Steve Mirsky:    Welcome to Scientific American's Science Talk, hosted on August 6th, 2015. I'm Steve Mirsky. For the last couple of years some interested parties in Boston have been trying to get their city to host the 2024 Summer Olympics. Mayor Marty Walsh was among them. But on July 27th the mayor suddenly reversed course: He refused to sign an agreement committing the city to basically cover any funding for the Olympics that did not come through from other sources. His action basically ends the Boston bid.

Andrew Zimbalist is an economist at Smith College in Massachusetts, specializing in sports. On February 5th I went to the Bergino Baseball Clubhouse on East 11th Street here in New York City to hear Zimbalist talk with clubhouse proprietor Jay Goldberg about why it's almost always a financial hardship for a city to host the games. That subject is treated at length in Zimbalist's latest book:  Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup. So as you listen, keep in mind that the Boston bid was still in play when this audio was recorded.

I apologize for the noises coming from the chairs the two gentlemen were sitting on every time they shifted their weight, but I trust the content of this edited conversation will more than make up for the unfortunate sounds.

Andrew Zimbalist:     I have a very critical perspective on the World Cup and the Olympics. I think that the countries that have hosted those events, with two exceptions:  Lost Angeles in 1984 and Barcelona in 1992, have not benefited economically and some of them have been significantly hurt economically. And I think that there's an underlying structural reality that helps to understand why that happens.

And that reality is that both in the case of the World Cup and the Olympics there's a monopolist seller of the rights to host the games. The IOC is the monopoly that sells the rights to host the Olympics, and FIFA is the monopoly that sells the right to host the World Cup.

What they do is basically they orchestrate an international competition. In the case of the Olympics the international competition goes on for about 11 years. So what happened in this go-around, which we're in the middle of now which is the bidding for the hosting of the 2024 Summer Olympics is in February of 2013 the U.S. Olympic Committee sent out a letter to 50 cities around the country, inviting them to participate in the U.S. competition to be the U.S. selection to participate in the international competition, to host the 2024 Olympics.

And of course as you know there were four finalists:  there's Boston and San Francisco and Washington, DC and—did I mention Los Angeles? San Francisco, Los Angeles, Washington—and Boston got picked.

One of the interesting things about the fact that Boston was picked is that there was never a discussion in the Boston City Council, or a vote in the Boston City Council that said that we as politicians who run our city want this to happen. And there was never a discussion or a vote in the state legislature that said, "We as residents of Massachusetts want this to happen."

The way it happened was the way it normally happens which is there are a bunch of executives, mostly from the construction industry, got together and they formed this Olympic Committee:  Boston 2024. And they on their own made the bid.

So what happens is first Boston, of course, is competing against U.S. cities. And now that Boston has been selected, starting in September of this year they will compete against international cities. The cities that currently have expressed an interest in competing are:  Paris and Rome and Budapest and either Berlin or Hamburg will represent Germany—and Johannesburg and Duran will probably jointly have a bid from South Africa, and Melbourne is involved and Doha from Qatar is involved. So there are going to seven or eight cities around the world that the United States will be competing against to get the honor of hosting the Olympic games.

That process, where you have one seller and multiple competitors is one that leads to something that economists call a "winner's curse". That is, most of the bidders will agree with each other, more or less, that it makes sense to spend only so much on the games. And there will be one bidder that's an outlier that will bid more.

Now people understand that they don't bid with money but what they bid with is the number of facilities and sports venues that they're going to construct, and the quality of those venues. And normally the ones that are the most grandiose and most elaborate and lavish are the ones that are making the highest bid. The bid is the amount of money that you have to put into building all of these facilities, and also building an Olympic village and making sure that the road system is appropriate and public transportation connects everything efficiently and so on and so forth.

So the one that is the outlier and bids the most is the one that ends up winning. And that outlier is the one that thinks that the Olympics is worth more than everybody else. So that usually, this winner's curse, happens in baseball in the free agency market. It happens in other sports in the free agency market. And that's the starting point and that's one of the reasons why I think that it's very hard to find winners amongst the cities and countries that host these events.

Let me say a bit about why I come to the—other than the structural analysis that I just offered, why I think there's evidence that says that these things don't pay off. And to do that we have to look at the cost structure and also the revenues that you get from hosting.

