London 2012 Olympics: driving away "normal" tourists?

The boom to the economy that the Government hoped the Games would bring to the capital appears to become a bust with tens of thousands to tourists spurning the hiked prices, congestion and heightened security.

While bookings for July and August are down by 35 per cent on last year other European capitals appear to be prospering from London’s gloom.

French ministers, who lost the Olympic bid to Britain, might be quietly rubbing their hands with glee not only for dodging the £10 billion Games bill but also with a 50 per cent rise in tourism bookings. Similarly Barcelona and Berlin have seen their tourist numbers soar by 100 per cent over the summer.

I remember reading similar reports about how tourism dropped in Japan and South Korea when they co-hosted the World Cup in 2002.  As Professor Brad Humphreys writes in Forbes on “The Economic Legacy Of The 2010 World Cup” held in South Africa:

But what about the economic legacy of the World Cup? If past World Cups, and other mega sporting events like the Olympic Games, provide any guidance, then the economic legacy will fall well short of the memories provided on the football pitch.

Professor Humphreys draws upon public choice theory to describe the bidding process of the World Cup and the Olympics as a “rent extraction scheme”:

The bids cost millions of dollars to produce, and the “bidding” takes the form of promises of more and more lavish new stadiums to host the games, new luxury hotels for the use of FIFA officials and well-heeled fans and other amenities. Most of the promised spending is public funds. The bidding process, actually a rent extraction scheme designed to separate taxpayers in host countries from their tax dollars and to maximize the prestige of FIFA, would make Bernie Madoff green with envy. The competitive nature of the award process ensures that each potential host promises to provide as large a subsidy as possible for venue construction and renovation, and other amenities.

Indeed, once the mega-event is over, the host country is left with sporting infrastructure ill-suited to its continuing sporting needs.  Professor Humphreys reports how, for the 2010 South African World Cup, 10 new or renovated stadia were built with a seating capacity averaging in excess of 50,000 seats yet domestic football matches typically draw crowds of no more than 8,000, whilst during the 2009-10 season only 4 matches out of 212 saw crowds over 40,000 spectators.  Nor is any of this news, he notes, for:

In Beijing the iconic Birds Nest Stadium, site of many vivid memories from the 2008 Summer Olympic Games, currently stands vacant almost every day of the year, unused by Chinese sports teams because it is too big, and poorly suited, for domestic sporting events. In Japan and South Korea, co-hosts of the 2002 World Cup, a number of new stadiums built for that competition currently host professional football teams that draw a fraction of their huge capacities for football matches.

An earlier study (2004) by Brad Humphreys with Dennis Coates for the Cato Institute, “Caught Stealing: Debunking the Economic Case for D.C. Baseball“, examined proposals by Anthony Williams, Mayor of Washington DC, to bring the Montreal Expos baseball team to the District in exchange for the city building them a new ballpark.  As they write:

[Mayor] Williams has claimed that the new stadium will create thousands of jobs and spur economic development in a depressed area of the city.

Williams also claims that this can be accomplished without tax dollars from D.C. residents.  Yet the proposed plan to pay for the stadium relies on some kind of tax increase that will likely be felt by D.C. residents.

Whilst Coates’ and Humphreys’ study is largely limited to a study of the economic impact of just one sport, baseball, across just 37 US cities, it does raise important questions about whether (and to what extent) economic benefits do in fact flow from using tax funds to bring professional sports to any city.  For those working to secure London’s 2012 Olympics’ legacy, those questions have a special pertinence.  After all, previous stadia from previous Olympics have stood idle or worse, from the perspective of elite sports; Montreal’s hugely costly stadium is now used for monster-truck racing.

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

A baseball team in D.C. might produce intangible benefits. Rooting for the team might provide satisfaction to many local baseball fans.  That is hardly a reason for the city government to subsidize the team. D.C. policymakers should not be mesmerized by faulty impact studies that claim that a baseball team and a new stadium can be an engine of economic growth.

Humphreys’ somewhat cynical conclusion in his 2010 article about the World Cup brings to mind the way in which Queen Elizabeth I used to periodically visit uppity nobles, moving her entire court into residence in their castles, quite literally eating their resources before moving on once they’d exhausted the host noble:

Don’t look for the FIFA officials, who require–and get–these stadiums and then stick the locals with the bill, in those vacant premium seats. They have already moved on to their next rent extraction target: Brazil, host of the 2014 World Cup. New stadium construction will soon be underway.

Once the Olympic and Paralympic party ends in London in late summer, I’m sure public policy researchers will be investigating London’s experience to further substantiate (or refute) the claim made for mega-events like the Olympics, the World Cup, the Commonwealth Games, F1, and so on that they are a boon to the host city/country and what factors determine the extent of those benefits.  In the meantime, let’s just hope that London 2012 delivers as “the Singapore Promise” promised back in 2005.