Mind the Gap: Winners and Losers of the Olympics

Mind the Gap:

Winners and losers of the Olympics

Last week, the 2012 London Olympics drew to a close. All in all, the Games seemed to have been a success. There were plenty of heart warming narratives: the Canadian women’s soccer team winning the bronze, Michael Phelps becoming the most decorated athlete of all time, and Usain Bolt becoming the first sprinter to defend both 100m and 200m gold; Britain, channeling the host-nation vibe, finished 3rd in the medal count, winning 65 medals, the most in over 100 years; for the first time in history, all events were represented by both men and women, leading many to label London 2012 “the Women’s Games”; and, along with the opening and closing ceremonies, London managed to pull off the entire event relatively smoothly with few controversies.

However, with the party heading to Brazil, ratcheting up for Rio de Janiero 2016, leaving London with the bill, the question now is: how long will the hangover last?

The epic costs of the Olympics have been an object of scrutiny for some time now. London budgeted $18 billion for the Games, which seems quite lean compared to Beijing’s gargantuan $40 billion. Consider, though, that Atlanta budgeted only $2.4 billion in 1996. Add to that the subsequent costs of maintaining the massive infrastructure projects that come with the Olympics.

One must ask, is this worth it?

Apparently not.

Prior to 2012, David Cameron announced that he would “turn the games to gold”, but little of that supposed influx of capital has managed to trickle down to the people of London (let alone the rest of Britain)  the major fiscal contributors to the Games.

Already a top-tier tourist destination, London attracts 300,000 foreign tourists and 800,000 domestic tourists a day during the month of August. However, the Games have driven away the traditional tourists and replaced them with the smaller Olympic tourist boon (source).

Moreover, even with the more modest influx of people, there is still a significant lack of cash flowing. With the Games comes the caravan of cronies, a circus of VIPs. This means that many hotel rooms are “blocked” as opposed to booked. Furthermore, these VIPs also get seats reserved for them, leading to one of the few controversies at London 2012. These VIPs are given a free ride and reap all the fanciest treatments without having to pay for it (source).

British tax payers ought to be frustrated by this, as history has shown that the Games are traditionally enormously expensive with an uncertain return. Ever since 1960, 100% of the Games have gone over projected costs with an approximately 176% overrun. Traditionally, mega-projects almost always go over budget, but a near doubling is ludicrous. Not to mention  no other sporting event can boast such a losing record (economist).

Granted, East London was in need of some investments in infrastructure, but is this is not what it needs. As mentioned above, the maintenance of these structures are costly. And how many Britons will make use of these grandiose facilities? Have you taken your kids to swimming lessons in an Olympic sized pool lately? I can only imagine the costs of these edifices would translate in numerous facilities better suited to public needs.

Suffice to say, the British tax payers are losers of the Games.

Despite all the history, why do these problems chronically creep up on host nations? Why did London fall for the same trap as others?

The problems are evident from the bidding stage. The wooing begins about 10 years before the opening ceremonies, as cities compete to seduce the IOC. Investments are made to make their destination as host the most attractive. This marathon process is multileveled, moving from national to international, etc. and at each level the plans become increasingly unwieldy.

Thinking rationally, you would assume a committee/government would get some number-crunchers working on some sort of cost-benefit analysis to determine what they stand to win or lose by hosting the game, or at the very least establish a sensible cost ceiling.

However,  these Olympic committees are often hijacked by private interest groups who stand to gain the most financially from the games. There are companies, unions, and firms representing construction and architectural businesses coming together to convince the politicians to get on board the Olympic bandwagon.

Economists call this the agent/client problem. The committee is the agent and the would-be host is the client. The agent is not properly representing its client because it has been taken over by third parties who have no interest in the client. So, what we have is a host of private businesses that convince the politicians to invest public funds that translate into private profit, but not much return to citizens (source).

For example, Chicago reportedly spent $100 million in its losing bid for the 2016 Olympics. Even if they had won, so what? That means more infrastructure investments at the cost of the tax payer and to the delight of industry.

There are also the private sponsors, such as McDonald’s and Coke. According to the Economist link above, there is strong evidence to support that sponsors do indeed benefit from the exposure. What’s interesting, however, is how they go about doing it. Because the Olympics are supposedly amateur, sponsors are not allowed on the jerseys or anywhere within the stadium, so they go everywhere else.

This produces “green zones” where brands are strictly policed. Authorities will actually check to make sure no one is wearing Pepsi shirts or are eating Burger King in and around the Olympic facilities. In fact, restaurants and pubs near Olympic facilities were not allowed to sell fries unless they were a part of the traditional fish n’ chips conjunction. This is now McDonald’s territory (source).

Therefore, private industries are winners of the Games.

What about the athletes? Surely, they’re winners here, no?

Well, economically speaking, absolutely not. The Olympics have the commercially masterful veneer of “amateur” sport. The IOC do not pay the athletes; they are basically working for free. I put amateur in brackets because the athletes, though oftentimes working their own jobs, are supported by their governments – at least in regards the more competitive nations. Athletes can also look forward to private sponsorships, but these are rare.

A lot is made of the sponsorships of major Olympians, but when you think about it, it is more of a lottery than anything. There are indeed huge winners like Bolt and Phelps, but these are the best of the best. Not even the majority of gold medalists can look forward to the kind of sponsorships that Bolt and Phelps receive (when was the last time you saw a speed walker on your Gatorade?).

Also, certain countries will pay out cash rewards to medalists. For example, Canada pays a gold medalist $20,000 (source). However, this is hardly worth a 4+ year investment of time and capital on behalf of the athlete. And, like I said, these are medalists. If you come fourth, you are walking away empty handed and empty pocketed.

Of the hundreds and thousands of athletes participating in the Olympics, very few can be considered winners.

But who are the real gold medal winners of the Games? The International Olympic Committee.

According to the Atlantic article I cited above, the 2012 Games are expected to generate $5-6 billion in revenue, and half of that will go to the IOC. This is money in their pockets that is generated by infrastructure paid by the host and performances by “amateur” athletes. In a word, the IOC are profiting atop public subsidies and free labor.

The IOC are the biggest winners of the Olympics.

*      *      *

This post may have seemed like a bit of a bummer, but trust me, I am a fan of the Games. I love sports, I love competition, and I think the Olympics are a worthy enterprise. However, I think more attention needs to be paid to its cost. The Olympics are being manipulated by private interests group who are trying to maximize profits by passing the costs onto tax payers, and that shit ain’t right.

I would argue the Olympics could stand to be a bit slimmer. I understand the desire for glamour, but do we really need all that pomp and circumstance? I think not. Citizens of hopeful host cities ought to keep a close eye on their governments and be careful not to end up with buyer’s remorse. Buyers beware.

cheers,

-B

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~ by braddunne on August 19, 2012.

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