Vancouver lands the 2010 Winter Olympics: what now for the local economy?

Eve Lazarus considers the financial implications for the community when the Olympic gravy train rolls into town

The bid process alone runs into tens of millions of dollars, but hosting an Olympic Games is the one party that every country seems to want. And no wonder. While national pride plays a part, politicians and corporate leaders have their eyes planted squarely on a gravy train that, they say, will result in everything from increased tourism to thousands of new jobs and millions of dollars worth of infrastructure.

When it was announced in July that Vancouver and Whistler would host the 2010 Olympic Winter Games, stocks in troubled Air Canada lifted 16%, Intrawest Corporation, the resort developer and operator behind Whistler, saw its share price jump 7% in heavy trading, while the Fairmont Hotels and Resorts, with five properties in the region, also enjoyed a modest rise. The next day, global marketers ran full-page ads congratulating Vancouver in national newspapers, and Coca-Cola came out with a special 'Congratulations Vancouver' can.

Mike Duggan, chair of Tourism British Columbia, was quoted as saying that the announcement alone was worth $10m in free publicity and various reports and government pundits projected that the economic fallout would be anywhere between $2bn and $10bn.

Vying for an Olympic Games is a relatively new economic sport. At the end of the 1970s, the games could financially ruin a city and it wasn't until the 1984 Los Angeles Summer Games declared a US$200m surplus that the number of bid cities soared.

According to the Vancouver 2010 Bid Corporation, the 2002 Salt Lake City Winter Games had an operating surplus of CDN$160m, while Calgary's 1988 Winter Games produced a CDN$40m surplus.

Ed Mansfield, partner with the Vancouver office of Grant Thornton LLP, says that following Calgary's Winter Games, tourism revenues grew by 12% and this initial gain was followed by an average annual growth rate of 3.25% over the next five post-Olympic years. He thinks Vancouver could do better.

'It would be fair to say that an increase of 15% in 2010, followed by an increase of 4% to 5% in the five years afterwards, is attainable if a concerted, well-funded marketing plan is enacted.'

Where Vancouver is concerned, the Olympics are seen as a panacea for several ailments. Olympic promoters cite income and employment, increased tourism, a boost to conventions, a construction boom and the addition of much needed infrastructure.

But even with all the talk of sweet returns, there is little in the way of accountability after the games. People like Kevin Walmsley, director of the International Centre for Olympic Studies at the University of Western Ontario, question whether the games are a sound business decision or what essentially amounts to a giant party.

'It's an enormous amount of capital and an enormous amount of human energy that goes into it for a very small return,' he says. 'It's all crystal ball, because you know what, nobody follows up. The people who have an interest in showing the numbers are the people who generally benefit from the games, so why bother after the investment is done; you've made your buck, it's time to move on.'

Others argue that it's not just monetary gain. Barcelona's Summer Games gained significant developments and infrastructure improvements in 1992 and, eight years later, Sydney received a huge bolster in image.

What is certain is that, as a direct result of the games, Vancouver will see CDN$620m courtesy of the federal and provincial governments, to do everything from renovating tired stadiums to building a sustainable Olympic village that will later transform into an 80-acre development with low cost housing, retail, parks and trails. Just getting to the shortlist stage proved a catalyst for much needed infrastructure. Not connected to the actual bid, but items that probably would not have reached the finishing line otherwise, include the CDN$495m expansion to the Vancouver Trade and Convention Centre and CDN$600m worth of upgrades to the Sea to Sky Highway, the road that will carry athletes and visitors to Whistler from West Vancouver. 'We haven't seen a lot of federal money coming into British Columbia for a long time and, of course, half of the dollars are coming from the Government of Canada, so I think that's a real positive,' says David Podmore, President and CEO of Vancouver-based Concert Properties.

One of the main reasons cities vie to hold the games is the staggering sums that are derived from broadcast rights and corporate sponsorship.

Mansfield says: 'If you go back even just a few Olympics it wasn't very much and the host community had to sink an awful lot of its own money into pay for infrastructure,' he says

Mansfield says television revenue for the 1980 Lake Placid Winter Games was US$21m. Twenty-six years later, the Turin Winter Games will see US$832m and, while the television deals are not all finalised, the American rights alone for the 2010 games were sold to NBC for US$820m.

Vancouver has targeted US$293m for local sponsorship. This compares to US$70m for the 1988 Calgary Winter Games, US$163m for the 1998 Nagano Winter Games and US$875m for the 2002 Winter Games held in Salt Lake City.

On top of the broadcast and sponsorship revenues, the Vancouver 2010 Bid Corporation estimates it will take in CDN$124m from other sources including licensing, donations from businesses and individuals, proceeds from sale of assets at the end of the games, ticket and merchandise sales.

Wayne Strelioff, British Columbia's auditor-general, wrote in the 2002/2003 Review of 2010 Games Estimates: 'The revenue goal is achievable given a favourable economy', adding that these economic impact numbers are only possible if a major provincial tourism marketing programme kicks in almost immediately.

On the other side of the ledger, the Bid Corporation says while revenues should add up to around CDN$1.2bn, the costs for everything from marketing and security to capital construction and fireworks will be around CDN$2bn.

Robert Baade, professor of economics at Lake Forest College in Illinois and author of Mega-Sporting Events in Developing Nations: Playing the Way to Prosperity?, says that when a city hosts the Olympics much is dependent on the kind of synergy developed between the infrastructure created for the games and the local economy.

'Generally speaking the synergy isn't that great because what do you do with the archery courses and equestrian runs when the circus leaves town?' he says. 'We try hard to ensure that there are infrastructure improvements that are meaningful, metro lines that just don't go out to sports venues, making sure that the housing for athletes can be reused and trying to spend money on infrastructure that will serve as a catalyst for economic development. It's a complex undertaking and the adeptness with which countries deal with these problems or these challenges will determine the extent to which something like the Olympic Games can really make a difference.'

Baade says the 'crowding out' effect is often overlooked when projecting economic impact figures for the games.

'To a substantial degree you are displacing one group of people with another group of people,' he says.

According to a study by Vancouver-based InterVISTAS Consulting earlier this year, the games could generate gross domestic product of CDN$2bn to CDN$4.2bn and expect 45,000 to 99,000 new jobs throughout British Columbia. Not surprisingly, games organisers are more optimistic, saying it will create up to 228,000 new positions and generate up to CDN$10bn in direct economic activity.

'During any bid phase there's a certain element of boosterism that creeps in,' says Mansfield. 'You really have to have a sound financial management plan in place. There is a tendency in places that have hosted the games to opt for the Cadillac solution instead of the Volkswagen - why build a two-lane highway when we can build a four-lane highway... That's the danger in any host city - you'll get people in who want to do things the absolute best way instead of keeping an eye on the budget.'

Eve Lazarus is the Vancouver correspondent for Toronto-based Marketing magazine.