The June issue of Economic Papers has an interesting analysis of the economic costs and benefits of hosting the Sydney Olympics. Most of these analyses, of course, are done before the fact, when governments seek to assure the public that the massive public spending on stadiums will pay for itself through increased tourism.

The authors of this study find that that wasn’t the case, at least for Sydney:

We find that in terms of measurable economic welfare the Sydney Olympics came as a cost to Australians, reducing the present value of real private and public consumption by $2.1 billion.

A big reason for the finding is that the ‘induced tourism’ effect of hosting the Olympics is smaller than is often assumed. When they talk about induced tourism, they’re not referring to people who travelled here during the Olympics to watch a few events, they’re referring to people who were expected to travel to Australia as a result of all the exposure that Sydney and the country received during the Olympics. That tourism boom just didn’t happen, the authors find.

Some countries apparently do have big induced tourism effects as a result of hosting major events, like Seoul in the wake of the 1988 Olympics. The authors cite some literature that apparently finds that “the strength of any Olympics-induced promotional effect on tourism is likely to be weaker the more established a tourism destination is”. Given that Sydney is already quite well established as a tourism destination, the effect was fairly minor.

Now, these findings don’t necessarily mean that hosting the Olympics was a bad idea, or that hosting future events of that scale would be a bad idea. There are a range of non-tangible benefits that can accrue as a result of hosting major events, and these shouldn’t be ignored. What this study means, though, is that advocates of hosting major events should place less emphasis on the net effect on the overall economy, which may be trivial or negative, and more emphasis on the social benefits.

As the authors put it:

This does not necessarily mean that Australia should not have hosted the Games. An Olympic Games is a great international sporting event that brings much enjoyment to a large number of people around the globe. For the population of the host nation increased utility can arise from factors such as national-pride effects, consumer surplus on local ticket sales, the advantages of the Games being held in one’s own timezone (an advantage shared by countries with a similar longitude) and so on. 

[T]his article indicates that the Sydney Olympics came at a substantial cost in terms of tangible economic benefits, and for the Games to have had a beneficial effect on welfare, intangible benefits… would need to be similarly large. It is clearlyimportant that citizens of countries bidding for mega sporting events be aware that such events may not bring a double dividend of intangible benefits accompanied by an economic stimulus.