Dr. Andrew Zimbalist on the economics of the PyeongChang Olympics

Andrew Zimbalist is the Robert A. Woods Professor of Economics at Smith College, where he has been in the Economics Department since 1974. He received his B.A. from the University of Wisconsin, Madison, in 1969 and his M.A. and Ph.D. from Harvard University in 1972 and 1974 respectively. He has consulted in Cuba and Latin America for the United Nations Development Program, the U.S. Agency for International Development, and numerous companies, and has consulted in the sports industry for players' associations, cities, companies, and leagues. He has published several dozen articles and twenty-seven books, including Baseball and Billions (1992), Sports, Jobs and Taxes (1997), Unpaid Professionals: Commercialism and Conflict in Big-time College Sports (1999), The Economics of Sport, I & II (2001), May the Best Team Win: Baseball Economics and Public Policy (2003), National Pastime: How Americans Play Baseball and the Rest of the World Plays Soccer (with Stefan Szymanski) (2005),  In the Best Interests of Baseball? The Revolutionary Reign of Bud Selig (2006), The Bottom Line: Observations and Arguments on the Sports Business  (2006), Equal Play: Title IX and Social Change (with Nancy Hogshead-Makar)  (2007), Circling the Bases: Essays on the Challenges and Prospects of the Sports Industry (2010),  International Handbook on the Economics of Mega Sporting Events (with Wolfgang Maennig) (2012), The Sabermetric Revolution: Assessing the Growth of Analytics on Baseball (with Ben Baumer) (2014), Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup, (2016), Unwinding Madness: What Went Wrong with College Sports and How to Fix It, (with Donna Lopiano and Gerry Gurney) (January 2017), No Boston Olympics: How and Why Smart Cities Are Passing on the Torch (with Chris Dempsey) (February 2017), and Rio 2016: Olympic Myths, Hard Realities (July 2017).



South Korea’s original budget for the Winter Olympics was projected to be $7 billion, but South Korea is now expected to spend nearly double that number. Your book Circus Maximus provides many examples of countries that far exceed their original budgets to host the Olympics. Why do countries vastly underestimate the costs of hosting the Olympics?

There are various reasons. The most important is that when they first make their proposal, they are doing it at a time when they need political buy-in. They are going to a city council, county commissioners, or state legislators, and they are trying to make the argument that this is not going to be that expensive, and it is going to be beneficial. They intentionally lowball the estimates at first.

Then, if they get the political buy-in, they are in competition either with other cities in their home country, or if they get selected by their National Olympic Committee to be in the international Olympic race, then they’re in competition with cities from around the world. They realize that if they are going to convince the International Olympic Committee (IOC) that they are the best city, they are going to need bells and whistles, facilities, transportation networks that appear to be more fluid, and there are all sorts of amenities that they will be adding on.

Another reason is that they have an enormous amount of construction to do, and it is under tight deadlines. No matter who the Olympic host has been, they are always racing at the end. When you are racing at the end, you have to go to your contractors and tell them that they have to prioritize this project because it is unlike any other project. When the Olympics begin on February 8th, the facility must be ready. It cannot be ready two weeks late. Most non-Olympics construction projects do not fall under that category. For most construction projects, it does not matter whether it’s two or three weeks late. For construction projects that have a hard deadline, they must tell the construction company and the contractors that there is no choice here. The contractors then go to their workers and suppliers and let them know that the project must be prioritized. Part of prioritizing means that materials all have to be shipped punctually to get the project done. When they tell someone that they have to get this done and nothing else, they will say that they can do that, but at an extra cost.

In addition to that, a lot of these projects are being doled out by a group of individuals called the Organizing Committee for the Olympic Games (OCOG). The people who are in OCOG are the people who are pushing the process along the entire time, and they generally are affiliated with the construction industry. So, there is a mix of politicians and people associated with the construction industry who are pushing this, and they are basically doing it on behalf of people they work with all the time.

There are no normal political controls. In a normal situation, there is open bidding for construction contracts. The city says it will build a new hospital, and it puts out a request for proposal, and everybody who is interested will then bid for the project. Then, the city will end up selecting the bid that’s the best. That process breaks down with the structure for contracting in the Olympics and the time constraints.

That lends itself to a lot of favoritism and corruption, where construction companies are paying off politicians. They tell the politicians that if they can get the Olympics contract, then they will build the politician a beach-side home in Copacabana, Rio, or wherever. There are issues with the structure and politics of this process that lead to regular cost overruns.

How is hosting the Olympics an investment in the future? What factors specific to South Korea might impede the state from recouping its investment?

Usually it is not an investment in the future, even if they say it is. When looking at Pyeongchang, you see a games that has at least a $13 billion dollar cost that they’re admitting to. They probably will receive around $2.5 billion in revenue from hosting the games. That is, there is a budgetary hole there of around $10 billion. They justify this hole by saying that there will be more tourism, trade, and foreign investment. They are also going to claim that many of the infrastructure investments they made would be good for the country in the long run. They will say that the high-speed railroad that connects Seoul to Pyeongchang is good for the country; it may be good for the country, but it may not.

