Should Washington, D.C. try to host the Olympics in 2024? One group, the aptly-named "DC 2024," sure thinks so, and announced Tuesday that it would explore a potential bid. But what do economists think? Is it a bad idea for cities to host the Olympics?
"My basic takeaway for any city considering a bid for the Olympics is to run away like crazy," says Victor Matheson, a professor of economics at College of the Holy Cross. His research suggests that cities end up spending a ton and get little economic benefit from hosting "mega-sports events."
But it's actually more complicated than that. "If you want to go a little deeper," says Matheson, "you can say that a lot of U.S. cities, including D.C., are fairly well-positioned to hold the Olympics at a reasonable price. The problem is that the International Olympic Committee doesn't want to host the Olympics in a city that's saying, hey, we can do this on the cheap. The bids that make economic sense are the bids that have no chance of winning. And the bid that will end up winning won't make economic sense."
Recently, Matheson and his colleague Robert Baumann put out a paper (pdf) recapping much of what economists have learned about the ups and downs of hosting events like the Olympics or the World Cup. Here are some key points:
1) There's little evidence that hosting the Olympics will boost your economy. "Unfortunately," the authors write, "the academic literature has not been able to link hosting an Olympics or World Cup with economic growth."
There are a couple of theories as to why. For starters, even a massive sports event could be too small to matter much in the context of a large economy like D.C's or London's or Beijing's. Second, much of the economic activity generated by the event may just come from locals who would have spent their money elsewhere in the area regardless.
But there's a third possibility: Sports fans can also "crowd out" other business that would have otherwise taken place during the period. For instance, London actually saw a decline in overall international visitors when it hosted the 2012 Summer Olympics — the frenzy over the Games may well have scared off tourists.
2) Mega-sports events like the Olympics tend to have spiraling costs. "While both the IOC and FIFA claim to be cost conscious," the authors note, "the evidence suggests otherwise. Faced with bids from multiple competing cities and countries, the organizing bodies have rarely selected hosts that have promised to minimize spending on sports infrastructure."
Even if the D.C. area could host the Olympics cheaply, that isn't likely to happen in practice. "It's true that D.C. already has great transportation networks, plenty of hotel space, lots of sports facilities—especially if you count the greater DC-Baltimore area," Matheson told me. "But the IOC isn’t going to look at all this and say, okay, let's just have the opening ceremonies in FedEx Field. They'll ask for an Olympic stadium and all sorts of specialized infrastructure."
The only Olympic city in recent times that has really kept costs low was Los Angeles in 1984 — and that was a special case. That year, it was the only city actually bidding for the Olympics. Everyone else had been scared off by Montreal's Olympics fiasco in 1976, which left citizens with a $1.5 billion debt that took decades to pay off. As a result, Los Angeles could dictate terms to the organizers and was able to use its existing facilities like the Rose Bowl and the Coliseum.
3) The infrastructure benefits are often oversold. One possible upside to hosting the Olympics is that it can give a city an excuse to upgrade vital non-sports infrastructure — airports, hotels, escalators in the Metro — that's facing various roadblocks. If that's the only politically feasible way to move projects forward, maybe it's all it. Matt Yglesias discusses that possibility here.
Still, Matheson and Baumann find, this doesn't always pan out. The tight deadlines for events like the Olympics "can serve to raise costs due to rushed schedules, relaxed bidding rules, and potential corruption."
What's more, many cities end up overbuilding infrastructure they don't need in the long run. "An airport, transportation network, or number of hotel rooms that is the right size for three weeks of tourist insanity may be extensively overbuilt for the post-event period," they write. "For example, two major luxury hotels built for the 1994 Winter Olympics in Lillehammer, Norway, filed for bankruptcy shortly after the close of the Games."
4) There are only a few cases where hosting the Olympics appears to have been broadly beneficial. As mentioned above, Los Angeles in 1984 fared reasonably well. But we're not likely to see a lone city bidding for the Olympics again anytime soon.
Another big exception was Barcelona with the Summer Olympics in 1992. "That was a case where you do find long-lasting benefits," Matheson says. "But for that to work you need to be a hidden gem, a great tourist destination that no one knows about. Before 1992, Barcelona had been overshadowed by Madrid, Rome, Paris, etc. They could essentially use Olympics as advertising, to put the city on the map."
Needless to say, Washington, D.C. isn't exactly an unknown tourist destination that needs the Olympics to get the word out.
5) That said, even if hosting the Olympics isn't economically valuable, it might make locals happier. "There's very little evidence that these sports events contribute to long-run economic growth," Matheson tells me. "But there is fairly robust evidence that they make people happier. After Germany hosted the World Cup in 2006, there was a big marked increase in reported happiness."
6) Also, all things considered, it's probably better if a rich country hosts the Olympics than a developing nation. Given all the negative impacts from hosting a sports-mega event, Baumann and Matheson argue that it's probably fairer for high-income nations to shoulder the burden. "If rich countries want to promote economic development in poor countries," they write, "it would make more sense for high-income nations to explicitly keep these events out of the developing world and instead continue to award the games to rich countries that are better able to absorb more of the costs."
So, in the worst case, D.C. could always just think of hosting the Olympics as a perverse form of foreign aid. We'll take the hit so that some struggling up-and-comer doesn't get crushed by the costs instead.