Thursday, November 2, 2017

Boston, the 2024 Olympics, and the Power of Economics

On January 8, 2015, the US Olympic committee chose the city of Boston from among four finalists to be the US city that would compete for the right to host the 2024 Summer Olympic games. By July, the USOC had retracted the invitation. What happened? Andrew Zimbalist, who had a ringside seat for the controversy from his position at Smith College as well as a professional interest as a researcher in sports economics, tells the story in "Boston Takes a Pass on the Olympic Torch: Scholarly research does sometimes have a positive effect on public policy," which appears in the Fall 2017 issue of Regulation magazine (pp. 28-33)

Part of the issue was a lack of transparency so complete that it blended into outright disinformation. For example, a group called Boston 2024 had submitted Boston's proposal to the USOC, but the proposal was not publicly released. The mayor of Boston, without a vote of the city council or a public debate,  signed a "joinder agreement" that committed the city to accept all terms of the US Olympic Committee and the International Olympic Committee if the city was chosen.

As the details came out, they weren't pretty. As Zimbalist reports:
"One such term [of the joinder agreement] was that the city would provide a financial guarantee to cover any deficits in the event of a cost overrun or revenue shortfall. ... The 2012 Games in London alone had a nearly threefold overrun, with a final cost in excess of $18 billion. Given that background and the fact that the entire Boston city budget was only $2.7 billion, it was not a trivial matter that Walsh had signed this agreement."
Other elements of the plan turned out to include a gag rule: "The City, including its employees, officers, and representatives, shall not make, publish, or communicate to any Person, or communicate in any public forum, any comments or statements (written or oral) that reflect unfavorably upon, denigrate or disparage, or are detrimental to the reputation or stature of, the ICO, the IPC, the USOC, the IOC Bid, the Bid Committee, or the Olympic or Paralympic movement. ..."

Other requirements turned out to involve tax breaks, shutting down the Boston Common, and more:
"Another IOC requirement was that the city clear all its public billboards so they would be available for IOC marks as well as those of IOC sponsors. Still another requirement was that all activities connected to constructing the Olympic venues and infrastructure, the sale of tickets, and income to the athletes would be tax-exempt. ... 
"The initial plan called for constructing the beach volleyball venue in the middle of Boston Common. While this might have produced nice images for international television, it was viewed as heresy in Boston. The Common is enjoyed by thousands of Bostonians every day for strolls and recreation. To make room for the beach volleyball facility, dozens of trees would have to be felled and months of pre- and post-Games disruption would render the Common unusable. The bid also called for $5.2 billion in public transportation infrastructure investment. Bid supporters claimed that those investments were already planned and funded. It turned out, however, that they were little more than unapproved and unfunded conceptual designs. Further, Bill Straus, the co-chair of the state legislature’s transportation committee, said on local television that the actual costs of the projects would exceed $13 billion. ...  The bid identified the Columbia Point area of southeast Boston as the future home of the Olympic Village. The Widett Circle area, south of South Station, would be the location of the Olympic Stadium. Among other problems with these sites, the bid claimed that the existing property owners had been contacted and were on board with the repurposing of their land. Upon learning of the bid’s intentions, the affected landowners stated that they knew nothing about the plans. ...  Further, the bid identified no developers who were interested in building the proposed venues, nor found any community ready to host either the Velodrome or the Aquatic Center, and counted on Harvard and MIT to host various competitions while the schools disavowed any interest in doing so."
But maybe these issues could have been negotiated or worked out, if the financial picture for a city hosting the Summer Games has not been so generally grim. As Zimbalist reports:
"[T]he typical host of the Summer Games experiences costs on the order of $15–20 billion, yet receives only $3–5 billion in revenue—not a very salubrious financial balance. The IOC propaganda machine will claim that any short-term financial losses will be offset by long-term gains. Most notably, the host city will be put on the world map, occasioning growth in tourism, trade, and foreign investment. Those are nice thoughts, but there is little evidence from academic research that they ever materialize.
"First, most Olympic host cities are already on the world map. People and businesses that have the resources and interest to travel internationally already know about the city and its allurements. Second, Olympic hosts often experience a decrease in tourism during the Games as travelers stay away from the congestion, inconvenience, high prices, and security issues. Hotel occupancy may drop even more because most cities expand lodging capacity appreciably in anticipation of an elusive tourism bonanza. Third, the tourists who do attend the Games return home and tell their friends, neighbors, and relatives about the exciting 100-yard dash or swimming relay they watched; they rarely tell stories about the cultural or culinary attractions of the host city. Thus, tourism loses its most effective propagator: word of mouth. Fourth, exposure on the world stage does not necessarily burnish a city’s image; instead, it may tarnish it—just ask Mexico 1968, Munich 1972, Montreal 1976, Athens 2004, Sochi 2014, and Rio 2016.
"The long-term effects, in fact, may well be negative. After spending billions of dollars on Olympic-related construction, the host city then faces the challenge of what to do with the venues after the Olympics leave town."
As the cost and revenue estimates of the Boston 2024 organizing effort came out, it seemed clear that the costs were systematically underestimated and revenues systematically overestimated.

The Olympic Games are often viewed as an honor. Thus, cities (and countries) lined up to participate. But you don't pay the bills with honor, and the research of Zimbalist and others has documented that large shares of the cost of the Games have usually fallen to taxpayers. For more discussion, see  "The Economics of Hosting the Olympics" (May 13, 2016).

One can imagine an alternative model of the Summer Olympics, in which the competition between cities was over how to  hold the Games at the lowest cost, using existing facilities as much as possible. Maybe (and I know this is crazy talk) the focus could even shift from promotionalism to the actual athletes and events. The 2024 Games will be held in Paris, and an alternative US city, Los Angeles, is on the docket for the 2028 Games. It will be interesting to see if they can negotiate the process in a way that holds down the typical losses.