Putting on a Grand Show
The Globe and Mail has spoken. In its June 26 editorial, Canada’s self-proclaimed oracle of prudent economics strongly cautioned Calgarians against a foolish of bid for the 2026 Winter Olympic Games. “The magical reputational benefits that allegedly derive from hosting the Olympics dissipate quickly, when they aren’t an outright illusion,” the editorialists proffered. “Calgary has already been an Olympic city once,” they concluded patronizingly. “Isn’t that enough?”
This may seem rich from a paper headquartered in the city that hosted the 2015 Pan Am / Parapan Am Games, an event considered by most as a success, and “a gamble that paid off” according to the Globe’s own Mia Pearson. Simple hometown bias? No, since the paper ran an October 2013 story by Mark Hume headlined: “Vancouver Olympics worth the $7 billion price tag, report says.” And when Toronto city council was mulling a bid to host Expo 2025, Globe columnists had competing headlines, with Gary Mason arguing “Hosting a World’s Fair is Worth the Gamble” in 2013 while Marcus Gee cautioned “Toronto taxpayers should be wary of Expo 2025’s big promises” in 2016 (council eventually chose not to bid).
Of course, the Globe and Mail is not the definitive arbitrator of whether hosting world mega-events such as Expos or Olympics are wise socio-economic investments or wasteful indulgences. But the paper’s seesaw “for/against” stance illustrates two things. First, for many journalists, politicians and a majority of economists, such events have a sketchy reputation apropos their economic performance. Second, if the results of the just-released Calgary Bid Exploration Committee (CBEC) report are accurate, they can still muster broad public support.
First Problem: How are Costs and Revenues Defined?
At first blush, defining costs and revenues of a mega-event seem straightforward. Usually, however, the “total cost” reported in the media appears considerably higher than organizer’s net estimates. Shanghai Expo 2010, for example, had an official cost of $4.2 billion (all figures USD), not unreasonable given its whopping 5.3 square kilometers and over 250 participants. Media reports, however, cite $50 billion as the real cost. Most reports omit that approximately $45 billion covered transforming this city of 20 million with vast infrastructure projects including three subway lines, a new airline terminal, massively revamped waterfront, and so on. Similarly, media reports on Olympic costs often do not separate out operating and other event specific costs from permanent infrastructure and sport facilities that, at least in theory, add long term assets to a city or region.
The now-shelved Toronto Expo 2025 proposal, to its credit, carefully separated out required incremental investment for Expo to derive the event’s net cost of $1.910 billion (according to PwC with ARUP). This excluded $1.060 billion for other required infrastructure investment like flood control and transit already forecast by Waterfront Toronto for the site as well as new but permanent legacy facilities such as an Aboriginal Cultural Centre.
Operating costs of $1.625 billion would be offset by similar revenues, leaving an incremental funding shortfall of approximately $1.9 billion. But, said the PwC report, hosting the event would generate incremental government revenues of $1.257 billion, thus reducing the unfunded figure to approximately $600 million. Anticipating frequent criticisms by economists in the past, PwC was careful to calculate in its analysis only the incremental tax revenues generated by the event. They also posit secondary incremental gains to spending, GDP, employment and employment income impacts. The result produced an estimated handsome return on investment.
This approach extends to other mega-events although there are important caveats. A World’s Fair typically runs for five to six months versus two weeks for an Olympic Games, meaning less pressure on transit infrastructure such as airports (the grossly underutilized Athens airport is an oft-cited example) and hotels (40 per cent of Lillehammer’s hotels went bankrupt following that city’s 1994 Winter Olympics). Olympics also usually require far more publically funded sporting facilities, many so-called “legacy facilities” in name only. Beijing’s iconic but underused Birds Nest stadium is a popular example. Athlete housing requires significant investment although, if done properly, can be discounted as a post-event asset.
An assessment by the Conference Board of Canada and Deloitte LLP of Calgary’s 2026 Winter Olympics was released this July. It predicts an unfunded balance of $1.2 billion without deducting legacy facilities. Because Calgary continues to fully utilize its major facilities from 1988, the CBEC is projecting upgrading existing facilities and adding only two new ones, plus $135 million for legacy endowments. Athletes’ accommodation would be financed through social housing and developer investment. While no new major public infrastructure is assumed, a contentious debate over public/private financing of a new arena and the need to complete an airport LRT link are not addressed.
The report also posits significant incremental secondary economic impacts. Interestingly, some economists suggest that when a mega-event coincides with a recession — such as happened prior to Vancouver’s Expo ‘86 —the impact is greater because unused capacity reduces opportunity costs. Conversely, a housing recession created problems for Vancouver’s 2010 Winter Olympics athlete’s village, although in the end the city, after rescuing the failing private sector project, posted a net profit of $70 million (a number disputed by some).
