No Economic Gold at the End of the Olympic Rainbow

Posted by & filed under CGR Staff.

Scott SittigI love summer and I love sports.  2012 has already produced many sports highlights with I’ll Have Another winning 2/3 of horse racing’s Triple Crown, Tiger Woods’ renewed success on the golf tour, Roger Federer’s and Serena Williams’ record breaking tennis wins at Wimbledon, the mid-summer classic, baseball’s All-Star game and King James winning his first NBA title. And now it’s the Tour de France and, soon, the summer Olympic Games.

Big Sports Event = Big Economic Impact?

Sports spectaculars are often lauded for their economic impact. Does the reality match the claims? Victor Matheson, an economics professor at College of the Holy Cross in Massachusetts has analyzed the economic impact of “mega sporting events” like the Super Bowl, the Olympics, the All Star Game, and World Series. He finds many examples of major sporting events not living up to their pre-event hype.  For instance, Major League Baseball claims economic impact on cities that host the All-Star game in the neighborhood of $75 million in direct benefits. Matheson’s ex post research suggests that for the cities that hosted All-Star games between 1973–1997, average employment actually declined by a half percent.  Organizers of the 1996 summer Olympics in Atlanta suggested upwards of 77,000 new jobs would be generated. Matheson estimates that as few as 3,500 were actually created.

Why Do We Expect a Big Economic Boost?

Cities climb all over themselves for a chance to host these “mega events” often citing enormous claims of new jobs and increased spending in their region as a result.  The claims are built on the premise that folks from outside the region will come pouring into the area buying merchandise and food from local vendors and spending money in hotels.  Economic impact is built on the idea that an economy can only “grow” when new inputs/resources are added from outside a region thus spurring economic activity within the region.  As money is spent, it filters from the workers who supply the services out through the local economy which “multiplies” the impact.

Matheson notes that traditional economic multipliers are irrelevant for major sporting events.  While there is a significant influx of people from outside a given region, the large crowds often displace normal activity in the region during the time of the event.  Locals avoid the crowds and spend less, offsetting some or all of the spending of visitors.  Additionally, the spending that occurs by event attendees does not all filter into the local market.  National firms capture much of the new spending and the profits flow right out of town.

The Value of PR

City officials in Kansas City, site of this summer’s All Star game, rightly focused their attention on the “exposure” the event would bring to the city.  The Kansas City Star reported that the media exposure was valued at upwards of $75 million dollars.  Event organizers, city planners and others used the event to market Kansas City for future events, businesses looking to relocate and potential visitors who know little about the Midwest or Kansas City.  The All-Star game played in St. Louis, MO in 2009 may provide some evidence of what Kansas City can expect.  St. Louis officials told the Kansas City Star that the biggest impact was not the new dollars, but the media exposure the event generated. It is tempting to compare this assessment with what they were saying before the event!

Thanks, London!

So if you enjoy watching the upcoming Olympics or other major sporting events, thank the local taxpayers that made them possible.  London has paid upwards of $37 billion dollars to host the summer games and, similar to Beijing and Athens before them, London will be left holding the bag (empty of gold) when the Olympics are gone.  And they will be left with stadium venues that may not be reusable for any other purpose after the games are gone, an issue that has been recently noted in Beijing.

For those of you that don’t live in major sports markets, enjoy the fact that you can enjoy these events at other people’s expense and consider going to visit! The future of all of these events may hinge on it and I for one don’t want to miss them.