World Marketplace
Fool's Gold?
Lionel Beehner
03/01/2008

The 2008 Summer Olympics in Beijing are going to be the most expensive games in history, with a price tag soaring above $34 billion, according to city officials. But outside analysts predict a much higher amount. The Chinese government considers the figure a worthy investment in what it hopes will be a coming-out party, showcasing the country as an economic powerhouse. Politically, the Chinese also want to change what remains the image of Beijing to many outsiders: the lone man defying tanks out-side Tiananmen Square in 1989. The centerpiece of Beijing’s new construction, and one that boosters hope will become a more flattering symbol, is the $400 million Bird’s Nest, a stadium that resembles a twisted mass of twigs and that will have room for 100,000 fans to roost.

"Everyone has to outdo everyone else and promise the International Olympic Committee the world."

A boost to China’s economy is beside the point. In fact, a recent study by JPMorgan predicts that the Olympics will have virtually no effect on Beijing’s economy, much less on that of China as a whole. Victor Matheson, an assistant professor of economics at the College of the Holy Cross in Worcester, Mass., who specializes in the economic role of major sporting events, has seen no evidence that hosting the Olympics does anything to improve a locale’s long-term capital inflows. The upside is that if Beijing loses money, it will be less than a blip in China’s continued growth. However, because this particular Olympics is so very symbolic of China’s new prestige, if the games leave the city in debt, or if political problems mar the athletic competition, it will be a national embarrassment in a culture that puts great emphasis on dignity and decorum.

Though the emotional stakes in other locations that seek the Olympics are not quite as high as Beijing’s, the cities still grapple with the question of whether the benefits will justify the costs as they jockey to host future games. London won the 2012 Summer Games, and Rio de Janeiro and Chicago are vying as frontrunners for 2016, followed by Tokyo, Madrid and Doha, Qatar. In the best-case scenario, a host city captures the world’s attention in a positive way and the games fuel urban revitalization and economic growth by attracting tourist dollars and deep-pocketed foreign investors. The most sterling example of that kind of economic jump-start from the Olympics is Barcelona, which hosted the 1992 Summer Games and recouped its costs in a burst of tourism that spurred the creation of 20,000 jobs. Thanks to the publicity surrounding the Olympics, tourists "discovered" a cultural mecca, and one that had up-to-date telecommunications, transportation, retail stores and hotels in place.

TOP VIEW
Hosting the Olympic Games costs a city billions of dollars, and pays off only if all of the stars align: if the construction is already a fixture in the landscape; corporate sponsors are waiting in line; and no one interrupts the games to make a violent political statement. Beijing expects to reap more than $2 bil-lion from sponsors, but it still risks a monumental post-Olympic hangover.

Budding Barcelonas
Since then, cities around the globe have competed to host the Olympics, largely hoping to become the next Barcelona. But there was a time when the International Olympic Committee (IOC) had a difficult time finding hosts. That was partly because the games were not profitable from the Depression-era 1932 Olympics (when the Winter Games were in Lake Placid, N.Y., and the Summer Games in still-remote Los Angeles) right through 1980. The 1972 Munich games turned tragic when guerrillas killed 11 Israeli athletes and coaches. The 1976 Summer Games left Montreal saddled with $1.5 billion in debt that it finished paying off just a year ago, while the dilapidated eyesore officially named the Olympic Stadium continues to mar the city’s skyline. Locals referred to it mockingly as the "Big Owe," a play on its original nickname, the "Big O."

But cities began lining up after Los Angeles hosted the 1984 Summer Games and earned roughly $250 million in profit. L.A.’s formula involved financing the games with private capital, a bold strategy at that time. Corporate sponsors ponied up large amounts of cash to underwrite the games in exchange for exclusive advertising rights.

The bidding process has changed significantly since 1984, when Los Angeles was the lone entrant. "Now, with five to 10 bidders, everyone has to outdo everyone else and promise the International Olympic Committee the world," Matheson says.

The IOC is not supposed to be in the business of marketing the games to potential hosts, but, not surprisingly, it will cast a positive spin on the rewards of holding the Olympics. "Hosting this once-every-four-years spectacle grants the imprimatur of being anointed into an exclusive club of top-tier international cities," says Curt Hamakawa, the former director of international relations for the U.S. Olympic Committee. "Public officials must contemplate not just the short- and long-term economic impact on their cities of hosting an Olympic Games, but also the value and importance of being regarded as an Olympic city." Pressed further, however, he says he would not rule out the IOC’s sometimes privately dropping hints to cities to throw their hats in the ring.

The actual site-selection process is highly secretive; Hamakawa likens it to the College of Cardinals’ selecting a pope. It is clear that the infrastructure requirements that the IOC sets are so high that many midsize cities do not make the cut. One of the reasons that Los Angeles turned a profit is that—unlike, say, Montreal—the city already had major sporting facilities in place. "When you’re spending billions of dollars to build lavish stadiums," Matheson says, "there’s no way the short-term economic impact can possibly hope to pay for all the construction."

The Roar of Construction
Moreover, cities are increasingly burdened with exorbitant security costs. Athen’s 2004 Olympics burned $8 billion—$1.5 billion on security—earning itself the unfortunate moniker "My Big Fat Greek Games." And tourism in Athens virtually collapsed in the run-up to the games. "Who wants to go to a construction site?" Matheson asks.

That should serve as a warning to Beijing, where tourists now see a skyline dotted with construction cranes and scaffolding. When it comes to relying on capital from sponsors, however, China is doing things right—at least if enthusiasts do not mind an Olympics in which corporate logos outnumber the appearances of the five interlocking rings. In fact, Beijing has a record in the works, with more than $42 billion pledged from 54 sponsors to date, according to the Malaysia Star. Indeed, there is speculation that when the International Olympic Committee was divided on giving the games to Beijing because of China’s human-rights record, sponsors eager to bring their messages to the 1.3 billion consumers in China exerted enough pressure to tip the decision.

Even so, Beijing—along with London in its plan for the 2012 games—is trying a hybrid approach to funding, combining commercial sponsors with some publicly financed construction that the city hopes will return a profit. The goal is for the 2008 games to fare far better financially than the 2004 games in Athens, where city officials made a conscious decision to scale back commercialization in keeping with the dignity of the birthplace of the Olympics. On the other hand, the cities want a more unobtrusive appearance than that of Atlanta’s 1996 games, which were derided by some as the "Coca-Cola Olympics." However, Atlanta turned a $300 million profit.

There is also the question of what Beijing will do with its costly sports facilities after the games are history. "Gigantism is on the way out," notes Robert Colvile, a columnist with London’s Observer, "in favor of ‘compact’ Olympics, leaving genuinely useful facilities and urban regeneration rather than white-elephant stadium complexes." Beijing has followed that trend only in part. Of 31 structures that will be devoted to the Olympics, 11 are being built to last and eight will be temporary; the other venues already exist, although some will undergo conversions. The Bird’s Nest will be scaled down by several thousand seats after the games, but even so, an empty nest after the Olympics could become a rather embarrassing symbol of excess.

Lionel Beehner is a freelance writer based in New York.