After three weeks, I was kind of tired of writing about football, so.. HA! Of course I’m not tired of writing about football.1 But with the 2014 Winter Olympics in Sochi just 67 days away, I wanted to start on them. Before the athletes start competing (and even after they do, actually) there are often several economic impact stories in the media. By and large, these stories have nothing to do with any actual economics, and drive economists crazy. They tend to overlook basic analytic questions that don’t go beyond the sophistication of a frenzied Christmas gift shopper, such as “What does it cost?” and “How long will it last?”, abusing numbers more crudely than Hollywood abuses Bruce Willis’ inability to turn down a role. Fun right? So I Googled “winter olympics economic impact”, clicked on the top hits, read them, and picked a couple. Most of them were about Salt Lake City (AMERICA!) and seemingly not enough people care about Turin for Google to throw it on the first page too much, but Vancouver did make the cut.
A decade after the Salt Lake games, Lee makes the case for their resounding impact:
Official state estimates of the economic impact showed the Salt Lake Olympics yielded $100 million in profits, $4.8 billion in sales, 35,000 job years of employment and $1.5 billion in earnings for Utah workers during 2002. Since then, the skate’s ski and lodging industries have enjoyed record-setting years, with a 42% increase in skier visits. Direct expenditures from skiers and snowboarders have increased 67%…
Millions in profits, thousands in jobs, record-setting years for the ski and lodging industries! What else you got?
The profits from the Games were distributed throughout the local community, with a $72 million endowment left to maintain former Olympic facilities, $10.2 million for Olympic Legacy Plazas, $11.5 million for charitable donations and $7 million in U.S. Olympic Committee business credits.
Millions for the local community? And charity?!? Impressive, impressive. What else you got?
The global media exposure of the Games gave Utah an estimated $210 million value in media exposure from locally broadcast events that have translated into increased tourism, according to Leigh Von der Esch, managing director of the Utah Office of Tourism… ‘Our total visitations have been increasing,’ she said. ‘We’re up to over 20 million visitors annually now… There is no question that the 2002 Winter Games made the case that Utah has the greatest venues,’ she said. ‘We were proud of how we showcased the state.’
Global media exposure? Get right of town. Now they’ve got millions of annual visitors? Great showcasing, Utah, great showcasing. I’m sold. Wait, hold on…
The problem with all of those numbers is that there is no counterfactual. “$100 million in profits, $4.8 billion in sales, 35,000 job years of employment and $1.5 billion in earnings for Utah workers…” compared to what? There’s absolutely no context to these numbers. $100 million in profits for whom? Utah businesses? Governments? Both? How much is $100 million anyway? There are millions in endowments, the interest of which maintains the grandiose facilities built for the games… for what purpose? Is Salt Lake City hosting the Olympics again some time soon? They have had success attracting other such, smaller events, but do those things really matter?
You can’t mistake transfers growth. How much of the spending in Utah would have happened anyway, if at slightly different times and in other areas of the economy? An actual economic report (by Levi N. Pace2, from the University of Utah, no less) concluded that
… during the years leading up to the 2002 Winter Olympics, Utah’s economic output grew comparably to that of the entire country. The substantial inflow of outside money into Utah ($1.3 billion) amounts to no more than two-thirds of one percent of total Utah Spending (Gross State Product) for any year leading up to the Olympics.
Investments in roads, airports, and other infrastructure happen anyway; investment in hotels and resorts happen anyway. Rushing them all into being ready for the same two-week event isn’t growth. Any additional spending then just meant less spending somewhere else, either on other sectors of the economy or across the board in the future. Outside money did come in, but the sum effect of it all over the years was no more than 0.67% of Utah’s GDP in any one year from the time period. Not such a big deal, magnitude wise.
What about the 35,000 job-years? That’s a lot, right? Well, again, how many of those jobs were created and how many transferred jobs from other sectors? And how many actually lasted? The same report (Pace) noted that
By 2003, Olympic-related employment was expected to fall to a negligible 250 jobs.
Another study, “The Labor Market Effects of the Salt Lake City Winter Olympics”, by actual economists Robert Baumann, Bryan Engelhardt, and Victor A. Matheson of the College of Holy Cross3, found that the Salt Lake Games provided
… a maximum of 7,000 job-years of employment (and a minimum of just 580 job-years).
Typically, the media has reported the duration and magnitude of the benefits to be far beyond the reality.
“2010 Olympics: Vancouver Winter Games Gave Economy a $2.3 Billion Boost, Report Says” by The Canadian Press, 10/27/11, The Huffington Post.
The article highlights a report from the consulting firm PriceWaterhouseCoopers when making the case for the economic boost, stating:
the Games generated at least $2.3 billion in real gross domestic product to B.C. alone, [and] created more than 45,000 jobs
More billions of dollars, more thousands of jobs! What else you got?
The report said B.C. venue construction and other third-party investments injected $1.26 billion into the economy and tourism revenue increased by $226 million during the Olympic period from 2003 to 2010.
Construction investments! Tourism! Alright! And none of these things had costs, right? Oh, a line from that earlier study by Baumann, Engelhardt, and Matheson, mentioning a finding from yet another economist, Andrew MacLeod:
The Conference Board of Canada estimated that the 2010 Vancouver Games injected $1.56 billion into the local economy, an impressive figure until one compares that amount to the $10 billion impact predicted by finance minister Colin Hansen prior to the Game [sic] or to the $6 to $7 billion in costs to stage the event. (MacLeod, 2010)
Oh, you mean many of these things are costs? That the money spent on construction was money that now couldn’t be spent on other things? Well, how about tourism? The Huffington Post article sort of confesses that in fact,
Global economic uncertainty forced Premier Christy Clark to scale back tourism growth forecasts this week to five per cent a year until 2016. Former premier Gordan Campbell said the Olympics would double tourism numbers by 2015.
As we get set for Sochi, we’ll see a lot of forecasts, predictions, and hopes. They will invariably be proclaimed and confirmed by the media, often backed up by numbers. Think about those numbers. How much local investment is coming from truly new sources, how much will it truly benefit locals, how many jobs will it truly create (not move around), and how long will these things last? If you do that, chances are you’ll understand the article substantially more than whoever wrote it. Of course, like many economists, you also might find yourself tired of reading them.
- I’m currently 8-6-1 on picks this week, with the Saints at the Seahawks tonight. Bring it home, Drew Brees! ↩
- “Economic Impact of the 2002 Olympic Winter Games” Levi N. Pace, 7/26/2006, Policy Perspectives, Center for Public Policy & Administration, The University of Utah, http://www.imakenews.com/cppa/e_article000623341.cfm?x=b11,0,w ↩
- “The Labor Market Effects of the Salt Lake City Winter Olympics” Robert Baumann, Bryan Engelhardt, and Victor A. Matheson, May 2010, College of the Holy Cross, Department of Economics Faculty Research Series, Paper No. 10-02 http://college.holycross.edu/RePEc/hcx/Matheson-Baumann-Engelhardt_SLCOlympics.pdf ↩