Olympics numbers don’t add up
The UMass Donahue Institute’s report this week on the economic impact of a 2024 Summer Olympics in Boston wasn’t surprising, given its assumptions and methodology — it projected gains of more than 50,000 jobs and billions of dollars.
While parts of the report are well reasoned, the predicted impacts are suspect. That’s because the institute accepted the unrealistic assertions of the Boston 2024 organization regarding costs, revenues, and financing; used an inappropriate input-output methodology; ignored scholarly literature on the economic impact of hosting mega-sporting events; and misapprehended some items contained in the Boston bid.
In essence, the report’s results flow out of the assumptions that all operating costs will be covered by revenue from the Games, all construction costs will be covered privately, and the federal government will pick up 100 percent of the security costs (optimistically forecast at only $1 billion).
Consider each of these elements. The Boston 2024 bid shows operating costs and revenues at $4.7 billion. To get to this figure, Boston 2024 invokes $1 billion in “additional” or “other” revenue, the sources of which are not revealed. Boston 2024 also assumes it will take in $1.15 billion in ticket sales. London had an 80,000-seat Olympic Stadium, replete with luxury boxes and other revenue-generating accoutrements. Boston 2024 is planning a temporary, spartan, 60,000 seat stadium. London generated only $990 million in ticket sales. How will Boston top that by more than 16 percent?
Boston 2024’s operating costs include a $600 million payment to the US Olympic Committee in recognition that some of the domestic sponsorship money will come from corporate relationships built by the USOC. Illogically, the new report figures $220 million of this money will go toward creating business and employment in Boston. This number is then multiplied by roughly 1.9 (the new employment generates new income, which brings new consumption, etc.), according to the IMPLAN model used in the report.
IMPLAN is an input-output model that depicts the relationship among the economy’s branches. It is based on fixed ratios between inputs and outputs and uses highly aggregated data. But this model is inappropriate for estimating the economic impact of mega events. The sheer volume of construction around mega events leads to the use of companies and workers from outside the hosting region, leading to much larger leakages out of the local economy and unrealistically high multipliers, among other problems.
It is noteworthy that most macroeconomic models of the entire US economy have multipliers of around 1.2. Since the Boston economy is only a small fraction of the US economy, it is not feasible that it would have a multiplier that is more than 50 percent larger than the entire US economy. Yet that is what the report’s results depend on.
Although the institute expresses some skepticism, its report incorporates Boston 2024’s claim that all the venues will be built with private money. Why would a US company build an Olympic stadium that will be torn down? Or a velodrome? Or a pentathlon stadium? Why has no company stepped forward and declared its intention even to explore this opportunity?
Based on its IMPLAN model, the report estimates that hosting the Olympics will generate more than 50,000 new jobs in 2024. It says these workers will spend some of the money they earn here, further boosting the local economy. But that makes no allowance for the fact that Olympic Games are notorious for relying on voluntary labor. Vancouver, for instance, maintains that its 2010 Games benefitted from the work of more than 75,000 volunteers. To the extent that volunteers perform some or much of the needed work, the multiplier effect of jobs to income to new consumption is aborted.
The report also examines the uncertainty of the impact of hosting on tourism, both during the games and after. It mentions that London tourism during the summer of 2012 was down by 8 percent compared with 2011. The report might have added that 2012 was one year further removed from the financial crisis of 2008-09, and, other things equal, we would expect higher tourism figures in 2012. The report neglects to mention that tourist arrivals in Beijing in 2008 were down 20 percent. Despite this evidence, and that from scholarly studies, the report curiously projects a substantial boost to Boston’s tourism.
If one builds an empirical model and simply assumes that all the investment will be private and that the investment won’t displace other investments, it is easy to show output and job growth. This is basically what the report has done. But the rosy projections are no more realistic than Boston 2024’s starry-eyed claim that no public money will be spent.
Andrew Zimbalist is professor of economics at Smith College. His new book, “Circus Maximus: The Economic Gamble Behind Hosting the Olympics and World Cup,’’ was published last month.