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The Long-Run Economic Impact of the Olympics

The flame was extinguished last Sunday. The Torino Winter Olympic Games are over. But in terms of assessing the long-run economic impact of the games, the fun is just getting started. Much of the alleged economic impact of sporting mega-events like the Olympic Games and the World Cup comes from the increased visibility and enhanced image these events provide to the local community, and on the ability of the locals to convert this exposure into a long-run increase in tourism.

We won't know how much of a bump in tourism Torino will experience as a result of hosting the 2006 Winter Olympics for some time. But this seems like a good point to take a look back at past Winter Olympic Games to see how other communities fared. One interesting, and unfortunately obscure, retrospective study of the long-run tourism impact of the Winter Olympic Games was done by Jon Teigland ("Mega-events and impacts on tourism; the predictions and realities of the Lillehammer Olympics," Impact Assessment and Project Appraisal, December 1999, vol. 17, no. 4). As Teigland points out, Norway's Olympic-related construction projects, which amounted to somewhere in the neighborhood of $2 billion in current dollar spending including operation costs, were based on forecasts of very large increases in tourist visits to Lillehammer long after the games were over. The Norwegians built a lot of new hotels, restaurants, and ski resorts in and around Lillehammer in anticipation of a large increase in tourist visits for years to come. Teigland calls them "predictions based on boom visions."

Unfortunately, these forecasts were not very accurate. Tourist visits to Lillehammer and its environs increased sharply during the games, and for a few years after the games, but by 1997 the increase in foreign guest-nights in the area was only 8% higher than the overall increase in foreign tourism in the entire country. The effect of over-building on local businesses was predictable. As Teigland states:

40% of the full-service hotels in Lillehammer have gone bankrupt.
The two new large alpine facilities have been sold too for less than
US$1 each to prevent bankruptcy because of uncovered large debt.

Teigland's research is an important cautionary tale for those who believe that capital investment for sports mega-events like the Winter Olympic Games will always be justified by future increases in tourism.

Some media reports indicate that Albertville, France, was able to parlay the 1992 Winter Olympics into increased tourism, but some of this might have been gained at the expense of other nearby ski resorts in the French, Italian, and Swiss Alps. I know of no published research on the long-run effects of the Winter Games on Salt Lake City, Nagano, or Calgary. There is clearly room in the literature on the economic impact of mega sporting events for more of these retrospective studies. At minimum, the experience in Lillehammer highlights how planners can easily over estimate the long-run tourist-related benefits of hosting a sports mega-event.