No place for Auckland on Olympic 'map' – economist

A leading economist expects the Olympics will reach a "tipping point" before the 2020 Games because the event spending model cannot be sustained.

Massey University's Dr Sam Richardson told NBR ONLINE a major shift in the approach to funding the event is needed because the cost to host cities is just too great.

And he is not so sure Auckland has the infrastructure to handle the Olympics, as was suggested last year.  

Dr Richardson suggests greater use of private investment would reduce the burden on taxpayers and lead to more efficiently-run event.

When London won its bid to host this year's Games in 2005 it was meant to cost about $NZ4.6 billion.

In February this year, the UK Parliament's public accounts select committee warned "the costs to the public purse of delivering the Games" were already heading for about $NZ21 billion.

Every host city wants to claim the "best Olympics ever", but at some point there has to be a cap on the amount of money spent, he says.

"Everyone who's sensible about it is asking, 'When will the madness finish?'"

Oxford University researchers are projecting these games will be the most costly so far.

They say comparing the totals of all Olympic Games over the past 50 years, London will rank alongside Beijing, Barcelona and Montreal as the most "expensive in history".

'Politically acceptable' costs

Researcher Allison Stewart says: "The figures that are in the public domain are unlikely to be the full final cost of the Games, but represent 'politically acceptable' costs."

A casual observer would be forgiven for wondering why, when it is clear the initial budgets will probably be blown several times over, cities are so keen to put their hands up to host the Olympics?

University of Alberta economics professor Brad R. Humphreys crunched the numbers in 2008 and found there are few economic benefits in terms of GDP growth.

He examined the Seoul, Montreal, Athens, Sydney and Barcelona Games, finding in each case GDP growth dipped significantly the year after.

Prof Humphreys also said the 2004 Athens and 2008 Beijing Games both had initial projected costs of $US1.6 billion.

They ended up costing $US16 billion and $US40 billion respectively.

Montreal, which hosted the 1976 event, only just paid off its Olympic debt in 2006.

Dr Richardson says that despite this, cities still want to host the games because it puts them "on the map".

"It's almost like in America where if you have a baseball or football team you are a 'major league city'.

"Many world cities would see hosting an Olympics as 'we're major league now'."

He says many host cities, such as Athens and Beijing, built tremendous new facilities for the Games but they now many are all but abandoned.

To explore how this could be changed, and how the Games could become an economically sustainable event, it is useful to go back to the last two American cities to host them.

The Los Angeles 1984 Olympics is hailed as one of the great success stories of the modern Games, having achieved a surplus of more than $US200 million.

Rather than make taxpayers bear the burden of the cost, the organisers raised $US150 million in sponsorships and built few new venues.

In Atlanta in 1996 new facilities were built but they were well-utilised afterwards.

For example, the dormitories used for the Olympic Village became student housing for Georgia State University, and the newly-built Centennial Olympic Stadium was converted into Turner Field and has been the home of the Atlanta Braves major league baseball team since 1997.

Dr Richardson says this is the type of thinking that needs to become commonplace for cities hosting Olympic Games.

"There must be more private involvement.

"You don't see the private involvement in things like facilities, but if it's a sound business case then there's no reason why private business couldn't run a successful Olympic Games.

"You could argue the scope of the Games is much larger than it was in 1984, but if it makes good economic sense, you have to look at what extent the private sector should be involved."

Don't do proper cost-benefit analyses

Dr Richardson says part of the reason Olympic budgets almost always balloon is that host cities have historically failed to conduct proper cost-benefit analyses.

Normally all that is done beforehand is an economic impact analysis, which estimates the level of economic activity associated with the event and its impact on the economy.

"While I don't have a problem with those, I don't think it actually answers the question: 'Is this a good investment?'"

He says a cost-benefit analysis, which calculates and compares the financial basis for hosting the Games is better at determining the virtue of the investment.

If this was done, cities would see they need to peg back their spending, and the Games would be run more modestly and efficiently.

This would be a major departure from the apparent desire for cities to host the "biggest and best" Games, but the change must come within the next two Olympic Games, he says.

So if the Olympics became more cost-effective, could smaller cities such as Auckland ever hope to become a host city?

International Olympic Committee president Jacques Rogge thought so when he was in Auckland during the Rugby World Cup last year.

He said that the time: "It is a possibility. Finland organised the Olympic Games with a population of 5 million. Norway has hosted a Winter Olympics Games ... with the same population as New Zealand."

However, they haven't gone to a country of New Zealand's size since Helsinki in 1952.

Dr Richardson says to examine whether Auckland could feasibly host an Olympics, you only have to look at what happened after the city hosted the 1990 Commonwealth Games.

"There are only two or three facilities which were built or upgraded that are still in use.

"You have Mt Smart stadium, which is coming under all sorts of questions about what they're going to do with it in the future."

What bout NBR's 'Greek Solution'?

An NBR ONLINE opinion piece recently suggested a solution to the "expensive Olympics" problem: Make Greece a centre for world sports. 

It would host all the world's major sporting events, not only saving other countries the extraordinary cost of running events, but also rejuvenating the Greek economy. 

Dr Richardson was asked to analyse the concept and explain whether or not it would work.

"An interesting piece, but ultimately a flawed concept. One reason is because the arguments outside of those economic and financial also matter to those who decide whether or not to host the Games.

"I'd have my doubts as to whether a Greece-based 'world stadium' would actually 'regenerate' Greece.

"Hosting major events and building facilities hasn't worked for many cities due to competition between cities that drive the costs of these things up.

"While reduced competition might appear on the surface to lower costs, the actual costs may well even be higher (think of Greece as a monopoly on event hosting – they can charge whatever hosting fee they like being the only host).

"Their incentive is to charge a high fee – it is their wellbeing at stake under such a plan.

"If the intention was to lower the fee to make the event hosted in Greece less costly, what incentive does Greece have to keep their facilities as state of the art?

"They may come under pressure to constantly upgrade/rebuild as conditions of hosting events, which may be even more costly.

"If it did turn out to be profitable, we'll see a return to what we are seeing now.

"It is like any business in which profits are made – there will be attempts to appropriate that profit from other cities/countries promising lower costs/fees (or higher revenue guarantees) to international bodies while offering more lavish facilities at greater costs to themselves.

"It is a vicious cycle, and an incredibly perplexing one!

"Ultimately, the key to sanity lies with the international body that gains the most from these events – bodies like the IOC, FIFA, IRB, etc.

"These are the bodies that retain much of the revenues accruing to the event.

"In the case of the IRB and the RWC, the only thing the host country gets is ticket sales to offset the costs of hosting the tournament.

"I understand the IOC does share some of the cost of the event, which is sensible. Whether it is enough is another debate. 

"The international bodies that sanction and award these events need to champion fiscal responsibility as part of the conditions of the event.

"Cities and countries also really need to ask the hard questions of themselves – what do we really stand to gain by hosting these events?"