Witnesses for the Prosecution
For observers of mega-events, corruption headlines like those swirling around FIFA, the International Olympic Committee (IOC) and Expo 2025 in Milan, online image collections of abandoned Olympic venues, and inevitable stories of huge cost overruns are enough to turn many into opponents. In a scathing review of Milan, the Guardian’s Olly Wainwright invoked Seville’s Expo 1992’s now “post-apocalyptic landscape.” Many Canadians remember Montréal’s long financial burden engendered by its 1976 Summer Olympics, too often repeated by other hosts. Some may remember the U.S. federal government bailout of New Orlean’s Expo 1984, preventing a humiliating bankruptcy closure during its run, or the alleged $600 million – $.16 billion loss at Hannover’s Expo 2000 when less than half of the expected audience materialized.
The fact that few cities will now bid for the Summer Olympic Games confirms an increasing scepticism about bottom line benefits. With only Los Angeles (the only host city ever to turn a real profit) and Paris interested, the IOC is on the verge of opting to give them the 2028 and 2024 Summer Games, respectively. For the 20205 World’s Fair, however, four cities — Osaka, Japan, Baku, Azerbaijan, Greater Paris, and Ekaterinburg Russia — are vigorously competing for the Bureau International des Exposition’s (BIE) coveted sanction.
But more important has been the raft of post-event studies that have challenged consultants’ always rosy, pre-event assessment of economic outcomes. In his article Mega-Event Syndrome: Why So Much Goes Wrong in Mega Event Planning and What to Do About It (Journal of the American Planning Association, Winter 2015) Martin Muller summarizes decades of research augmented by multiple visits to mega-event sites and 51 participant interviews. He posits seven key negative consequences.
- Overpromising Benefits – including the pre-event economic multiplier effect, event tourism impact and post-event economy outcomes. “The bid book is science fiction,” he quotes one Olympic organizer;
- Underestimating costs – caused by firmly fixed delivery dates; inability to “ramp up” facilities over time; deadline profiteering; need for large contingencies given too many unknowns; long lead-times allowing for significant changes in variables; and promoter low-balling to achieve buy-in;
- Event takeover – in which the event pushes aside other more pressing planning needs (for example Toronto Mayor John Tory, in his opposition to Expo 2025, cited social housing and transit as more important);
- Public Risk Taking – where the public assumes the risk and the private sector reaps the profit. In Brazil’s 2014 FIFA World Cup, private investment failed to materialize leaving the public sector to provide 94 per cent of the investment;
- Rule of Exception – resulting in disruptive special legislation, tax exemptions, suspensions of property rights (18,000 people were “resettled” for Shanghai Expo 2010) and changes to immigration rules. And it is not just in authoritarian countries. Vancouver expropriated a working class “slum” in 1986 and introduced free speech restriction by-laws in 2010;
- Elite Capture – because “mega-event planning tends to privilege local businesses and real estate interests, global corporations, and cronies of the political elite.” Again, we could cite Vancouver for Expo 1986 where prime waterfront site was sold by the provincial government post-event to a Hong Kong billionaire, well under its estimated value;
- Event Fix – happens when an event is used to create a catalyst to leverage money out of reluctant senior governments to achieve broader infrastructure or urban planning objectives. Canadian cities’ weak taxing capability, we could add, leads municipal officials to play provincial governments off the feds, an “Olympic” sport in itself.
Some proponents, however, turn fixed deadlines and event fix into positives. Toronto City councillor Kristyn Wong-Tam, in an articulate defence of Toronto’s Expo 2025 bid to Building, argues that a “fixed date project” is the only thing that will ensure Toronto’s huge waterfront potential is achieved. She points out that the recent tri-partite government announcement of $1.2 billion for flood control of the Don River estuary, a required component for Expo, comes with no implementation schedule. Wong-Tam also dismisses Tory’s more important priorities rationale, arguing Expo was very much about transit and social housing units.
Economists have frequently supported criticisms of mega-event’s economic impact, particularly the tendency of ex-ante assessments to overestimate pre-, during and post-economic impacts when compared with economists’ own ex-post reviews. In 2016, John Wihbey, managing editor, Shorenstein Center, Harvard Kennedy School issued a summary of academic studies in which many, but not all, backed such findings, at least in terms of Olympics and World Cups. In a article titled Going for Gold: The Economics of the Olympics, economists Robert Baade and Victor Matheson report that in addition to every Olympics from 1968 to 2012 producing median cost overruns of 150 per cent, most ex-ante predictions on net or incremental improvements in economic performance were “rarely matched by reality when economists look back at the data.”
There are three key reasons. First is failure to discount the “substitution effect” where investment, consumption, employment, and so on is diverted from a competing and perhaps more productive economic activity that would otherwise have taken place: second is “crowding out” where Olympic visitors are counted as additional rather than alternative visitors (both Beijing and London experienced fewer visitors during the Games than normal); and third, standard economic multipliers for expenditures overestimate the actual multiplier effect created within an Olympic economy.