London spent roughly $17 billion. By the way, whenever you read something in the newspaper that Sochi spent $51 billion and Beijing spent $44 billion and London spent—sometimes you see $16 or $17 billion—those numbers aren't real numbers. They're sort of compromises. Somebody pulled a number out of a hat and other people start repeating it.

The reason why they're not real numbers is it's always very difficult to decide whether a particular road that gets built is a road that helps the city's long-term development, or it's a road that's there strictly because it's facilitating access to an Olympic venue. And people will debate that. And sometimes the road is doing both. And so if the road costs $100 million to build what do you do, split it 50/50? The numbers that come out and the numbers that I use are not applied numbers; they're kind of fudge numbers, or they're ballpark numbers.

So London spent $17 billion, roughly, to host the Olympics in 2012. Their initial bid when they went to the National Olympic Committee of the U.K., their initial bid was $5 billion, and they ended up spending $17 billion. Yet the average cost overrun since 1976 for the Summer Olympics is 252 percent, which means 3.52 times. So on an average if you bid $5 billion you're going to end up spending somewhere in the neighborhood of 17.5. So London was kind of right in the middle of the cost overrun phenomenon.

The reason you get cost overruns is several fold. Number one, it's a long period of time. So we're in the middle right now of the bidding for the 2024 Olympics. It started—the letter from the USOC started back at the beginning of 2013. So you're looking at a period of 11 years, when there's cost inflation over the period; that's one of the reasons.

Another reason is that the international competition itself inevitably leads countries to up the ante. So what will happen is as we start getting more and more information about who's officially bidding you're going to out with plans. And in fact the IOC sponsors several meetings around the world during this period where the bidding countries, the applicant countries come and make presentations.

If Boston wants to get the Olympics they're going to have to meet what these other cities are doing. Right now Boston has a very barebones proposal for the Olympic stadium. It's a 60,000-seater without any luxury boxes, and without catering, and without any signage. When Boston starts competing officially with these other countries many of those countries are going to have 80,000 seat Olympic stadiums, which is the old standard. And they'll have luxury boxes and they'll have club seats. And so if Boston wants to stay in the competition they're going to have to up their ante.

But it makes sense for them at this stage to have a lowball because if they have a lowball then they can go to the city council and go to the state legislature, which they are doing, and saying, "We're not spending very much money and in fact we're not going to need any public money." Once the Boston City Council signs on and the Massachusetts legislature signs on then they can start adding the bells and whistles.

So that's basically, roughly what's going on in the cost side.  I can go into much, much, much more detail if you like but analyzing and critiquing the particular Boston bid, and why they're going to end up using billions of dollars in public money rather than zero public money. So that's on the cost side.

On the revenue side here's what happens. The IOC shares approximately 1/3 of the international television money with the host. So right now the international television money for the Summer Olympics is about $2.1 billion. So they give $700 million of that money to the host. Another chunk of money is the ticket sales. London had about $990 million of revenue from ticket sales.

Then there's a chunk of money from corporate sponsorships; there's domestic corporate sponsorships and international corporate sponsorships. London had $1.4 billion from all of that. And then there's licensing and the sale of stamps and other memorabilia.

Put it all together and London had, from all of these revenue sources, about $3.5 billion of revenue. So that's $3.5 billion on one side of revenue and roughly $17 billon of costs on the other side. How is that made up? If Lord Sebastian Coe was sitting in this seat now he would say, "Well, what happens is that we've got to be on the world stage. And there are billions of television sets around the world that were tuned in to the London Olympics. And so this is great emotional value and advertising value for our city. And not only will it attract tourists to London in the future, but it will attract foreign investment and it will increase trade between London and the rest of the world and all of this will generate employment. And so we're going to more than make up that deficit in the balance between $3-1/2 billion and $15 or $17 billion or whatever number you want to pick."

Well the economic evidence, that is to say, evidence that's been produced by economists like myself who don't have an axe to grind, or at least we're not being paid by one side or another to produce a nice report or a critical report, but we're trying to understand what's actually happening, and then we use econometrics and we control for the relative variables and we publish these things in these scholarly journals which means that they are vetted by other colleagues to make sure that the methodology is clean.

