Do Good Olympics Make Good Neighbors?

By Leeds, Michael A. | Contemporary Economic Policy, July 2008 | Go to article overview

Do Good Olympics Make Good Neighbors?


Leeds, Michael A., Contemporary Economic Policy


I. INTRODUCTION

In 2005, New York failed in its attempt to host the 2012 Summer Olympic Games, as London was named the host city. Philadelphia responded to its neighbor's endeavor by submitting its own bid for the 2016 Olympics, which proved even less successful than New York's bid. In this paper, I provide evidence that, rather than imitating New York, Philadelphia would have been better off had it supported New York's bid for the Games.

More generally, I show that the Olympics can have significant spillover effects on surrounding communities if those communities provide amenities that are close substitutes for those found in the host city. Tourists who cannot visit the location of their choice because it is hosting an event, such as the Olympics or a political convention, will look for a reasonable alternative. Nearby cities, states, or regions that provide good substitutes for the host venue can free ride on the event by serving as outlets for otherwise frustrated tourists. A neighboring city or state could increase the opportunity for spillovers by offering logistical or financial assistance to the bidding city.

I provide evidence for this claim by looking at the spillover effects of the 2002 Winter Olympic Games on the ski tourist industry of neighboring Colorado. Of the 16 Colorado counties that had ski resorts in 2002, 10 experienced an increase in economic activity during the Olympic year. In all, the results show that the Salt Lake City Olympics added $160 million in real net taxable expenditure in these countries.

In the next section of this paper, I discuss the literature concerning public support of sports teams, facilities, and mega-events. In Section III, I develop an empirical model to test the prediction that the 2002 Winter Olympics positively affected the ski economy of Colorado. Using county-level data from the Colorado Department of Revenue and other sources, I construct a panel data set of real net texable sales in Colorado counties that contain ski resorts for each month in 2000-2004. The results, which appear in Section IV, show evidence of significant spillovers from the 2002 Olympics into the Colorado ski industry. A conclusion follows.

II. PREVIOUS LITERATURE

The failure of sports teams and facilities to stimulate local economics is by now well known. Starting with the pioneering work by Baade and Dye (1990), economists have shown repeatedly that sports franchises and facilities have little financial impact on the cities that host them. Coates and Humphreys (2003) build on the basic model of Baade and Dye to show that facilities have a limited geographic impact. Others, such as Rosentraub (1997) and Austrian and Rosentraub (1997), show that new facilities often affect only a narrow segment of the local economy (e.g., restaurants and sports bars) and that the boost they provide is often short lived.

Several economists have tested whether the same can be said for mega-events. Following Porter (1999), I define a "mega-event" as any large-scale, organized gathering that draws large numbers of people to a limited geographic area for a relatively short period of time. Examples of mega-events include the Super Bowl, the quadrennial political conventions, and, of course, the Olympics.

Porter's (1999) seminal study found that Super Bowls have no statistically discernible impact on the economies of the host cities. Baade, Baumann, and Matheson (2006) echoed this finding in their study of how a broader array of mega-events, ranging from Super Bowls to World Cup matches, affected metropolitan areas in Florida from 1980 to 2005. Coates and Depken (2006) took a similar approach in looking at the economic impact of mega-events in Texas, though they broadened the definition even wider to include regular season professional events and intercollegiate football games as well as Super Bowls and World Series games. While Coates and Depken generally found that mega-events have little impact, they found that the 2004 Super Bowl generated $34. …

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