Why hosting the Olympics is a raw deal for cities

Three reasons why your city should avoid hosting the Olympics.
Written by Tyler Falk, Contributor

I hate to be a buzzkill, London. By all means you should celebrate the opening ceremonies, cheer on your Brits, and take in your month in the spotlight.

But hosting the Olympics might not have been a great idea.

Writing for The AtlanticAndrew Zimbalist, an economics professor, looks at three reasons why hosting the Olympics is a raw deal for the host city.

1. The bidding process is hijacked by private interests

Before the first stadium is built and the games begin, cities spend millions on their bid to host the Olympics. Chicago reportedly spent $100 million on its losing bid. "If the process were rational, each local organizing committee would have a notion of how much their city stood to benefit financially from the games and would cap their bid below that dollar figure," Zimbalist says. But that's not the case. Private interestes -- from construction companies to investment bankers -- encourage local government to push forward with the expensive bid. Zimbalist explains what happens next:

The result is what economists call a principal/agent problem. The city (principal) is not properly represented by the local organizing committee (agent). The committee that nominally represents the city really represents itself and bids according to its sense of the private benefit (of its members) versus the private cost, rather than the city's public benefit versus public cost. Since the private cost is diminutive and the private gain extraordinary, the local organizing committees, on behalf of the cities, are bound to overbid, wiping out any modest, potential economic gains.

2. Massive over-building

When a city finally wins a bid, that's when the building boom begins. The problem?

[T]he environment in which the preparations for the Games takes place is not conducive to rational, effective planning. Sports venues and stadiums must be built and infrastructure serving those edifices takes priority. The other challenge is that the budget, initially bloated, only grows over time as construction costs escalate over the ten-year preparation period, bells and whistles are inevitably added, and initial drawings are revealed to be overly optimistic.

When the games are over finding a productive use for all the new venues is a challenge. As Gary Hustwit explored in his new project The Olympic City, the scene at former Olympic sites is not a pretty one.

Though Zimbalist does point out that cities -- especially less developed cities -- can see much needed infrastructure improvements funded and built more quickly than usual. But this is something that could happen without the Olympics.

3. Little evidence that hosting the Olympics meaningfully increases tourism

Looking at straight numbers, the Olympics don't seem to be worth the costs:

These days the summer Games might generate $5-to-6 billion in total revenue (nearly half of which goes to the International Olympic Committee). In contrast, the costs of the games rose to an estimated $16 billion in Athens, $40 billion in Beijing, and reportedly nearly $20 billion in London. Only some of this investment is tied up in infrastructure projects that may be useful going forward.

But what about all those eyeballs glued to your city for such a long time? It has to increase tourism, right? Maybe, but London is already on the map as a destination. Plus, bad PR might nullify the good -- think Beijing's smog or Atlanta's bomb scare.

Just something for Istanbul, Tokyo, and Madrid to think about. They're the finalists for the 2020 Summer Olympics. Sorry Rio de Janeiro, you're already locked in for 2016.

3 Reasons Why Hosting the Olympics Is a Loser's Game [The Atlantic]

Photo: Flickr/Jezz

This post was originally published on Smartplanet.com

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