The studies that have been published about this say that those so-called benefits, long-arm benefits with regard to increased tourism or with regard to more foreign investment or employment or trade in the long run aren't there. There are a few cases that I've said where you can argue that there was some gain, and in a moment I'll come back and talk about that.

But one of the things that's been quite interesting over the last several Olympic games, it used to be assumed that there was a short-run gain in tourism, that the whole Olympic family would come over, you'd have 10,500 athletes, you have their family members who come. You have the executives who come. You have the media who comes, descends on your city. There are a lot of people. There are probably 25,000, 30,000 people in that contingent. All are coming for the Olympics.

And then you have the fans who are coming to watch. And so there is always the sense that you're going to get a lot of income, a lot of revenue's going to be generated and a lot of that economic activity will be generated in your city from all of these people who are coming to your town.

Well it turns out that London actually have five percent fewer visitors during August of 2012 than it had during August of 2011. Beijing had 20 percent fewer tourist arrivals in August of 2008 than it had in the previous August. And the numbers afterwards haven't gotten any better. So what's going on? Well, what seems to be going on is that people like to stay away, unless they're true Olympic fans they like to stay away from London when they're having the Olympics. Or they like to stay away from New York when it's having the Super Bowl, as it did last year. And the reason they want to stay away is that they anticipate congestion, they anticipate high prices, they understand that there might be some additional security issues in the city at that time and they say, "Let's go somewhere else this year."

The other thing that's going on in the tourist front is that there's some very interesting analyses done by an organization called European Tour Operators Association. And what they have concluded is this:  that it hurts tourism in the long run to host the Olympics. And the reason it hurts it in the long run is because even though London had five percent fewer tourists, the tourists who were there were overwhelmingly there for the Olympic Games.

They come home and they talk to their friends, neighbors and relatives and they say to them, "I had a great time in London. I saw a 100-meter relay, and I saw this event and I saw that event. I saw the decathlon." That's the Olympic tourist coming home and talking about it.

The normal tourist comes home and says that, "I went to the London theater. I went to the British Museum. I saw Big Ben," whatever that tourist says they come back and they talk about things that are enduring cultural artifacts of London. And somebody they're saying this too can say, "Oh, I want to go see those things." But they can't say, "Oh, I want to go see the 100-meter relay that you watched."

The European Tour Operators Association says the best way to promote tourism is word of mouth. So you lose that value from the one-month period of hosting the games.

Let me just talk for a minute about Los Angeles and Barcelona and then I'll throw it open to questions. Some of you are old enough to remember that I'm about to say and some of you might not be, but in 1968 there were Summer Olympics in Mexico City. Those games were marred by violence. There was a student protest and over 200 students were killed at that protest. There was the Olympics when John Carlos and Tommie Smith—this was right after the assassination of Martin Luther King. We have a lot of racial politics, extant racial politics in our country. So they're on the medals platform and they race the black power salute—they get kicked off the team. Anyway, there were a lot of things that were going on in the Mexican Olympics. And also the commentators were constantly talking about the air pollution and how it's hurting the athletes.

Then in 1972 you had Munich—you should remember the terrorist invasion of the Israeli compound. Eleven Israelis were killed. Five of the terrorists were killed. One German police person was killed. It had a very bad aftertaste for the Munich Olympics.

And in 1976 the Olympics were hosted in Montreal. The management of the games was completely bungled and so mismanaged that the local organizing committee of the Olympic Games had to be kicked out and the administrators from the Province of Quebec had to take over the administration.

And it turns out that the cost overrun in Montreal was 9.2 times the initial bid.

So when you get to the late Seventies you had three very negative images that had come out of the previous three Olympics, and nobody wanted to bid to host the 1984 Olympics. Moscow had already been slated to host the 1980 Olympics and there were lots of disagreements about who was going to boycott and who wasn't. And so nobody wanted to bid.

And then finally a private group in Los Angeles, led by Peter Ueberroth came forth and said, "We'll host the 1984 Olympics on a couple of conditions. Number one, you let us use the facilities that we have still from the 1932 Olympics that they hosted, and number two that you backstop the games, you IOC—both the USOC and the IOC—backstop the games financially. So if we have any deficits that you'll cover them." And the IOC, for the only time ever, said, "Yes, we'll do that.