They have some new ski slopes there, and they might keep one or two of the ice rinks. But spending $3 billion dollars on transportation is questionable. They built a high-speed railroad basically taking people nowhere. The province that Pyeongchang is in only has a population of 42,000. It is a very risky bet that this is going to turn into some major ski resort. Skiing is not a part of South Korean culture.

In general, when a country builds infrastructure for the Olympics, what it is doing is connecting Olympic venues to each other, connecting Olympic venues to the airport. Those particular transportation routes might or might not be appropriate given the development needs and the transportation needs of the city. Every once in a while, a road is built that is important. But, more often than not, the road is one that meets the requirements of the IOC, not one that meets the requirements of any sensible urban development plan.

It might be the case that some of the $6-7 billion dollars spent on the infrastructure of the Pyeongchang Games may be appropriate or useful. But the rest of it is not. In most cases, there can be no rational argument that can be made that this is an investment in the future. Maybe it is an investment in the future, but it is not a sensible or rational investment.  Any needed infrastructure, of course, could be built without hosting the Games.

In Circus Maximus, you stress that the economic benefits a city can reap from hosting the Olympics depends on how the Olympics align with the goals of the city. How can this argument be applied to the case of Pyeongchang?

Pyeongchang is in a county that only has 42,000 people in it. It’s hard to imagine that the best way to develop this province was to try to turn it overnight into an international winter ski palace. In order to host the Olympics, they went to Mount Gariwang, they tore down 58,000 trees in an area that was an ecological preserve according to the Environmental Protection Agency in South Korea.

There are some people there who have employment who did not have employment before. Many of the small businesses in Pyeongchang say that they experienced less business during the Olympics than they normally do. I’d be very surprised if the Olympics did help the development of Pyeongchang.

Circus Maximus discusses the problems of white elephants—sporting venues that are no longer regularly used and incur high costs for maintenance. Pyeongchang will be tearing down its Olympic Stadium soon after the games. Does the use of temporary stadiums in Pyeongchang signify a shift in what it means to host the Olympics, or will more white elephants continue to be created?

 There is always a way to avoid a white elephant—they can build something and then tear it down after the 17 days. This is what they are doing with the Olympic stadium. It’s not clear if any of the four venues they built for ice sports are going to be maintained. They have some tentative plans for two or three of them to stay in use, but it’s very dangerous to try to preserve a facility just so it does not have to be torn down. When a facility is preserved, not only is the land for the facility being taken up, but millions of dollars will also have to be spent every year on operating expenses and repairs over time.

It is not simply a matter of if we can find something we can use this facility for, but it has to be something that has some viable and continual and regular use. It is not really clear if these athletic facilities will have such use.

It does seem like that there are white elephants associated with these games, but with the national stadium they are building it and tearing it down. Nobody can say they have a white elephant because it’s not going to be there. It cost $109 million to build it, and it’s going to cost millions of dollars to take it down. So, there is not a white elephant but there is something almost as bad.

The high cost associated with hosting the Olympics often generates domestic opposition, and the Olympic Games in Pyeongchang, South Korea this year were no exception. However, given the impact of this year’s Olympics on diplomatic relations between the North and the South, how should we weigh the costs and benefits for South Korea of hosting the Olympics this year?

The costs far outweigh the benefits. South Korea has shown itself to be a well-organized and well-resourced society. They did a good job pulling the Olympics off, and that did not surprise anyone who has been following South Korea. Anyone who has the resources and ability to travel to South Korea did not learn anything that will make them want to do more business there or travel there more because South Korea hosted the Olympic Games.

There are a lot of bad images that came out. The weather was problematic for the beginning of the winter games. One of the images people will carry around form the games is of the norovirus—which was not South Korea’s fault, but people will still associate the two.

There were not many benefits from hosting the Olympic Games in this case. The proponents for hosting the games will often say that the Olympics will help make the population become more physically fit because they are hosting it, but there is no empirical evidence to back this up.

In terms of what happened with North Korea, it was fleeting. Kim Jong Un took advantage that he had the world’s attention on him. Instead of blowing up a plane like they did before the Seoul Olympics in 1988, they made nice and showed that they can smile and wear business suits just like everyone else can. Donald Trump likes to claim that he brought North Korea to the point now that they want to negotiate, but it is hard to connect that to what happened at the Olympic Games. Much of the South Korean population and many of its athletes resented that South Korea spent $13 billion to build the stage, only to have Kim Jong Un walk all over it.

Marcia Yang CMC '18Student Journalist

 Photo by Wikicommons, Korea.net / Korean Culture and Information Service (Photographer name)

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