Friday, March 26, 2010

The IMF Surveys the Impact of Mega-Events 

The latest issue of the IMF's journal, Finance and Development, has a number of essays on the impact of hosting events like the Olympics and the World Cup. Andrew Zimbalist's paper "Is it Worth It?" is a brief but balanced and fact-filled summary. Here is a sample:
[I]n Sydney, Australia, it now costs $30 million a year to operate the 90,000-seat Olympic stadium. Many of the venues used in the 2004 Athens Games are either vacant or seldom used and occupy valuable land in a crowded urban center. The Beijing Games left a legacy of several expensive buildings, including the elaborate Water Cube swimming facility, which is severely underused. In contrast, successful events, like the Los Angeles Summer Olympics, use existing facilities as much as possible, making good use of scarce urban land. The stadium used for the opening and closing ceremonies in the 1996 Atlanta Games was reconfigured into a baseball stadium immediately after the games. Olympic planners need to design facilities that will be useful for a long time and that are constructively integrated into the host city or region.
The essay by Andrew Rose and Mark Spiegel is of particular interest, as it discusses a novel finding in their 2009 paper "The Olympic Effect." Rose and Spiegel present evidence that countries that bid to host the Olympics enjoy a permanent increase in international trade. Here is the abstract to the 2009 paper:
Economists are skeptical about the economic benefits of hosting “mega-events” such as the Olympic Games or the World Cup, since such activities have considerable cost and seem to yield few tangible benefits. These doubts are rarely shared by policy-makers and the population, who are typically quite enthusiastic about such spectacles. In this paper, we reconcile these positions by examining the economic impact of hosting mega-events like the Olympics; we focus on trade. Using a variety of trade models, we show that hosting a mega-event like the Olympics has a positive impact on national exports. This effect is statistically robust, permanent, and large; trade is around 30% higher for countries that have hosted the Olympics. Interestingly however, we also find that unsuccessful bids to host the Olympics have a similar positive impact on exports. We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event. We develop a political economy model that formalizes this idea, and derives the conditions under which a signal like this is used by countries wishing to liberalize.
It is not clear how this rather large impact on trade can be reconciled with the lack of impact on GDP. Perhaps there is both a signaling effect and a winners curse effect that operates here. At any rate, the full Rose and Spiegel paper (pdf here) is certainly worth calling attention to.


Monday, February 08, 2010

It's all Greek to Economists 

Financial turmoil has roiled Greece over the past several weeks. There is real concern that budget deficits in that country will lead to its government defaulting on its debt and in the worst-case scenario the potential unraveling of euro currency itself. So, how did Greece find itself in such dire straights? The 2004 Olympics are a large but overlooked piece of the puzzle.

Greece's federal government had historically been a profligate spender, but in order to join the euro currency zone, the government was forced to adopt austerity measures that reduced deficits from just over 9% of GDP in 1994 to just 3.1% of GDP in 1999, the year before Greece joined the euro.

But the Olympics broke the bank. Government deficits rose every year after 1999, peaking at 7.5% of GDP in 2004, the year of the Olympics, thanks in large part to the 9 billion euro price tag for the Games. For a relatively small country like Greece, the cost of hosting the Games equaled roughly 5% of the annual GDP of the country.

Of course, the Olympics didn't usher in an economic boom. Indeed, in 2005 Greece suffered an Olympic-sized hangover with GDP growth falling to its lowest level in a decade.

While its hard to place all of the blame for the current Greek meltdown on the Olympics, the lingering debts from the Games are undoubtedly exacerbating an already difficult situation.

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Thursday, November 05, 2009

Tour Operators and Mega-events 

The displacement of normal business by events such as the Super Bowl or the Olympics has been a staple issue in academic economists' analyses of economic impact. These warnings from the ivory tower are typically been derided by local commercial spokesman, as if we are imagining things.

Well, here's a change of pace. Today comes news from the European Tour Operators Association, who claim that the London Olympics will have a measurable negative impact on their business. From BBC News:
The ETOA report, which said benefits of 2012 Games were "wholly illusory", looked at tourism figures for the past six Olympics, including Athens in 2004 and Sydney in 2000.

Whilst some of the events saw a peak in demand during the games, all saw a major disruption to their normal tourism market and none showed any obvious signs of tourism growth.

Beijing, the last city to host the Olympics, showed international visitor arrivals plummeted by 30% in the month before the games, compared with the previous year.