Peter Ueberroth then went on to innovate with corporate sponsorship models and was very aggressive in that front and very successful, and they ran the games very successfully. And at the end of it all, because of these special features that they didn't—they built two or three very small venues with corporate money, but they didn't have to put any of their own money into it. All the other venues were already there. The transportation, communications infrastructure was already there. They ended up with a $215 million surplus from the games in 1984. So I don't think it was a great boon to the Los Angeles economy but it was probably something that was positive.

The other case is Barcelona in 1992. I have to go back a few years to explain what happened there. But basically what happened is the dictator Franco died in 1975. Franco had neglected for 40 years the whole Catalonian region, and Barcelona's part of that region. And the other thing was that there was no effective governing regulation of where industry developed in Barcelona.

So what happened in Barcelona, which is a lovely city sitting on the Mediterranean Sea is that an industrial or manufacturing belt sprung up along the water, and then a warehousing belt was there too. And so the main blocks of the city were blocked from the sea by this belt of industry and warehousing. And so after the death of Franco and the installation of democracy people got together and they said, "We want to redesign our city."

And one of the things they wanted—they had some road plans and one of the major things they wanted to do was to reopen the city to the sea. So they were developing this plan in the late 1970s and the early 1980s and they had the plan pretty well set and then the idea came:  "Maybe we can host the Olympics and we can fit in the need of the Olympic infrastructure and make it work synergistically with the plan that we already have." Barcelona is the only city that I know of that's done that.

Invariably what happens is the opposite:  that sequence is reversed, which is that there is no plan, there is no design, there is no vision for the city, but the city has some people in it like the construction industry people who decide that, "Gee, this would be nice to have all of this construction going in, hosting the Olympics." And as they did in Boston they lead the effort and they bring the politicians along.

And the first thing that they do is take care of the IOC:  they have to have 32 venues, they have to have an Olympic Village, they have to have a media center, they need an Olympic stadium, and those things have to have transportation that connect them. And so everything is built around the Olympics. And then, as an afterthought, they shoehorn a few ideas in that were part of the city's plan and that becomes what happens. In Barcelona the whole causality was reversed.

So that I think is the fundamental element of what was good about Barcelona. But also Barcelona joined the European Common Market in 1987, European airlines were deregulated in the early Nineties, which created a lot of airlines that produced very low airfares. So there's much more communication and transportation of people around Europe.

And the other thing about Barcelona is that in large measure, because of the way things were developing during Franco, is that it wasn't a tourist attraction. It was kind of an undiscovered jewel, a gem. It's a city, as I said before, that has a wonderful location, has great climate, wonderful culture, spectacular architecture. And once Barcelona was able to open itself up to the world and being able to have the Olympics and begin to show the new Barcelona contributed to all of that.

But most cities—I think it's true for Boston—people pretty much know, as they do for New York—they know what the cultural appeals are of Boston, what the touristic appeals are. It wouldn't be—this is a revelation but the Olympics help us discover that the Boston Commons is in Boston, or that Paul Revere rode his ride in Boston or whatever.

So I think I've gone on longer than I wanted to and I'm happy to listen to any comments or questions. Yeah?

Audience: Just a couple of examples about Boston is they wind up spending a lot of money, even though they've been saying they're not going to spend any?

Zimbalist: Sure. There are lots of things. One of the things is that they assumed in their bid documents that the United States would pay for security. Security costs at the Olympics these days are $2 billion. My sense is that they're going to go higher. They simply assume that the United States is going to cover them. The United States will declare it a special national security event—the Super Bowl is declared that also—the United States covers some of the security expenditures for the Super Bowl but the local government also covers some of them.

Whether the United States covers a billion dollars or $200 million or $1.8 billion is all subject to negotiation and legislation. It's nothing automatic there. Boston is assuming that the United States is going to pick up the entire tab.

All right, let me pass along the largest single—there are three different budgets, by the way. There's what's called the ____ budget, which is the budget for operating the games during the 17 days. That's $4.7 billion. There's a venue budget for some of the venues that they say you're going to have to build, which is $3.4 billion. And then they have a $5.2 billion infrastructure budget, which is the roads and the parking lots and so on.

