Economic impact studies are typically used to justify large sporting events. However, those studies typically apply a set of overly positive assumptions, leading to large overestimates of economic impact. Andrew Zimbalist even wrote a book about this problem, Circus Maximus (which I reviewed here).
Now, it is rare for the authors of an economic impact study to go back and revise their estimates. So, it was refreshing to read this 2011 article by James Giesecke and John Madden (both Monash University), published in the journal Economic Papers (sorry, I don't see an ungated version online). Madden was one of the authors of the official (1999) economic impact study for the 2000 Sydney Olympic Games (when he was at the Centre for Regional Economic Analysis at the University of Tasmania), which is available here. That report presents a central estimate of an increase in household real consumption of $3.125 billion for NSW and $3.7 billion for Australia as a whole (and in a 'resource-constrained' scenario, the corresponding figures are $2.4 billion for NSW and $2.1 billion for Australia). In this new article with Giesecke, Madden revisits the analysis.
First, using data on actual tourism flows from 1997/09 to 2005/06, they find that:
...our historical modelling results do not provide any indication of an induced tourism effect associated with the 2000 Olympics.
In other words, there was no long-lasting impact of the Olympics on tourism, so any impact from tourist spending was only during the period of the Olympics. Then, they impact the earlier analysis based on actual spending on construction, and actual tourist numbers and spending, and advertising and sponsorship rights. Interestingly (and unsurprisingly), in terms of tourist spending:
In our study, the total of direct expenditures related to the Games is $5.5 billion... This is $2.9 billion less than the CREA⁄ Arthur Andersen (1999) report. The difference is mainly induced visitor spending. The CREA⁄ Arthur Andersen (1999) report contains $2.7 billion of such spending.
So, tourist spending at the time of the event was 'only' about $200 million less than originally projected in the 1999 report. The outcome of the analysis is that:
...the Sydney Olympics generated a loss in Australian real private and public consumption in present value terms of $2.1 billion. This suggests that the Olympics did not bring the economic stimulus that has been claimed by ex ante analysis.
In other words, Australian (and especially NSW) consumers were made worse off (in terms of consumption) by Sydney hosting the Olympics. I wish there were more studies like this, that revisited the economic impact analyses of large events, using actual data after the fact. Then, perhaps, we would start to see more realistic assumptions being employed in the ex ante analyses (sadly, I feel like you could make a Tui billboard with that sentiment).
Of course, the negative impact of the Sydney Olympics isn't the end of the story. You can think of the loss of private and public consumption as being the net cost of hosting they Olympics, which could be offset if there were sufficient un-measured (perhaps intangible) benefits of hosting. Giesecke and Madden note that:
This does not necessarily mean that Australia should not have hosted the Games. An Olympic Games is a great international sporting event that brings much enjoyment to a large number of people around the globe. For the population of the host nation increased utility can arise from factors such as national-pride effects, consumer surplus on local ticket sales, the advantages of the Games being held in one’s own time zone (an advantage shared by countries with a similar longitude) and so on...
These benefits, like enjoyment and increase utility for Australians, are not quantified. The Olympics is a party. It makes people happy (especially if they're winning, which is something that host countries are more likely to do). Happiness and good vibes are not easily measured in dollars, so at that point you can't conduct a strict cost-benefit analysis. However, you can try to evaluate whether the extra good vibes are worth the cost, just like you might for any party, even a giant national party. It was an expensive party though!
[HT: This article in The Conversation by John Madden, back in 2023]
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