Tuesday, September 29, 2009

Will it be a good thing if Chicago gets the Olympics?

I agree with all the commentators, such as Ed Morrissey and Michael Goldfarb, who have noted the telling contrast of President Obama having time to fly off to Copenhagen to lobby for Chicago to get the Olympics while he didn't seem to have the interest in talking to General McChrystal about the situation in Afghanistan. American soldiers have been sent to Afghanistan to fight in what the President called a "war of necessity." They are dying there. And the President doesn't seem to think it's important enough for him to pick up the phone. There is something startlingly shameful about a commander-in-chief who isn't in touch with his commanders in the field as Americans fight and die. Yet Valerie Jarrett tells us that the President is so interested in the Chicago Olympics bid that they talk about it every day.

The contrast with the trip to Copenhagen for the Olympics is timely. But I have an additional question. Why is it considered such a plum to land the Olympics? There is the prestige for the city - but that's a temporary thing. And there will be the infrastructure that will be built for the games. But it's very unclear if it's of true economic benefit to host the Olympics as this article on estimating how much China might make on the 2008 Olympics indicates.
The lack of any ex post study that finds improvements in economic growth or living standards due to megaevents should cast some suspicion on the legacy effects of Olympics, or at least the ability of such effects to be transformed into real economic benefits to the local economy. Baade and Matheson (2002) found "the evidence suggests that the economic impact of the Olympics is transitory, onetime changes rather than a 'steady-state' change" (p. 28).
The advantages for Atlanta tourism were not what they were predicted to be.
In reality, data and anecdotal evidence strongly suggest the Olympics had a significant crowding out effect on the rest of the tourism industry. Table 3 shows convention attendance in Atlanta, which had been increasing steadily over the previous ten years, fell ten percent from 1995 to 1996. hotel occupancy rates fell from 72.9% in 1995 to 68% in 1996 despite the Olympics. Macroeconomic indicators in Georgia and Fulton County show no discernible break in the pattern of per capita income growth or unemployment rates (State of Utah 2000). Due to the disruption caused by the Olympics, hotels and restaurants that would be expected to benefit from increased tourist traffic were actually hurt. "In other parts of town, many hotels and restaurants reported significantly lower than normal sales volume during the Games. Even shops and resorts in areas up to 150 miles away reported slower than normal business during the summer of 1996" (French and Disher 1997, p. 390).

....Many local businesses that did not have prime access to Olympic venues were caught in a vice between a reduction in regular

business on the one hand and increased competition from entry of firms on the other. The lofty projections of the impact of the Games on the Atlanta economy gave local businesses unrealistic expectations about how they would be affected. The reality was so much below expectations that some vendors who leased vending space for the Olympics from the city sued Atlanta, claiming they were misled about business prospects. Entry drove out above normal profits and those who paid in anticipation of them were greatly disappointed (Lubbock Avalanche Journal 1997).
But there are all those cool stadiums and other venues that a city gets built for the Olympics. Surely, that is worthwhile? It's not so clear.
The study also claims, "world-class facilities will be among the most enduring legacies of hosting the 1996 Olympics" (Humphreys and Hummer 1995, p. 4). The facilities noted by the study include the Horse Park, Shooting Range Complex, and Rowing Center; none of which are likely to be heavily used after the Games. The primary facility, Olympic Stadium, became the new home stadium for Atlanta Braves baseball. Instead of providing a venue of high quality and instant historical significance for future track athletes, the stadium now serves as yet another chapter in the story of public subsidies for professional sports teams. Overall, Baade and Matheson (2002) found "only 31 percent of the ACOG expenditures were in areas that could reasonable be expected to provide a measurable economic legacy" (p. 30).
The same is true of Sydney.
The facilities legacy appears to be one of expense. Sydney had plans for the long-term use of many of its venues, but four years later the arena that housed gymnastics and basketball is in receivership and "the State Government has been propping up other uneconomic venues since the Olympics to the amount of about $46 million a year" (Sydney Morning Herald).
No wonder that Chicagoans are divided over whether or not getting the Olympics will be a good thing.
"I think we have more pressing problems to deal with than the Olympics in 2016," said Brad Stotlar, 37, an unemployed construction worker in a Chicago suburb.

"The last time I looked we had double-digit unemployment in Illinois and I'd rather Obama dealt with that than jetting off to Copenhagen," he said.
I guess that getting the Olympics will be regarded as a just another stimulus package. It's likely that the cost of staging the Olympics will surpass all estimates. The costs for security will be tremendous. Meanwhile, Mayor Daley and the Chicago Olympic Committee are promising that no local tax money will need to be spent to host the Olympics.
The bid commits local tax dollars, as well, for construction projects, city services and government financial guarantees. But Daley and his supporters say the projects won't hike tax bills -- either because they expect private developers to pick up the costs or they expect Olympics-related tax revenue to cover the expenses. Or in some cases, they say, projects already were in the pipeline.

They also predict that the Games will operate with a surplus of cash, eliminating the need to tap into city and state guarantees. But Daley and the City Council last week put taxpayers ultimately on the hook by agreeing to an unlimited financial guarantee, which would have to be tapped if the Games go badly awry.

"The small risk that city money would be used is far outweighed by the enormous economic impact of the Games," bid leader Patrick Ryan said at a recent public meeting. Boosters say the Olympics would kick-start the local economy, creating jobs, drawing tourists and shining an international spotlight on the city's charms.
I hope that is all true. I would think that Obama wouldn't travel to Copenhagen unless he'd been given a wink and nod to indicate that the Chicago bid will be successful. I can't believe that the President would take the PR hit of taking the trip and not winning the bid. Of course, if it is a done deal, why bother going? I guess he likes the worldwide image that will be projected as being the President who used his global aura to win the event for his home city. As someone who grew up near Chicago, I would be as happy as anyone for the city to benefit from getting the Olympics, but I'm extremely skeptical that it will be a true financial success.

Crain's Chicago Business reports on what is missing from the Chicago bid: a full accounting of what the Chicago taxpayers will have to pay if the games aren't as profitable as their optimistic projects.
Mayor Richard M. Daley and Patrick Ryan assure Chicago taxpayers that a safety net of insurance would insulate them from the financial risks of hosting the 2016 Olympics.

But the insurance policies Mr. Ryan says he'll secure would cover only about $1.1 billion of the $3.8-billion operating budget that the mayor's Olympic point man has drawn up for the games. In many key areas, no insurer stands between taxpayers and the risk of revenue shortfalls or cost overruns.

For example, there's no insurance against the risk that private lenders won't shell out $1 billion to finance construction of the Olympic Village, as Messrs. Daley and Ryan predict they will. And there's no coverage against shortfalls in corporate sponsorship sales, which they predict will rake in $1.8 billion, two-thirds more than London expects to collect for the 2012 games.

Insurance against overruns on the construction of Olympics venues tops out at 10% over budgeted costs, in a city where major public works projects have come in at two or three times estimates. Another uninsured assumption in the budget is $246 million in contributions from private donors, a source already tapped for $72 million to finance the city's bid.
Would you want to bet your future on the ability of Chicago to bring in a project for the projected cost without substantial overruns?

Of course, if the Chicago efforts run into trouble, they can always call in Mitt Romney to fix it up for them. That is, if he isn't busy doing something else in 2016...