Should Columbus host an Olympics? Is Mitt a genius for saving the Salt Lake City Olympics? Should the Brits be happy? To answer these and other penetrating questions about the financial impact of the Olympics, you have to look at three constituencies; the city, business, and the International Olympic Committee (IOC).
The easiest case is the IOC. Generally speaking, the IOC doesn’t get hurt by the Olympics. The IOC has a chequered history of bribes and impropriety. It used to be certain that members of the IOC would make money, legally or otherwise, whether or not the IOC actually did. This situation came to a head most recently in 1999 when the funding effort was underway for the 2002 Olympics. This is the effort Romney’s supporters refer to when they say he saved the Salt Lake Olympics. That year the IOC was able to find sources for $1.4 billion in sponsorships from 11 or so major donors that included American stalwarts UPS, Coca Cola, and Home Depot.
Similarly, businesses tend to make money on the Olympics, at least those that provide Olympic products and services. Ad agencies serving the Olympic sponsors and many others made their revenue targets early this year with ads featuring winning, performance and striving themes. Construction companies likewise make money on the projects they complete for investors. Of businesses, the investors in those projects, however, would be one group at risk such as those investing in the sports and entertainment venues. The Olympics demand several sports/entertainment venues capable of handling large crowds and simultaneous events that are in much less demand when the Olympics are not underway. The London Olympics are interesting in this respect in that there is a post-event plan for the parks and some of the other venues. Converting them to non-Olympic uses will help these special purpose venues overcome the trap of lying fallow once the games are over.
However, new facilities and venues that continue to attract enough business have a positive impact on regional GDP, or as the Brits refer to it, gross value added. This is added to the local spending that occurs before, during and after the Olympics by tourists, competing countries, sponsors and others. This economic development impact of the games is what cities often seek when they decide to host the games. This is also probably the most difficult to quantify because there is a reasonable expectation that the impact of economic development will continue long after the games. It can, therefore, be difficult to measure and separate from other forces such as the economic and business cycles.
1984 marked a shift in the funding model. Cities partnered with private business and not-for-profit organizations to fund the Olympics. This model, by the way, is different than in other nations where the federal governments fund the Olympics. The 1984 Los Angeles Olympics were very successful financially and LA made $100 million on the games. Federal support for those games was small, by federal standards, at $75 million. Since then, the costs to host the games as well as the federal contribution have both risen to $1.4 billion for the 2002 games, the last US games.
The London games cost about £11 billion ($17.4 billion) in public debt, which the organizers say will be paid off in 2021, at which point, the games will continue to produce return in the form of an economic development impact. This is estimated at 0.6 percent this year according to a report, which was authored by economists, Douglas McWilliams and Daniel Solomon. That’s pretty long money and virtually ensures that one will not be able to tease out other variables in order to isolate the impact of the London Games.
If we do as my friend Dick Dietrich, former SEC member and now accounting teacher at The Fisher College of Business at The Ohio State University, is always saying, “follow the money”, we can probably conclude hosting in Columbus is a bad idea. At a minimum, it’s going to be a lot harder to determine its impact than it was for the Columbus Marathon Report I referenced earlier this year.
However, there is also the esteem value. The opening ceremony, especially, is essentially a giant ad for the hosting country and city. This took on new proportions in the Beijing games but the Brits did a great job of self-promotion during the opening ceremony as well. I can’t help but feel that on the whole it probably boosts the hosting city a great deal in its own, and others’ minds.
So I propose Columbus hosts the Olympic Games. But let’s use the Peter V. Ueberroth funding model debuted in the 1984 LA Games and make money on the thing!
If you found the budget discussions interesting but my treatment too light, or are interested in fact-based management, this site, hosted by The Guardian, a London news outlet, might be of interest. If provides facts, data and data visualization techniques that are worth seeing.