
associated tourism expenditure.
Multiplier effect. Total effect exceeds initial
income boost due to secondary
employment/income generation by indirect and
induced effects. Multiplier value depends on
expenditure retention/leakage within the
economic system.
23
Stimulation to range of existing businesses
(supported by infrastructure improvements).
Attraction of new businesses/investment
(supported by infrastructure improvements
and heightened area profile).
Regeneration, with particular regard to
derelict sites.
24
Externalities:
Other (third-party) effects enjoyed by
members of society beyond direct
project participants.
Public benefits of enhanced
infrastructure and economic/social
perception, prestige/confidence, etc.
25
Longer term benefits:
Tourism memory and further tourism
sector development to meet demand.
Demonstration effect for future industry
investment. Sectoral clustering or local
industry specialisation.
Infrastructure improvements and profile
enhance view of locations for resident
public and businesses as well as
potential investors.
26
However, to a large extent the enduring
effect of the events impact depends on the
extent that its infrastructure demands
translate into permanent (or alternative-
and multi-) use. Olympic facilities may
involve infrastructure that is specialised
and infrequently or incompletely utilised.
27
Costs:
Capital costs of new or refurbished
stadia/facilities and appropriate ancillary
infrastructure. (Also cost inflation over
time)
Operating costs, organisation of events
(including security).
28
Opportunity costs. Alternative use of public
spending. Real cost of something is best
alternative use that resources could have been
put to.

Not only a question of funding X instead of an
alternative project (Y), but the need to fund X
that otherwise would not be considered at all
(otherwise unnecessary, or not a priority).
29
Externalities (third-party effects):
Environmental aspects.
Social/community disruption.
Congestion issues.
30
Crowding-out/displacement issues: e.g.
How much public and private
investment would have occurred
otherwise?
How much local expenditure has been
displaced by outsider expenditure?
How much expenditure is net and
additional to what would have occurred
otherwise?
31
Marketing issues:
Selling idea domestically to potential stakeholders
local and national -public, businesses, political decision
makers, media support.
Feasible.
Convincing.
Imaginative.

Danger of overzealous bidding, and incentive to bias
benefit claims and forecasts (and underestimate costs) to
secure support for event.
32
Selling bid to IOC in competition with other bidders
(developed and underdeveloped countries) (Assuming
no inappropriate or illicit behaviour).
Feasible and convincing.
Imaginative.
Distinctive brand while sensitive to Olympics
image.


Both of these marketing issues are dependent on quality
and nature of bid.
Style and presentation important but should not dominate
substance.
33
Some Evidence
Scale:
2000 Sydney Summer Olympics
300 events
10,651 athletes
199 nations
Winter Olympics roughly one-quarter
size
34

$ 200 mn profit generated by 1984 Los
Angeles Summer Games (LA only bidder)
Subsequent OGs have received multiple
bidders
Examples of bribery from potential hosts
marred the Salt Lake City Winter Games
(2002)
35

Atlanta spent $600 mn in direct
infrastructure improvements for 1996 OG
Nagano spent $1.3 bn on 1988 Winter
Games
Beijing reportedly spent over $20 bn for
2008 OG

36

Operating costs for Summer and Winter
Games typically exceed $1 bn

Salt Lake City spent over $300 mn on
security alone for the 2002 Winter Games,
in addition to $1.7 bn in other operating
costs.
37
Predicted benefits:
Atlanta Olympic Organizing Committee
predicted a $5.1 bn economic boost and
77,000 new jobs from 1996 OG
New South Wales Treasury predicted a
$6.3 bn impact for Sydney Games (2000)
and app. 100,000 new jobs
38
Post-event calculations:
Example: Bade & Matheson (2003)
1984 LA Games boosted employment by a
max of 5,000 jobs and local economy by
300 mn
Uncertainty over 1996 Atlanta Games
with estimates of employment boost
ranging from 3,500 to 42,000 jobs (little
more than half the prediction)

39
Reasons for differences between
estimates and outcomes:

Gross vs Net measure
Crowding-out and substitution effects not
or insufficiently considered
Inappropriate multiplier values producing
exaggerated claims of benefits
40
London 2012
The London bid for 2012 Summer
Olympics and Paralympics
Research for yourselves
(e.g. www.london2012.org)
Nature of bid
Claimed benefits
Predicted costs (N.B. Disclosure that 1
bn VAT not included in original estimates
of construction costs)
41
RECENT DEVELOPMENTS
Logo controversy

Stadium progress
Design unveiled. 80,000 seater. Building
started April/May 2008. Earlier completion?
Plenty of time for test events?
Cost - 496 mn., compared with 280 mn.
initial estimate. Revision mainly because
of inflation and VAT add on. (Further
increases?)

42
Post-Olympics transformed into 25,000
seater community venue.
Major athletics events.
Home to a lower FL club or rugby club.
Nothing definite yet.


43
Government Budget 2009, 9.35 bn, compared with
initial 2,375 bn (2004 figure) including 1.7bn
remedial work, and 2.7 bn. contingency.
Gov. reasserted limit. Austerity Games IOC concern

Initial cost under-estimated, so as not to alarm?
(Did government ever really expect bid to succeed?)
(Could not have anticipated recession)
Security bill increased substantially (?) from initial 213
mn.

44
Taxpayers Alliance claim. Knock-
on/hidden cost effects on private/
office/retail/public construction costs
Extra demand for construction created by
Olympics will inflate building costs in
London and South East by 3.9 bn.
1.25% inflation per year until 2012.
45
Tourist industry boost estimate. 3bn.,
6.6 mn extra visitors to UK 2007-16,
75,000 more tourism related jobs over
10 years.
Travelodge commissioned report reviewing
previous Olympic city data.
But boost not guaranteed. Requires
significant additional Govt. funding for
tourism.
46

UNDERTAKE YOUR OWN WEB
SEARCH OF ITEMS SPECIFICALLY
RELATING TO THE BID AND LATEST
AND CONTINUING DEVELOPMENTS
AND ANALYSES.