Parallels
1:14 pm
Mon February 3, 2014

Did London Get An Economic Boost From The 2012 Olympics?

Originally published on Tue February 4, 2014 2:33 pm

Ronald Reagan once joked that the game Trivial Pursuit had a special economists' edition: It came with 100 questions and 3,000 answers. Economists are notorious for being unable to agree on anything. So it's striking that on the finances of the Olympics, they almost all agree.

"Investing in the Olympics is not worth the investment," says Andy Zimbalist of Smith College.

"You build all these facilities that are perfect for the Olympics, that are not really as desirable once the circus leaves town," says Allen Sanderson of the University of Chicago.

"You end up with a very indebted city or host nation long after the confetti is cleaned up; someone has to pay the bills for it," says Bob von Rekowsky of Fidelity Investments.

This analysis runs counter to the assurances of host cities, which invariably promise new investment, tourism, and development. Governments insist that the games will pay financial dividends.

The Government Claims Olympic Benefits

London, like other Olympic hosts, says its investment paid off. The British government went further than most to back up its claims, citing a massive five-year, 1,000-page study conducted by a respected team of consultants.

The report concluded that by last summer, Britain had already earned at least $1 billion more than the $15 billion it spent on the 2012 Summer Games. Forecasts for the future went into the tens of billions of dollars.

Business Secretary Vince Cable was all over the news when the report came out, trumpeting the payback on investment.

"Certainly a very considerable net benefit," he told one BBC interviewer.

In every TV and radio appearance, Cable emphasized that this was an independent report.

"It's been independently audited," he told one interviewer. "An anonymized survey, methods approved by the national audit office," he told another.

The media picked up the same language. Most British newspapers described the report as an "independent analysis." Some added, "Commissioned by the government."

A Government-Funded Report

That commission was a $2 million contract. The check went to a firm called Grant Thornton, where a manager named Rob Turner oversaw the project.

"Government did not say you have to reach a certain figure at any point, and they wouldn't have," Turner insisted when I met him at Grant Thornton's headquarters in Central London.

Nor, he said, did anyone in the government suggest that the report should broadly reach a positive conclusion rather than a negative one.

"The modeling was done on the basis of trying to understand the economic impacts," he said. "If it had been a negative figure, then that would have been equally in the report."

That "modeling" is key. In a study like this, economists create an exclusive model, like an original equation or recipe. The model shapes the conclusions.

The authors might have avoided potential criticism that they skewed the model in the government's favor if they'd published this study in a peer-reviewed academic journal. But Turner says everyone wanted this document to be usable, not just for academics.

"It was about trying to make it accessible," he says, "Which is why the thousand pages, which were read by some, were distilled into a 30-page document, which will be read by a large number of people."

The government office in charge of this report would not say whether there was any implicit or explicit expectation that the analysis reach a positive conclusion.

A spokesman at the Department for Culture, Media, and Sport provided a written statement, saying the analysis was "supported by robust and comprehensive evidence."

Turner and his colleagues did bring in peer advisers — outsiders who were invited to consult on the study.

"Invariably we took those views on board," Turner says.

When asked whether the study came with the endorsement of the outside peer reviewers, Turner replied, "Very much so. The peer reviewers felt that it was a robust and comprehensive study."

A Contrary Voice

That does not match the description of peer reviewer Stefan Szymanski, who told NPR, "I thought this was tantamount to a whitewash."

Szymanski, who is a professor of sports management and economics at the University of Michigan, says, "The report provided a very bullish view, refused to comment on any of the negatives, or even to really qualify any of the results, and I was very unhappy about this."

In an email to Turner before the report was published, Szymanski wrote, "I'm very uncomfortable about the triumphalist tone of the report, which does not reflect what the data is saying." He added, "It should be stated clearly that the opinions expressed in the report are yours and not mine."

Szymanski says the authors sent him the final draft with one week to make comments. Crucially, they wouldn't let him preview the model — the formula that produced the numbers in the report. Szymanski says that's "extremely unusual."