Now they say that that $5.2 billion has already been allocated by the city council to be spent, so it's not in the money; it's not going to encumber any public dollars.

Here's the reality of that. The city council last year passed a bond bill that authorizes the city to issue bonds over the next 20 years for projects that will take place over the next years. The Olympics of Boston gets them by 9-1/2 years away. All right, so they're saying that all of these infrastructural projects are covered, but they're not covered in the time period that they need to be covered by. And if you break them down you find that about half of them are in fact covered during that period. So what you have to do is what they euphemistically call "advance the projects". A project that's slated to happen in 2029 would have to now happen in 2022.

When you advance a project it means you're taking money that's not there, which means you have to kick out some other governmental project. So you're trading off other social services or government services for accelerating some of these infrastructure. So that's one element of that.

Another element of that—I don't know if any of you are aware of this or not but when we had a ballot initiative back in November to see if the citizens of Massachusetts were willing to have the gas tax indexed—to index it means to make it go up with inflation—every dollar that's collected by the gas tax goes to a transportation budget.

Citizens of Massachusetts have voted down the index, which left a $2 billion deficit in the next 10 years in the transportation budget, which means that of that $5.2 billion there's only actually $3.2 billion that's available.

The head of the state legislature transportation committee gave an interview yesterday where he said as far as he can tell the actual costs for doing what they say they're going to do is $13 billion; it's not $5.2 billion. Anyway.

So I can go on and on with this stuff but I think that—another very interesting thing is this—one last thing and then I'll stop. The big committee, Boston 2024, refused to make any of the bid documents available to the public. Then they came under more and more criticism, and then they finally said, "Okay, we'll make some of the bid documents available, and some of them are proprietary; we can't make them available."

So of the ones they made available we discovered that in the bid document—these are documents that they submit to the USOC when the USOC is trying to decide whom to choose amongst the four cities. In those bid documents they represent that they have to use so much land in order to—they have to take so much land in order to build the venues and the transportation routes and so on and so forth. And they represent that 25 percent of the land that they need to take is privately owned and they have entered negotiations with the private owners in order to buy the land from them and it's proceeding favorably.

So the land that they need to build the Olympic stadium on has this very large thriving business on it, and the land that they need to build the Olympic Village has another very large thriving business. And the day after the bids come out, the bids are made public, the proprietors of those businesses say, "It's news to me. They never talked to us." And these are the two most important structures that there are:  the Olympic Village and the Olympic Stadium. "They never talked to us about it. And we're actually planning to expand our operations. We want to buy new land and there's no way on Earth we're going to sell that land."

I think there's a reasonable chance, the way things are going, that—and one of the city councilors called for a referendum in Boston—I think there's a reasonable chance the thing is going to get thwarted.

Audience: Do you think there is another Barcelona out there? Irrespective of cities that are currently bidding for the next Olympics is there another Barcelona out there?

Zimbalist: Barcelona in the sense that they're a city that has the political wherewithal to develop a vision for the city and develop a plan for the city and then fit the Olympics into that?

Audience: I guess that --

Zimbalist: I don't know of any city like that.

Audience: I guess one or two [audio interference] that can still kind of make it work. Do you think it's a sucker's bet for any city that's ever vying for the Olympics in the future?

Zimbalist: No. But I think they'd have to have the special conditions that either L.A. had or Barcelona had. And I think it makes sense to talk about reforming the system.

So one of the reforms that I think would be really productive or constructive it is for these—and the IOC—to go back to the continental rotation system that FIFA tried for a while, so that every four years is a new continent that will be the host. So we would know, since there's six continents every four years, every 24 years the United States or Canada, being a North American continent, would get to host the games. And so any competition that emerged would only be within Canada and the United States, not across the whole world. So that would be one idea.

Another idea that would have to be implemented by the continents themselves is that they should only have one city within the continent that does it all the time. So I think there are ways to reform the system and still create the Olympics as a grandiose, exciting affair that would have less exploitation.

         Yes?

Audience: Is there a difference in the profit and loss of a Summer versus Winter Olympics?

Zimbalist: The Summer Olympics is roughly twice as large—and a little bit more than twice as large in terms of the number of participants. And number of athletes. In terms of the number of countries who participate it's about a three to one margin—more summer than winter. But in terms of the outcomes no, one can't look and say the Winter Olympics produce economic value and the Summer don't produce. It's pretty evenly distributed.

