The Money Pit That's Become Hosting Olympic Games
Senior Editor, CNBC
Ticket sales and hotel bookings for this year's Olympic Winter games in Vancouver are anything but strong.
Couple that with the high price of hosting, and it's easy to see why Vancouver will likely be among the list of Olympic host cities to lose money on the event.
Conservative estimates put the total price tag for hosting the 2010 Winter games at $11.6 billion. That covers both building and operating costs. But that figure is expected to rise much higher.
"The cost of hosting an Olympic Games in the 21st century has escalated to such astronomical heights that it is almost certainly a losing proposition, and the universe of cities that economically can shoulder this burden is rapidly shrinking,” says Curt Hamakawa, Director of the Center for International Sport Business at Western New England College in Springfield, Mass.
Join the club, Vancouver. The track record for most host cities is more red than gold. Montreal just finished paying for the stadiums it built for the 1976 games. Salt Lake City, Utah— which hosted the Winter games in 2002—ended up $155 billion in debt. Athens, Greece finished $3.1 billion over budget for hosting the 2004 games.
What costs so much, as Montreal and other cities found out, are the stadiums, sports venues and housing facilities that may or may not be used after the games are over.
"Olympic construction is usually higher priced because organizers insist on the best facilities possible," says David Robison, an economist at La Salle University. "These high costs are one of the biggest reasons that hosting the games usually results in a loss for the city."
Vancouver is already feeling the budget crunch. As early as 2008, in preparation for the games, the city reportedly had to cover cost overruns on the $1 billion Olympic village, where the athletes will stay. This was on top of loan guarantees the city gave. A down real estate market didn't help the Fortress Investment Group hedge fund that is the primary source of funding for the village and other sites.
So what makes a city want to host the games when the whole project so often turns into a money pit? There's a 'stirring of the blood' when city Olympic committees, consultants and local officials get together.
"The motives of the committee members can vary from civic pride to raising their own profile," says Robison. "They start building the case for the public to host the games. The momentum gets going and it's hard to stop. Everyone starts seeing dollar signs even if they aren't really there."
Those dollars, real or not, can get people thinking beyond their city limits.
"Vancouver like Beijing and other host cities is showcased to the world," says Robert Tuchman, a New York-based sports marketing and branding executive. "The city is on display and many people for years to come will want to travel there knowing it was a host of a Winter games. It's a great marketing tool."
Besides the long term effects, there are immediate financial benefits that cities promote to local citizens in order to get support to host the games, say analysts. There's an influx of spending in local restaurants and shops. Businesses like clothing stores and cab companies can see their bottom lines increase. All this can contribute to the city's tax base.
"There are jobs created to help build the venues and people have money to spend and it's a boost to the local economy" says Ted Lanzaro, Jr., managing partner at Lanzaro CPA.
And there's civic improvement. A city's infrastructure can be upgraded when it might otherwise have been ignored.
"In the modern era, there has been a boon to host cities in terms of infrastructure," says Dr. Harvey Schiller, chairman and CEO of GlobalOptions Group and the former executive director/secretary general of the United States Olympic Committee. "Atlanta (host of the 1996 Summer games) did expand its transportation system and that helps a city grow for the future. As a direct result many corporate heads are now in Atlanta."
But Olympic jobs end, visitors go home, spending stops and the local residents are stuck with the burden of hosting, even if their city may have a better subway system.
"If it was such a good idea to have better infrastructure during the Olympics, why not without them?" asks Dr. Carl Winston, director of SDSU's School of Hospitality & Tourism Management. "I’m not aware of cases where the benefit of hosting has had long-term economic feasibility."
Getting a return on any level won't be easy for Vancouver.
"The benefits may prove elusive," says Emily Sparvero, an assistant professor at the sports industry research center of Temple University. "In Vancouver's case, the struggling economy, decreased interest in the Olympics will make it difficult to recoup its investment."
Almost without fail, there will be talk after the latest Olympic torch is extinguished of having a permanent site for the games, at least the summer ones. Why not have one spot for each Olympiad to cut the astronomical costs of hosting? Seems logical, but the idea does not seem to be winning any gold medals.
"That would diminish interest for the games," says Dr. Harvey Schiller. "Think of it like the Super Bowl, which is not in the same city each year. Most cities would want the Super Bowl. It's the same with the Olympics. Overall, is a country or region better for having games? I can’t think of a single place where that’s not true."
That's the thinking of most cities vying to host the games, say analysts, even as they face the astronomical costs and mortgage their futures.
"There is something special, even magical about being in the pantheon of Olympic host cities," says Hamakawa. "The Olympic games are an elusive crown jewel that many first tier international cities covet. They'll keep trying to get it."