Even so, the authors did make some changes based on his feedback.

"For example," says Szymanski, "The initial report claimed that the number of tourists arriving in Britain had increased during the period of the games, when the official government numbers showed that tourist numbers during June-July-August had actually fallen."

There were three other peer reviewers. One did not assess the final report. Another looked at the redevelopment of East London, but not the financial investment. The third peer reviewer is not an expert in economic analysis.

So Szymanski was the only person with expertise in statistical number crunching who looked at this study before it was published. And he describes it as a "political document" that ignores massive amounts of economic research showing Olympics are almost always unprofitable.

"Any serious published academic work is almost entirely skeptical about the potential of these events to generate economic benefits. And there has been a lot of research done by now," he says.

Is It Too Soon To Judge?

Some of that work has been done by a London economist named Max Nathan, at the National Institute for Economic and Social Research.

"There's a natural temptation to add up all the positive numbers you can find and discount or ignore all the negative numbers," says Nathan.

He says countries are never satisfied with throwing a great party. Every Olympic host promises an economic benefit, too.

"And I think if you look at official evaluations of the Games, not just in London, but in many other host cities over the years, you see that tendency," he says.

In Nathan's view, it's just too soon to know whether the London Games were worth the investment. Economists can say there was a small increase in job creation; home prices went up; development of East London happened faster than it would have without the Olympics.

Is all of that worth the $15 billion price tag? Nathan says, "It will be years before we can see that."

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

AUDIE CORNISH, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.

MELISSA BLOCK, HOST:

And I'm Melissa Block.

The Winter Olympic Games open on Friday in Sochi, Russia. It's a massively expensive undertaking and more expensive this year than ever. Russia's deputy prime minister has estimated the cost at $51 billion. That's tens of billions more than estimates for the last two games combined.

CORNISH: Today, we're exploring the economics of hosting the Olympics. American cities often bid on the games in hopes of bringing new investment, tourism and development. Economists say that almost never happens on a large enough scale to outweigh the cost of the Olympics.

BLOCK: We're going to hear now about the most recent Olympics, the 2012 summer games in London. The British government insists they were different, that they were worth it. NPR's Ari Shapiro has been taking a close look at their claims.

ARI SHAPIRO, BYLINE: Ronald Reagan once joked that the game Trivial Pursuit had a special economists' edition. It came with 100 questions and 3,000 answers. Economists are notorious for being unable to agree on anything. So when you start asking questions about the Olympics, economists' answers are a bit shocking. They all agree.

ANDY ZIMBALIST: Broadly speaking, investing in the Olympics is not worth the investment.

ALLEN SANDERSON: You build all of these facilities that are perfect for the Olympics that are not really as desirable once the circus leaves town.

BOB VON REKOWSKY: You end up with a very indebted city or host nation. And long after the confetti is cleaned up, someone has to pay the bills for it.

SHAPIRO: That was Andy Zimbalist of Smith College, Allen Sanderson from the University of Chicago, and Bob von Rekowsky of Fidelity Investments. Here's why the London 2012 Olympics are so interesting. The U.K. spent more than $15 billion to host the games. And the massive economic analysis found that in this case, the country more than recouped the cost. When the report came out last summer, Business Secretary Vince Cable was all over the news trumpeting the payback on investment.

VINCE CABLE: Certainly a very considerable net benefit.

SHAPIRO: The report is a thousand pages long. It concluded that Britain had already earned at least $1 billion more than it spent on the games. Forecast for the future went into the tens of billions of dollars. In every TV and radio appearance, Secretary Cable emphasized that this was an independent report.

CABLE: I mean, it's being independently audited. An anonymized(ph) survey, methods approved by the National Audit Office.

SHAPIRO: And the media picked up the same language. Most British newspapers describe this as an independent analysis. Some added: Commissioned by the government. That commission was a $2 million contract. The check went to a firm called Grant Thornton.

ROB TURNER: My name is Rob Turner. I'm a manager at Grant Thornton.

