Costing The Games

[Sir Rols]

Just came across an interesting article (Russian sourced) looking at the costs of hosting the games these days, with particular reference to Athens and Beijing. Hopefully it can spark some comments:

By Vasily Zubkov

RIA Novosti

(MCT)

MOSCOW - The Chinese authorities are sparing no expense for the 2008 Olympic Games. They are eager to show the whole world China's impressive economic success, growing prosperity, openness and love of peace.

The Chinese Olympics promises to be the most expensive sports event in human history.

In the last hundred years, the summer 2004 Olympics in Athens had the biggest price tag - 7 billion euros. Preparations for it dealt a serious blow at the Greek budget - it developed a 5.3 percent deficit, which exceeds by far the European Union's admissible threshold. Judging by all, the 2008 Olympic Games in Beijing can break this record.

Getting ready for the Games, the Chinese carefully studied the Greek experience. The Greeks got into financial problems largely because they did not include in the budget a considerable part of expenditures on social needs and other indirect Olympic requirements. In order to avoid this, the Chinese and Beijing budgets were sensibly over-adjusted. But it is still unknown how much exactly the Chinese are going to spend on the Games.

In official estimates, in the 2002-2007 period investment in the Olympic preparations should reach about $18 billion. But the closer the Games, the more doubts there are about China's ability to keep within the announced budget.

Quoting Beijing authorities, some foreign sources report that China will have to spend $8 billion on the construction of new underground lines and other transportation facilities, and an additional $5 billion on the building of satellite cities. The figure of $39 billion looks more authentic, but it absorbs only indirect spending on Olympic preparations. It does not cover the construction of sports facilities and development of a security system. Nor does it include the $8.5 billion that the port of Qingdao (Tsingtao - Western postal name) was going to spend on the preparations for the Olympic regatta in the Yellow Sea.

Athens spent $2.4 billion on competitions, accommodation of athletes and guests and other events that were directly linked with competitions. Let's compare it with Chinese spending. Deputy Chairman of the Olympics-2008 Organizing Committee Wang Wei said that in March 2007, China spent $2 billion on the project, half of which came from the International Olympic Committee. Preliminary estimates show that Beijing will spend on the Olympics many times more than Athens did.

At the same time, the money spent is already bringing benefits to China. Lavish Olympic injections have given a powerful impetus to the construction of housing and transport facilities; additional government contracts have encouraged the development of domestic high-tech companies working in electronic instrument-making and machine-building. Beijing's economy has been streamlined; the share of services has shot up, and the environmental situation in the Chinese capital has improved. In official figures, the Beijing economy owes a 2.07 percent addition to the annual growth rates to the Olympic projects. The programs already implemented are bringing more than $1 billion a year to the municipal budget.

It is only natural that the state has funded the bulk of indirect Olympic spending, but private investors have also made a contribution. Some companies are sponsoring the Olympics, for example General Electric and Eastman Kodak. Others have invested in sports hoping for future dividends. Thus, the American Golden State Holding is building the main Olympic stadium in Beijing and simultaneously working on an electric power station and a water duct in one of the city's districts.

A company set up with the participation of local residents is building an all-purpose sports palace Wukesong (Five Pine Trees) in the west of Beijing. It will host a basketball tournament. After 2008 this center will become private. Other Olympic facilities will also be used for trade and entertainment. For example, the Olympic water sports center - the Water Cube - will become Beijing's biggest water leisure facility. The 2,000 apartments built for athletes will be sold.

It is striking that the thrifty Chinese are spending money on such an unusual scale. Their Olympic budget extends to projects in cities that will not host the Olympics. The steppe-located city of Hohhot will get a new airport worth $70 million and a fast highway linking it with Beijing. This is done to back up the capital airport in case of heavy rains during the Games.

The Beijing Organizing Committee rejected my apprehensions about huge spending and an ability to recoup it. A high-ranking Chinese official said: ``The main goal of the Olympic investment is to create an infrastructure that will serve the people of Beijing after 2008 as well. We will make the Olympic budget profitable. We are doing all we can for our Games to be one of the best, and they will bring us money.''

The Chinese have already started making money. A year before the Games, Chinese shops abound in Olympic souvenirs and goods with Olympic symbols. There are bright ads of the future Games all around, even at the bottom of the Great Chinese Wall. The 2008 Olympic symbols have already reached Moscow. Considering the profits that the Olympic Organizing Committee will make from selling the rights to television broadcasting of competitions, sponsor incomes, and money from ticket sales (worth almost $1 billion), it is easy to believe that the Olympic Games in Beijing will not bring financial losses.

[Faster]

I am not sure that Beijing's competition spending will be offset by profit, the price of tickets means that it is unlikely the the operation budget will produce a proft.

I have seen Beijing's spending exceeds 50 billion USD.

[Sir Rols]

I am not sure that Beijing's competition spending will be offset by profit, the price of tickets means that it is unlikely the the operation budget will produce a proft.

I have seen Beijing's spending exceeds 50 billion USD.

I expect Beijing sees its profit as being more international profile and acceptance than hard cash!

[!VamosSochi!]

I am sure you understand the difference between OCOG budget (operational) and infrastructure budget (capital investment). The former has historically been 'only' $0.5-2 billion and closed around a break-even point (plus or minus $50 million), while the latter is a whole different multibillion story.

[Faster]

I am sure you understand the difference between OCOG budget (operational) and infrastructure budget (capital investment). The former has historically been 'only' $0.5-2 billion and closed around a break-even point (plus or minus $50 million), while the latter is a whole different multibillion story.