In the months after the games, the tourism slump continued with international arrivals down by more than 20%.

Beijing fared considerably worse than the rest of China in 2008, which was not a strong year in general for tourism in the Asia-Pacific region.

Following the Sydney 2000 Olympics, the city's tourism lost "significant ground" to other Australian and New Zealand cities, it added.

"We have yet to have a games where tourism has not been disrupted, and disrupted in a way that causes real harm," said ETOA executive director Tom Jenkins.

"Even in the case of Athens, where they carefully restricted new capacity, there were considerable losses before and after the games both in the capital and throughout Greece," he added.
How about that!

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Wednesday, January 07, 2009

Mega Event Update: Beijing Bird's Nest Stadium 

Stop me if you have heard this one before...

Remember all those claims about the continuing benefits that flow from the lavish sports facilities constructed for mega sporting events for years after the actual event? As example #1, consider the National "Bird's Nest" Stadium in Beijing, host to the opening and closing ceremonies of the 2008 Olympic Games. There were supposed to be a huge number of events there following the Beijing Games. The Wikipedia page even claims: "A shopping mall and a hotel are planned to be constructed to increase use of the stadium, which will host football events after the Olympics."

Ever wonder if they actually materialize? According to a recent article in the Telegraph, the answer is clearly "no, they don't." According to the article:

Three months after the end of the games, new figures show the "Olympic Effect" has been short-lived and hotels are empty, industrial output has fallen and the streets are quiet.

But even the biggest single symbol of the modern rise of China, the "Bird's Nest" National Stadium, stands forlorn, largely unused except for a shrinking number of tourists.

I am shocked, shocked I say! The stadium is reportedly too big for Beijing's main soccer team. I guess they could not see that coming. According to a stadium employee quoted in the article "There was a primary school athletics contest here, and I've heard they want to arrange a concert for next year." So there you have it. In August, Usain Bolt electrifies the world; in November, pee-wee football. That's the economics of mega events in a nutshell.

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Monday, November 03, 2008

The Guardian on upcoming mega-events 

These are rants, but interesting ones. The first swing is at the 2010 Fifa World Cup in South Africa:
In my home city, Cape Town, for instance, we are putting up an enormous and ruinously expensive 68,000 seat German-designed super venue. The stadium already dwarfs the commonage and low-rise flatland of its well-to-do Green Point neighbourhood, and it's not even half-finished. At a current estimate of 4.5bn rand (£250m), it's already 50% over budget, but it's early days.

Not only is the stadium far too big for a city where even premier league matches struggle to attract 15,000 spectators, but most of those spectators live far away in the dusty townships of the Cape Flats.

...All in all, South Africans will be forking out for five brand new super-stadia as well as elaborate extensions and upgrades to five existing ones.

We're also spending money we don't have on bigger airports, new airports, more roads and a very expensive high-speed train which may or may not be ready in time to whisk visiting fans from Johannesburg's revamped or Tambo Airport to the swanky hotel and shopping district of Sandton.

And because our national electricity provider has unexpectedly run out of capacity, we are importing brand new diesel-fired back-up generators, and extra diesel, just to make sure the floodlights stay on.
Next up, Simon Jenkins on the 2012 Olympics in London:
First cut the crap. Stop talking about legacy, which never happens. Every Olympian knows that legacy is grass growing over defunct velodromes, cracked concourses and ghost villages. Not a penny of the £9bn is going on sport - that is extra - but on buildings, fees and salaries. The head of UK Sport, John Steele, has already declared that his own demand for money "is investment directed at delivering medal-winning performances". Whatever happened to just playing the game?

[Gordon] Brown was vociferous in attacking City bonuses. What about his Olympics gravy train? At the last count there were 200 officials in the Olympic Development Authority. The lowest-paid member of its management team is on £243,000, and the highest, David Higgins, £624,000.

They are apparently not up to the job and need a consultancy firm, CLM, with a further 300 staff, to help manage the project, at an astonishing fee of £400m over four years. This firm had the effrontery last year to charge (the taxpayer) a further £10m in staff bonuses on a project that has tripled in expense.

A quite separate body is the London Organising Committee of the Olympic Games, whose head is paid £557,000 and whose members get a reported £1,000 just for attending a meeting. How can Brown insult City bankers when allowing this sort of greed to continue?
These can't possibly be annual salaries, can they Nick? Regardless, Jenkins has more:
Simply managing the project is now budgeted to cost £647m, up from £16m in 2005 - more than will be spent on supporting any Olympic athletes.