SHAPIRO: Turner oversaw the analysis of the games. When we met at his company headquarters in central London, he insisted that being paid by the government had no impact on his team's objectivity.

TURNER: No. Government did not say you have to reach a certain figure, at any point, and they wouldn't have.

SHAPIRO: Or even a positive figure rather than a negative one.

TURNER: Yeah. Very much so. I mean, that was - that - the modeling was done on the basis of trying to understand the economic impacts. If it had been a negative figure, then that would have equally been in the report.

SHAPIRO: He mentioned the modeling. That's a key detail. In a study like this, economists create an exclusive model. Think of it as an original equation or a recipe. The model you build shapes the conclusions you reach. Now the authors might have avoided potential criticism that they skewed the model in the government's favor if they had published this study in a peer-reviewed academic journal. But Turner says they wanted this document to be usable, not just for academics.

TURNER: It was about trying to make it accessible, which is why the thousand pages, which will be read by some, were distilled into a 30-page document that should hopefully be read by a large number of people.

SHAPIRO: The government office in charge of this report would not say whether there was any implicit or explicit expectation that the analysis reach a positive conclusion. The office did provide a written statement, saying the report was, quote, "supported by robust and comprehensive evidence." Rob Turner and his colleagues did bring in peer advisors - outsiders who were invited to consult on the study.

TURNER: Invariably, we took those views on board when they commented on earlier drafts and, where necessary, inserted caveats or used ranges in order to provide a more robust, more confident study.

SHAPIRO: Ultimately, did this study come with the endorsement of the outside peer reviewers?

TURNER: Yeah. Very much so. The peer reviewers felt that it was a robust and comprehensive study.

STEFAN SZYMANSKI: I thought this was tantamount to a whitewash.

SHAPIRO: Meet University of Michigan professor Stefan Szymanski, sports economist and one of the peer reviewers for the Grant Thornton economic study.

SZYMANSKI: The report provided a very bullish view, refused to comment on any of the negatives or even to really qualify any of the results, and I was very unhappy about this.

SHAPIRO: Szymanski gave us an email that was part of his feedback to Rob Turner, quote, "I'm very uncomfortable about the triumphalist tone of the report, which does not reflect what the data is saying." And later: "It should be stated clearly that the opinions expressed in the report are yours and not mine."

Szymanski says the authors sent him the final draft with one week to make comments. And, crucially, they wouldn't let him review the model, the formula that produced the numbers in the report. Szymanski says that's unheard off. Even so, the authors did make some changes based on his feedback.

SZYMANSKI: For example, the initial report claimed that the number of tourists arriving into Britain had actually increased during the period of the games, when the official government statistics available at the time showed that tourist numbers in June, July, August of 2012 had actually fallen.

SHAPIRO: There were three other peer reviewers. One did not assess the final report. Another looked at the redevelopment of east London, but not the financial investment. The third is not an expert in economic analysis. So, Szymanski was the only person with expertise in statistical number-crunching who looked at this study before it was published. And he describes it as a political document that ignores massive amounts of economic research showing Olympics are almost always unprofitable.

SZYMANSKI: Any serious published academic work is almost entirely skeptical about the potential of these events to generate economic benefits. And there has been a lot of research done by now.

SHAPIRO: Some of that work has been done by a London economist named Max Nathan at the National Institute for Economic and Social Research. He says countries are never satisfied with throwing a great party. Every Olympic host promises an economic benefit, too.

MAX NATHAN: You know, there's a natural temptation to add up all the positive numbers you can find and, you know, discount or ignore all the negative numbers. And I think if you look at official evaluations of the games, not just in London, but in many of the host cities over the years, you see that tendency.

SHAPIRO: Max Nathan says it's just too soon to know whether the London Games were worth the investment. Economists can say there was a small increase in job creation, home prices went up, development of east London happened faster than it would have without the Olympics. Is all of that worth the $15 billion dollar cost? Max Nathan says...

NATHAN: It will be years before we can see that.

SHAPIRO: Ari Shapiro, NPR News, London. Transcript provided by NPR, Copyright NPR.