Yes?

Audience: Putting aside the economics of it aren't there places like say Germany in '36 and the Russians and the Chinese—they don't care about the money; they just want the Olympics [audio interference] the country or nationalistic reasons or something like that.

Zimbalist: Yeah, sure.

Audience: It's like the money doesn't even matter to them.

Zimbalist: Yeah. But I'm not adopting the perspective of Hitler or Putin. Yeah, I mean Putin had his reasons for doing what he did in Sochi and they're going to—to host the next World Cup in 2018. I'm trying to ask the question how does it affect the people in the country—how does it affect the broader economy. I think one of the more problematic things for me is—and I've said this about Boston but I think it's true across the board, that the private individuals who are supporting these things are coming from the construction industry primarily, with support from the construction trades, the construction unions, and then there's some ancillary groups around that that will also get excited about it. Sometimes there's some hospitality interests, hotel interests that get excited about it. Sometimes there's some architectural firms, some insurance firms, some media companies that get excited about it.

And invariably there'll be an investment bank that's going to float the bonds, that they'll get excited about it, and there'll be some lawyers who work for all of those groups who will get excited about it and you have a consortium of private interests that carry the thing through. And it's good for them. It's good for them. There's data that shows construction industry profits go way up when a country hosts the World Cup. But I'm asking the question not about a particular leader or a particular sector of the economy but how does it affect the economy broadly.

Yeah?

Audience: Is there a plan B with the Olympics or the World Cup—you had Sochi, everyone saying, "Well is this actually going to happen? Half the hotels aren't built. You have the Rio World Cup, they're saying if Copa doesn't work out are they going to ship it to the U.S. Is that a real economic realization that someone's planning for. Is there a [crosstalk] --

Zimbalist: They'll never admit to it. They'll never [crosstalk]—so there are some issues. I mean there's some interesting cases that you could look at. In 1970 the IOC awarded Denver the right to host the Winter Games in 1976. Back then the Winter Games and the Summer Games happened in the same year—that changed in 1992 because they didn't want corporations to have to split their sponsorship money between the two games. But in '76 Denver was supposed to host the games and in 1972 the citizens of Denver mobilized and organized a referendum. They had a referendum that overwhelmingly voted against hosting the games because of the cost and because of the environmental impact. IOC went back to Innsbruck, which had hosted the games in 1960s and said, "Would you be willing to host them again?" That turned out to be plan B.

We might see some plan B movement with regard to the 2022 Winter Olympics because what happened there was that as of about 14 months ago you had bidders from Lviv in the Ukraine, from Stockholm, Sweden, from Krakow, Poland, from Munich, Germany, and from Oslo, Norway. You had five bidders from Greater Europe—all of them dropped out. Three of them dropped out because referendums voted them down. Norway dropped out two months ago because Oslo went ahead with the bid and the government of Norway was asked to back it up financially and they said, "We're not doing this." So they pulled out.

And now the IOC is left with two potential hosts. One of them is Almaty, Kazakhstan—and nobody believes they have the wherewithal to do that. And the other is Beijing. Now they have the wherewithal, probably, but the main problem with Beijing is that Beijing is in the northern part of the country and there's unbelievable water shortage. It's catastrophic water shortage in northern China. And the mountains where they want to host it gets very little precipitation. So their plan is to have artificial snow, which means using water.

And if the IOC ended up picking Beijing they'd come– since they claim that they're into sustainability—they'd come under a lot of criticism. And so—I don't know what the plan B is but they might have—maybe they'll go back to Innsbruck.

Mirsky:      Of course on July 31st Beijing did win the bidding for the 2022 Winter Olympics, environmental concerns notwithstanding.

That's it for this episode. Thanks again to Jay Goldberg and the Bergino Baseball Clubhouse for accepting my bid to record the event. Get your science news at our Web site: www.ScientificAmerican.com, where you can also check out the August issue of the magazine. On the cover:  "How we conquered the planet" (we humans, that is) "our species wielded the ultimate weapon:  cooperation". I personally think the bacteria are still running the planet, but I might be in a minority.

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