As totem of this racket, 3,000 limousines are being obtained to ferry Olympics officials to Stratford up a special red-light free "Zil lane" on the Mile End Road. The lane will be banned even to athletes' cars. Yet these same officials demanded that London ratepayers build them a unique train service, the Javelin, from St Pancras, which they are now too grand to use. It is beyond satire.

The 2012 project has ballooned into a giant bureaucracy with a small sporting festival attached, and is beyond ministerial control. Tessa Jowell [the Olympics Minister(!)] can only chant her Olympic motto, that in this business she "spends to save".

The world's greatest white elephant, the "sustainable" £500m athletics stadium, should be stopped now. It will stand empty after the games since nobody wants it. As Building Design magazine said a year ago, "There is nothing sustainable about building an 80,000-seat stadium for less than two months' use" at the highest cost per seat in the world.
Funny how these fat cats can crawl on the "sustainable" train. Do read the whole thing.

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Wednesday, May 14, 2008

A sober assessment from the Swiss 

Euro 2008 takes place next month in Austria and Switzerland. It is the most significant soccer tournament among national teams, save the World Cup. At least one reporter is throwing cold water on the idea that hosting the tournament will stimulate the Swiss economy:
Hundreds of thousands of soccer fans will spend millions of francs on beer, bratwurst and beds at Euro 2008 next month.

The world's third-largest sports event will be no more than a drop in the ocean for the Swiss economy, however, and will not save the Alpine nation from following the rest of the world into slowdown.

"The economic effect is so small, it will be hard to detect in the statistics," said Urs Mueller, director of Switzerland's BAK Basel economics research institute.

Up to 1.4 million foreigner visitors will add business for hotels and restaurants and for retailers selling merchandise and food, and may create 7,500 jobs, though most of them will be temporary.

That could create an additional gross value added of up to 860 million Swiss francs ($813.6 million), a Swiss government study showed, making up less than 0.2 percent of the Swiss economy which has a size of some $420 billion.

..."The World Cup [Germany, 2006] has put millions in the coffers of FIFA and the German Football Association DFB but the economic impact of the sport event was very limited," concluded the German DIW research institute in a study last year.

Germany hosted four times more matches than Switzerland will, with 32 teams participating in the World Cup comparing to the 16 at Euro 2008.

Some sectors might get a boost from the world's third-biggest sports event after the World Cup and the Olympics.

Swiss hotels expect more than half a million additional overnight stays, coming on top of last year's record 36.4 million stays.
A fraction of the half million rooms might represent displaced visitors. But on net, if you own a hotel, an event like Euro 2008 should provide a significant revenue boost. Profits too, provided that the fans don't tear up the place.

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Thursday, May 24, 2007

Super bowl impact figures 

The local organizers have released a study of spending on Super Bowl 41 in Miami. Their bottom line, as reported by the Miami Herald: 112,000 visitors, spending $688 per day, for a direct spending infusion of $298 million. (The typical visitor spends about $200 per day - these are high rollers.)

Phil Porter has skeptical take on this:
Philip Porter, a University of South Florida economics professor, said $280 million in Super Bowl spending is too much for South Florida -- equaling 72 hours of total economic output throughout all of Miami-Dade County.

''In order to accomplish this, every sales line would have to double,'' Porter wrote in an e-mail. ``This is impossible. You'd have to sell twice as many cars, televisions, washers and dryers, etc., to accomplish this.''

Still, there's no doubt the game brought a major boost to the hospitality sector. Hotel taxes in Miami-Dade surged 15 percent in February and room revenues surged between 11 and 21 percent from Fort Lauderdale to Key West, according to state and industry data.
Porter's comparison is a useful reality check. It does miss the fact that hotel rooms and the like are fully priced during Super Bowl week. A decent chunk of the additional spending is a price effect rather than quantity.

Pat Rishe is also quoted: '"No question the Super Bowl attracted more [economic] activity than otherwise would have been the case in Miami that weekend," Rishe wrote in an e-mail. "But at the same time, Miami would not have been a ghost town either."'

The study was done by the Sport Management Research Institute, whose website has list of news references to their work, but no link to the study itself. A rather detailed executive summary is available via the Herald.

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