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No medals for economic benefits of the Games

  • Jacob Saulwick
  • April 12, 2008

Everyone liked the Sydney Olympics. For some, they were a chance to reach new heights of sporting achievement. For many others, they were a two-week window into a world where binge drinking, in the right spirit and properly accompanied by well-lit public transport and entertainment, can be a force for good.

But the economic impact of the Olympics is a lot more contentious and complicated. Before the Games - before the ceremony, before the torch lapped its way around town, and before the first sod of Homebush soil was turned - the boosters waxed lyrical about the economic growth it would stimulate. The arguments were not new, but standard issue for those touting big events, particularly when they are trying to squeeze money out of governments.

Eight years and innumerable health and transport crises later these arguments bear some testing.

In Sydney's case, the Olympics were meant to stimulate a wave of extra tourist dollars - not just during the Games but in the years that followed. The Games would offer an opportunity to "showcase" the city. Once "showcased" it would then be an irresistible lure. Sydney's bars, hotels and its redundant monorail would hum with a new lease of life.

The tourism boom, however, never happened. Or if it did, there was nothing particularly Olympian about it. To be sure, the low dollar made the 2000s a great time to be in the tourism game. But as a recent study by James Giesecke and John Madden from the Centre of Policy Studies at Monash University points out, in the years since 2001, foreign tourism to NSW grew by less than tourism to Australia as a whole.

Another argument used by spruikers of big events is that they have a "multiplier" effect on broader economic development. This is a simple argument to understand and a simpler one to sell.

So, booking Tim Freedman for an outdoor concert has the initial result of putting money in the pocket of a Newtown singer-songwriter. Once he comes to perform, however, the concert creates work for the people who sell home-made lemonade in big plastic cups. As it does for bus drivers needed to shuttle people to the gig. And cleaners who arrive in the early morning with bags and brushes and pick up all the cups. Like a pebble dropped in a pool, the initial investment ripples wider.

This argument, particularly on an Olympic scale, is a powerful one. It has the ring of John Maynard Keynes about it. To build a stadium you sure need a lot of workers, a lot of cranes, a lot of bricks, a lot of mortar and a lot of hard plastic seats.

But what a simple "multiplier" analysis fails to capture is that resources have to be redirected from elsewhere. If you build a stadium, you might not build, say, the odd emergency ward. If Freedman plays the Domain, he cannot play Revesby Workers.

And what Giesecke and Madden also argue is that if you are interested in stimulating the economy in the long term, building sporting venues is not the ideal way to go about it. Why? Because the billions tipped into them do not add to the aggregate stock of productive capital in the years following the Games. Equestrian centres, softball compounds and man-made rapids are not particularly useful beyond their immediate function.

In fact, because so much taxpayer money was funnelled into relatively unproductive Games-related projects, in the years since the Olympics, the two economists estimate that $2.1 billion has been shaved from public consumption.

This does not mean that there was no benefit from having the Games or that they should not have been held. It is just that, on their analysis, the benefit in terms of what a good time we all had should be equal to $2.1 billion.

(To be fair to the Games, this is $2.1 billion spread over a number of years and the figure relies on certain assumptions like full employment and little spare capacity.)

But "it is clearly important that citizens of countries bidding for mega sporting events be aware that such events may not bring a double dividend of intangible benefits accompanied by an economic stimulus," Giesecke and Madden write.

While there might have been an intangible dividend from the Sydney Olympic Games, there was no double economic dividend from them.

Cities across the world are constantly testing this argument.

A British study this year tried to put a value on the intangible benefits of hosting the London Olympic Games. That report, published in Urban Studies, reckoned that Britons would be prepared to pay £2 billion ($4.2 billion) towards hosting the Games.

Then of course there is Melbourne and its grand prix. The Australian Grand Prix Corporation regularly trots out estimates of the economic benefit Victorians enjoy from hosting the grand prix, putting the total at more than $1.5 billion since 1996.

The critics say the estimates are bogus. For one thing, any supposed benefit on tourism is wiped out by the volumes of appalled Melburnians leaving town for the weekend.

In the United States, the debate has a subprime ring to it. During the housing boom - since busted - state governments and city councils assisted with the construction of numerous large stadiums, often touting their important contribution to economic development.

And according to one report, George Bush, President and one-time baseball club owner, was one major beneficiary of this practice.

Last year the New York Times investigative reporter David Cay Johnston's book Free Lunch outlined the way in which the owners of the Texas Rangers baseball team, of whom Bush was one, got their hands on millions of dollars through a publicly underwritten stadium.

In Johnston's account, Bush, as the former governor of Texas, owes some two-thirds of his fortune to a sales tax levied to build a stadium. While the stadium was built from the tax revenue, he and partners subsequently bought it back from the local government for a song.

And people complain about SOCOG.

Ross Gittins is on leave.

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