Obviously, but its the entire thing that constructes the price tag of the games.

Generally speaking

its about 1.2 billion in the operation budget

about .750 billion for security

anywhere between 1 to 2.5billion for venues

and the lows of maybe 1.5 to 2 billion in infrastructure to the highes of about 30 to 40billion for Beijing and the last I say out of Sochi was about 15 billion if they win, hence Sochi being called the spending orgy games.

Generally speaking for a developed western nation the price tag for an Olympic Games is usually around the 6 billion dollars range.

[!VamosSochi!]

Obviously, but its the entire thing that constructes the price tag of the games.

We have to differetiate between the two budgets though.

Operational costs and benefits are closed in the year of the Games.

Capital costs are over by the time of the Games (although at some recent Games the construction continued during the Games too )

However the dificult part is the benefits from capital investment. They last for decades as the infrastructure (sport venues, transport, even security, etc.) serves the city and the country(-ies). Sochi investment is needed for the region. Most of it will go on irrespective of the July 4 decision and practically all of it shall be made sooner or later anyway. Olympics is just a very good catalyst for change, not a liability.

[!VamosSochi!]

I expect Beijing sees its profit as being more international profile and acceptance than hard cash!

Exactly. This is on top of the infrastructure benefits. And this is unquantifiable.

However, the very fact that so many countries are willing to spend those billions proves that these extra benefits are huge.

[Faster]

Most studies have shown that the tourism benefit and the other beneits surrounding the games are negligable.

[Sir Rols]

Most studies have shown that the tourism benefit and the other beneits surrounding the games are negligable.

I suppose it depends. Certainly I think the tourism benefits are over-hyped. But what could one say, perhaps, about Barcelona? Pre-1992 it was an industrial backwater and the butt of British TV jokes, and since it is now one of the most sparkling and glamourous cities of Europe.

Such benefits depend on the individual hosts. Atlanta, for example, probably hasn't reaped much tourism but instead cashed in with the convention, exhibition market. Sydney possibly didn't need to raise its tourist profile, and found the post-9/11 effect dampened any tourism boost from the games anyway. Places like Athens and London also wouldn't really need much of a tourism boost. Beijing? I'd say a similar case to Seoul, more an international coming of age and statement of credibility than a tourism magnet.

There's also the differentiation between tourists coming for the games, and those who will visit in years to come. Many, if not most, host cities have complained that international numbers coming in during the actual games times are far below what they were led to expect _ merchants complain etc. Long term, though? Once again I'd point to the Barcelona record.

[Faster]

I suppose it depends. Certainly I think the tourism benefits are over-hyped. But what could one say, perhaps, about Barcelona? Pre-1992 it was an industrial backwater and the butt of British TV jokes, and since it is now one of the most sparkling and glamourous cities of Europe.

Such benefits depend on the individual hosts. Atlanta, for example, probably hasn't reaped much tourism but instead cashed in with the convention, exhibition market. Sydney possibly didn't need to raise its tourist profile, and found the post-9/11 effect dampened any tourism boost from the games anyway. Places like Athens and London also wouldn't really need much of a tourism boost. Beijing? I'd say a similar case to Seoul, more an international coming of age and statement of credibility than a tourism magnet.

There's also the differentiation between tourists coming for the games, and those who will visit in years to come. Many, if not most, host cities have complained that international numbers coming in during the actual games times are far below what they were led to expect _ merchants complain etc. Long term, though? Once again I'd point to the Barcelona record.

Barcelona is the rare exception, it is the only city that has used the Olympics to such a benefit.

[!VamosSochi!]

Olympics change not just cities, but whole countries of the hosts.

Think of:

Japan after Tokyo 1964

Germany after Munich 1972

Soviet Union after Moscow 1980

South Korea after Seoul 1988

I am sure this will also be the case for China after Beijing 2008.

Salzburg bid now claims it to be true for Austria after Innsbruck 1964.

All these countries changed both internally (national identity) and their image abroad (foreign investment, not just tourism).

[Sir Rols]

Seoul is a classic example _ it really was Korea's international "coming out". Maybe people who weren't around at the time don't realise how insigificant Korea was before the games, and how much they changed its image.

Tokyo 64 possibly also had a similar effect, not so much in profile but as a statement that Japan had bebuilt itself into a modern, prosperous society again after war.

And don't underestimate how much Atlanta used the games to become one of the major convention cities of the US.

[ejaycat]

What caught my eye with this thread was the title, "Costing the Games." I would've said "Pricing the Games."

At first I thought maybe it was a thread started by someone who speaks English as a 2nd language, no offense meant to you, roltel. I figure it must be a Britishism.

I've only heard and used the word "costing" in the example of "this is costing me less than usual," etc.

[Sir Rols]

What caught my eye with this thread was the title, "Costing the Games." I would've said "Pricing the Games."

At first I thought maybe it was a thread started by someone who speaks English as a 2nd language, no offense meant to you, roltel. I figure it must be a Britishism.

I've only heard and used the word "costing" in the example of "this is costing me less than usual," etc.

No, fair enough. And you're right _ grammatically speaking, "pricing" is correct, and "costing" is way wrong. That said, "costing" is used a lot in politician and business speak, down here in Oz at least. I guess I absorbed it through there.

My editors would be horrified, we're supposed to try and resist such useage _ it's amazing how much modern politico-business jargon is just plain grammatically infantile, yet it's accepted at large.

[!VamosSochi!]

international "coming out"

had bebuilt itself into a modern, prosperous society again after war

That is my argument for Russia. Unlike the other two countries, Russia needs to "come out" as a modern and prosperous society