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Communications and Marketing

NYT quotes Baade paper on Olympic costs

In a story critical of the costs of hosting the Olympics, The New York Times quoted a paper by A.B Dick Professor of Economics Rob Baade and Victor A Matheson.

An Olympic Event Where 1st Prize Is the Chance to Lose Billions

By Andrew Ross Sorkin 

RIO DE JANEIRO — Behind the scenes of the Olympic matchups and rivalries that draw large crowds here, there is stealth competition taking place in the hallways and hotels of this beach town worth tens of billions of dollars. It is a bidding war that could rival the most ferocious auction on Wall Street.

Armies of delegates from four cities — led by a series of moguls, bankers, businessmen and government officials — have been quietly battling one another here to court the leadership of the International Olympic Committee in hopes of being awarded the 2024 Summer Games. The delegates, representing Los Angeles, Paris, Rome and Budapest, have been scoping out the venues, receiving briefings on the massive security operation and taking meetings with just about anyone who can conceivably influence the outcome.

But these cities are all seeking to win a contest that for nearly the last three decades has been seemingly cursed. With few exceptions, the Games have cost the host cities billions. Rio is expected to spend at least $12 billion on the Games and to lose at least $4.6 billion, according to a study by Oxford. The last profitable Olympic Games, at least on paper, took place in 1984 in Los Angeles, and that might have been a historical anomaly. The 1976 Games in Montreal lost over $1 billion.

“Hosting the Games has become an increasingly expensive gambit; indeed, as the rules for bidding currently stand, the entire structure of the Olympic Games shouts ‘potential host beware,’” according to Robert A. Baade and Victor A. Matheson, sports economists who wrote a paper on the expense of hosting the Olympics.

What is it about the Olympics that causes some cities that are typically unwilling to spend a cent on infrastructure or planning to overspend so wildly? And is there a meaningful way to change the business model to rein in costs so that the Games can be both popular and profitable?

Those are the questions that the International Olympic Committee and the four cities competing to host the 2024 Games are trying to answer.

The Los Angeles delegation of some 25 people here is led by Casey Wasserman, the agency executive and grandson of the Hollywood mogul Lew Wasserman, as well as Gene Sykes, a longtime partner at Goldman Sachs, who has been behind some of the largest mergers and acquisitions of the last three decades. The Angelenos are making low cost (about $4.6 billion) and sustainability the cornerstones of their bid by proposing to use existing facilities like the Los Angeles Memorial Coliseum, currently home to the Rams football team. According to their marketing material, “L.A. 2024 is about what we have, not what we’re going to build.”

Similarly, the Paris coalition’s bid for the Games is based, in large part, on the infrastructure that the city already has; the Parisians estimate their cost would be about $7 billion, which is considered bargain-basement by Olympics standards.

But a bid by Rome, which hopes to follow a similar low-cost model, may already be in jeopardy: The city’s new mayor, Virginia Raggi, has very publicly objected, saying that Rome’s municipal deficit is too vast to consider hosting the Olympics. “Historical data from the Olympics, discounting eventual episodes of corruption, shows us that the costs are not sustainable,” she said in June. “Other cities have already withdrawn their bids for these reasons. And I don’t think they were thinking about corruption or Mafia infiltrations.” She was probably referring to Boston, which last year ended its effort to host the 2024 Games over anxieties about the cost.

On the flip side, the mayor of Los Angeles, Eric Garcetti, who is here, made news when he hinted that the possibility of a Donald J. Trump presidency could make his city’s bid less attractive. “An America that turns inward, like any country that turns inward, isn’t good for world peace, isn’t good for progress, isn’t good for all of us,” he said, in the context of the factors that the International Olympic Committee might weigh. But he also said he didn’t think the outcome of the American presidential election would affect the outcome of the committee’s decision.

Whatever analyses have been done of the potential benefits and costs, they haven’t dampened the zeal of the delegates in Rio: The competition to become the host city for 2024 has become so fierce that the committee issued a reprimand. “Three 2024 Candidate Cities have contacted media and invited them to their hospitality houses here in Rio,” the committee said in a statement. “They have all been reminded that this was not permitted and have subsequently stopped their activities.”

Given the continuing concerns about costs and the burden that often falls to taxpayers, a larger question has emerged about whether the modern Olympics should continue to crisscross the globe as the multibillion-dollar lottery ticket it has become.

Christine Lagarde, managing director of the International Monetary Fund, has endorsed the view that the Olympics should be permanently located in Greece, its birthplace.

Others have suggested that the Olympics rotate among four of five permanent locations. Then there are more complicated ideas, including having a “distributed” Olympics that would take place at the same time in multiple cities, using existing stadiums and avoiding overwhelming any individual city.

But here’s a thought: How about simultaneously granting a city the Olympics twice, once now and again 12 years later? That would allow the host city to enjoy the economic benefits of the Games twice, effectively bringing in double the revenue and amortizing the infrastructure costs over two events.

More important, it would force the cities to think long and hard about creating an infrastructure plan for the long term — one that works not just for the Olympics but also for residents, who will have to live with what is left behind. And it would allow emerging cities to bid competitively on the Games against more established cities that might already have infrastructure in place. (One downside of the committee’s current focus on lower costs is that potential new entrants could be eliminated from bidding to host the Games because the cost would invariably be so much higher.)

An alternative suggestion is that the committee grant a city the Olympics for two consecutive Games, but where’s the fun in that? One of the great joys of the Olympics is the opportunity to be introduced — or reintroduced — to a city. Building in a 12-year gap would allow the spotlight to rotate among major global destinations, introducing them to younger spectators and making the cities feel fresh again to older ones. Such a plan would also create an even greater incentive for bidders to commit to investing in the Olympics, and would weed out cities and countries that are unwilling to do so.

In fairness, hosting the Olympic Games can clearly put a city on the map; it is the ultimate marketing tool. Locals can often benefit, too, from infrastructure improvements and increased tourism. But it will always be hard to make the math work for fiscal disciplinarians. There’s got to be a better way.