In terms of long term economic impacts, sport facilities such as stadiums and arenas tend to have few economic returns, are abandoned or inflict high maintenance costs. Additionally, there is no reason to conclude that supporting Olympic infrastructure investment will “provide higher returns than alternative infrastructure projects.” Other cited studies, however, have found that Olympics can “put a city on the map” and improve future tourism. Both Barcelona (1992) and Salt Lake City (2002) profited in this way. Similarly, Andrew Rose and Mark Spiegel in The Olympic Effect found “statistically robust, permanent and large, over 20 per cent” improvement in post-games foreign trade.
Witnesses for the Defense
Mega-events are “great thing to do if you do them well; if you don’t do them well they are a bad thing to do,” says Joe Berridge, a partner at Toronto’s Urban Strategies Inc. who has worked on several major urban-centred events. A corny aphorism, admittedly, but one echoed by others, such as the Globe’s Gary Mason, who wrote glowingly of the enormous “transformative” impact of both Vancouver’s Expo ‘86 and 2010Winter Olympics, attributing their success to “exceptional leadership.” Elsewhere, Conrad De Aenlle argues that unlike Seattle’s well-orchestrated 1962 World’s Fair, the excessive extravagances of infamous New York planner Robert Moses financially doomed that city’s 1964 Fair.
Stung by well-publicized past negative outcomes, organizations like the IOC, FIFA and even the less criticized BIA are attempting to refocus — at least publicly — on better assessing the economic, financial and legacy outcomes proposed in bids as well as ways to reduce costs. Most telling, Los Angeles intends to build no new athletic facilities for the 2028 Summer Olympics, and house athletes in existing university dorms, thus reapplying the profit-making approach employed in 1984 when the lack of alternatives required the IOC to agree. It is also probable that future Summer Olympics will remain the prevue of developed cities with considerable existing capacity.
Additionally, Berridge argues the 2012 Summer Olympics’ impact on the social, economic and environmental regeneration of East London/River Lee Valley will resonate positively long into the future. Less recognized and despite problematic costs, Barcelona’s 1992 Summer Olympics helped turn a faded industrial city into a regional powerhouse and the Seoul 1988 Summer Olympics played a major role in South Korea’s then-fledgling democratization. Shanghai Expo 2010, as Georgi Kantchev wrote in The New York Times in 2013, “is a perfect example of an expo held to show that a country is an important international player,” not to mention consolidating that city’s emerging role as a world economic powerhouse.
Collectively forgetting Montréal’s Summer Olympics financial fiasco, one of the strongest arguments for hosting mega-events may well be Canada’s own record with Expo ‘67, Expo ’86, the 1988 and 2010 Winter Olympics, and 2015 Pan Am Games. Although all have their financial controversies, often about cost overruns and real profit/loss figures, all have both helped promote their cities on the international stage and left a defensible legacy. If nothing else, all of these events have left a domestic sense of community achievement.
But there is more. Expo ‘86, focused on public transit and False Creek’s subsequent urban rebirth, played a major role in Vancouver’s emergence as one of the world’s most admired cities while also helping mitigate a bruising recession, wrote Glen Korstrom in Business Vancouver. Similarly, the 2010 Winter Olympics left a legacy of well-distributed sports facilities in two cities and a much-needed infrastructure legacy including public transit, social housing, the Sea-to-Sky highway and an expanded convention centre. The magnificent athlete’s village is a model of intensification signalling Vancouver’s movement away from towers to low and midrise housing. A UBC report found that while the Olympics neither increased net tourism (unlike Calgary and Toronto) nor added to its “international image,” it did result in vital infrastructure the two cities might never have seen. In other words, it successfully leveraged incremental funding out of both the federal and provincial governments.
Learning from Vancouver, Toronto carefully responded to long term community legacy sports facility requirements at the regional level while using infrastructure spending, including housing, to make a major contribution to a London-like revitalization of the eastern core. Additionally, the legacy facilities “allows now for hosting other events such as the Aboriginal games,” says Jeff Everson of the Canadian Urban Institute.
To this day, Calgary continues to use its 1988 Olympic sports facilities. If the city proceeds with a bid, it is considered the IOC’s preferred location and, like Los Angeles twice before, it may well end up as the only viable candidate, thus finding itself in a position to dictate more modest acceptable venues and more generous contributions from the IOC. The latter has already suggested there is room to lower Calgary’s projected costs even further, reports the Calgary Herald.
Ultimately, the success or failure of mega-events is less tied to their specific, inherent and difficult structural circumstances than to how those responsible respond. Bad outcomes arise from the demands of highly dysfunctional sanctioning bodies, self-centred proponents and vested interests, overt corruption and bloated ambitions and egos of public actors. But the same could be said of most major projects. Properly executed, with careful consideration of a city’s economic, social, infrastructure and urban design priorities and capabilities, the long term outcome can be a positive legacy. So, bid or pass? The verdict is both simple and unsatisfactory: it depends.