August 9, 2012

The Quadrennial World $port Activity, or A Two Week Party for Shoe Companies?

[This post is inspired by years of reading the excellent, trenchant The Sports Economist blog.  We can't recommend this blog more highly if you are at all interested in the business of sports.  Go there now and search for Olympics related posts to find some of the best thinking about the financial and economic impact of major events on the host.  And by the way, we aren't economists and we don't play one on TV, so don't get fussy if our reasoning is askew on this topic.  Just leave a comment and explain where our logic is off.   We enjoy watching the Olympic Games, because we love sport.  There is no fiction that matches the dramatic reality of most any athletic competition.  We wonder, however, if we would enjoy the games any less if they weren't as extravagant, and less of a drain on the host's economy.  We suspect not. -ed.]

If you are at all paying attention, you will inevitably hear about the vast sums host countries spend preparing for the Olympic Games - building new sport venues, beefing up public transit, etc.  This is almost always at taxpayer expense.  In fact, the decision to award a particular country an edition of the Games is often swayed heavily by the extent to which that country will dip into the public coffers.  If you might recall the coverage surrounding the final vote of the International Olympic Committee in 2005 to award the 2012  games to London over the putative favorite Paris.  There was wide speculation that Paris' plan to minimize their investment in new venues by erecting mostly temporary facilities was a factor that ultimately pushed the decision in favor of the British and their promises to spend on a massive scale.  Something about ensuring the "legacy" left by the games on London.  A more perfect example of the principle in economics known as "the winners curse" we have never seen, not to mention the big disruption to the normal enterprise that occurs on a daily basis in London.

No trunk or big ears, but this is what a white elephant looks like
Let's show them what they've won.  Here is what London, and the British taxpayer, is going to "own" on August 13, 2012: lots of big white elephants dotting the  London skyline.  Yes, London, that's even after having the honor of being the most over budget and expensive games in history.  [Even the broadcast rights fees go back to the IOC, meaning that the state-supported BBC is paying to cover the events commercial-free.  Not that we're complaining.  We've been watching web streams of BBC's coverage, and been loving it.  No #NBCFail for us. -ed.]  Not convinced?  Just ask Montreal, Athens, and even Beijing how awesome it to have massively expensive, empty stadiums that take decades to pay off.  Maybe Greece would rather not have the extra billions tacked onto their national debt from the 2004 Games right about now?

It should be noted that Beijing is the exception that proves the rule.  Only a country with that much trade-surplus cash on hand could afford to throw a pile of money down the Olympics hole.

It should read, "Good luck paying for it."
There is something else that occurs to us about the Olympics, though.  This is a unique time for most of the athletes.  For a few days every four years, their largely ignored sport gets a ton of media and public attention focused on it.  That attention can lead to vast riches for those players who are particularly successful (Mr. Phelps, Mr. Bolt, et. al.), particularly photogenic (Ms. Solo, and nearly any beach volleyball player), or extremely media savvy (Tyler Clary).  It also occurs to us that the companies that make all the shoes, apparel, and various other bits of the athletes' kits seem to always report windfall profits in an Olympic year. Go check out some of the financials on participating companies.  Not mentioning any names but there have to be many smiling faces around Beaverton, OR and Herzogenaurach, Germany these days.

All of this leads us to wonder aloud whether all of the money sunk into Olympic preparation, and the hype that it engenders, acts as some kind of Keynesian stimulus for endorsed athletes and shoe companies.  It's likely the worst, least efficient stimulus imaginable, but it looks like at least somebody is being enriched by the Games.  It's just not the taxpayers of the UK footing the bill, nor the fans paying to watch in person, nor the hapless schmucks in the USA forced to watch nightly coverage on NBC.

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