Sunday, 18 December 2016

Book review: Circus Maximus

I've been a bit quiet while trying to finish a bunch of things before year's end, but I did manage to finish reading Andrew Zimbalist's book "Circus Maximus: The Economic Gamble behind Hosting the Olympics and the World Cup". I mentioned this book in a post about the lack of economic impact of stadiums and arenas earlier this year.

When I think about the Olympic Games or the FIFA World Cup, and see the crazy investments that cities (or countries in the case of the World Cup) are prepared to make not only for the event once it has been awarded to them, but also in simply bidding for the event, I immediately think about the winner's curse. Say that the potential hosts don't know for sure what the benefit of hosting the event is, but must outbid all other potential hosts in order to be awarded the event. The 'winning' host will be the city (or country) which had the most wildly optimistic view of the benefits of hosting, since they will be the city (or country) willing to bid the most. And it is very likely that that city (or country) will have bid more than the real benefits of hosting are worth.

Zimbalist's book makes that point much more forcefully than I have above, and much more besides. Barcelona is the poster-child of successful Olympic Games. In one chapter, Zimbalist contrasts the particular experience of Barcelona in leveraging the hosting to develop the city into a future powerhouse of tourism, with the experience of Sochi hosting the Winter Olympics, and the largely wasteful expenditures and investment in that city. This wasteful investment arises because one of the key arguments made in favour of hosting these events is both the expected short-term and the expected long-term boosts to tourism. The opportunity cost of this spending on tourism promotion is potential very great, and Zimbalist astutely remarks at one point:
Each prospective host would do well to ask the question, if we have $10 billion or $20 billion or more to spend on promoting tourism, what is the most effective use of those resources?
How much more good could be done with that money, in terms of tourism promotion, through more conventional means?

Throughout the book, Zimbalist does a good job of outlining the evidence from the academic literature on the cost-benefit calculus of hosting these large events. As one would expect, the winner's curse is broadly evident. Zimbalist also does an excellent job of looking beyond the academic evidence, and bringing together stories that illustrate some of the very real negative impacts of hosting. I hadn't followed the case of Rio de Janeiro and the impacts on the favelas of hosting both the Olympics and the World Cup, but some of the stories are quite horrific. London also comes in for some criticism on the inability to leverage the Olympics for the betterment of people living in East London, the area immediately surrounding the main Olympic venues.

The first paragraph of the concluding chapter is a useful summary to finish this review on. Zimbalist writes:
The perennial claims that hosting the Olympics or the World Cup is an engine of economic development find little corroboration in independent studies. In the short run, the increasingly massive costs of hosting cannot come close to being matched by the modest revenues that are brought in by the games. The payoff, if there is one, must be realized in the long run. But even the legacy return is at best dubious. Much of the alleged legacy comes in the form of the qualitative gains, and the rest comes over very long periods of time, difficult to trace back to the several-week period of the games or the prior construction. But more often than not, the main legacy consists of white elephants that cost billions to build and millions annually to maintain, along with mountains of debt that must be paid back over ten to thirty years.
If there is one thing missing from this book, it is the consideration of smaller events, such as the Commonwealth Games (the Delhi games are mentioned a couple of times only) and the Rugby World Cup. These smaller events require smaller outlays from the hosts, but also have much smaller potential gains. Nevertheless, this is an excellent book both for those who are familiar with the literature on economic impact studies, and those who are not, along with anyone with a specific interest in the Olympics or World Cup.

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