Vancouver 2010

Will the Games be a golden goose or a turkey?

There's no denying the power the Olympic torch has over the world. And the 2006 version in Turin, nestled at the foot of the Alps in northwestern Italy, was no different. Millions of Canadians sat stunned in front of their TVs at the shocking defeats of their men's hockey team. No gold for the icemen this time around. Indeed, no medal of any kind. But there were other highs and lows that kept us entertained. Speed skater Cindy Klassen's Canadian record-setting performance was a definite high, while the Italian police's drug raid of the Austrian ski team was a high of another kind. Hey, what's sports without a little spectacle? At its best, the Olympics can inspire wonder at the athletic skills on display and–for those less sports-minded–a sense of national pride.

Canada has pretty good reason to feel warm and fuzzy this year, with our athletes bringing home a record 20 medals, including six golds, as of press time on Feb. 24. The glow no doubt intensified the night of Feb. 26 when Vancouver mayor Sam Sullivan was scheduled to accept the Olympic flag from Jacques Rogge, president of the International Olympic Committee, symbolizing the official beginning of the B.C. city's responsibility to host the Olympic Winter Games of 2010. The handover was likely more poignant than usual given that a special effort had to be made to accommodate the fact that Sullivan is a quadriplegic, and not personally able to raise and wave the flag eight times as tradition dictates.

That's the kind of positivity the Games are supposed to generate. But these days, the Games are also about economics. Many of the athletes are highly paid pros, and the multibillion-dollar sporting event can be seen as an economic boon to the lucky host city, leaving increased tourism, new businesses and improved infrastructure in its wake. But all too often the real Olympic legacy is a sea of red ink that taxpayers have to pay off, with underused or bankrupt sporting facilities and little if any lasting change to the local economy. “There's no measurable economic growth that happens from an event or from a sports team,” says Jeff Owen, an assistant professor at Indiana State University, who specializes in sports economics. “Either the impact is zero or slightly negative if anything. The economic benefits are a fraction of what economic impact studies project.”

Like it or not–and Vancouver 2010 backers won't–the Games rarely pay for themselves. They produce plenty of hoopla, but certainly not real-world profits. Typically, the economic impact statements flaunted by event organizers make common–but costly–accounting errors, says Owen. The most egregious of which are moving construction costs to the benefits side of the ledger and counting government spending as revenue–both of which the Vancouver Organizing Committee has done. “When you move all your costs to the benefits side, it's not too hard to get a positive number at the end of your calculations,” says Owen. “And then at the end, you get to multiply that number by more than one to get the economic impact.”

A 2002 economic impact study prepared for the B.C. government by InterVistas Consulting predicted Vancouver 2010 could generate as much as $2.1 billion in direct GDP–and as much as $8.4 billion in total GDP if the impact of expanding the Vancouver Convention and Exhibition Centre is also included. A 2003 cost-benefit analysis by the left-leaning Canadian Centre for Policy Alternatives, however, pegs the net financial cost of the Games to British Columbians at $1.23 billion. That analysis, which Owen says correctly applies accounting fundamentals, includes unbudgeted costs, lost-opportunity costs, incremental taxes and the benefit of undertaking the Sea-to-Sky Highway upgrades that would have been done at a later date. “I'm not anti-Olympics by any means,” says Owen. “But if you're doing it for the economic benefit, then you've made a mistake.”

That doesn't mean Vancouverites were wrong in supporting the Olympic bid in a 2003 referendum. The Games are a psychological boost for the host city, a chance to shine on the world stage. But it does mean they should scale back expectations of what the Games can do for them, the province and the country. Past events have been rife with cost overruns, scandals and disappointed local businesses. Early indications are that Vancouver organizers have learned from many of the mistakes previous hosts have made.

One major difference is that the business community has been engaged early in the process. The result is that most of the sporting facilities and living quarters, at a cost of roughly $600 million, should be ready a year or two before the Games begin–a stark contrast to Athens 2004, where work continued right up to the last minute. Infrastructure improvements should also be finished well before the Games begin, unlike Turin where a subway that was supposed to be ready for the event is still not done, although a shorter version of it is in operation. For example, the $600-million Sea-to-Sky Highway improvement project from Horseshoe Bay to Whistler is scheduled to be finished by fall 2009, and at least one section was completed ahead of schedule. Meanwhile, the $615-million worth of improvements at the Vancouver Convention and Exhibition Centre will likely be done by 2008.

With that kind of money floating around, it's hard not to treat the Olympics as big business–a veritable five-ring circus. The 2010 Games will cost $1.3 billion to operate, with revenues expected to be nearly $2 billion. Broadcast rights bring in $546 million, corporate sponsorships generate another $537 million, while ticket sales contribute $180 million, with 30% of that coming from tourists. On paper that's a $635-million operating profit, but that figure includes $620 million the federal and B.C. governments are kicking in to cover the Games' capital budget. Strip out the taxpayer and the profit might be a mere $15 million at best. And don't forget that if the Games do run into the red, the tab will be picked up by B.C.

Vancouver organizers have already run into a bit of a problem: a $195-million increase in venue construction costs from the initial estimate of $470 million made in 2002. At the time of the bid, B.C. was in a prolonged economic slump, but since then the provincial economy has heated up and sent construction costs soaring. VANOC managed to cut $85 million from its revised capital budget, but it's still asking the province and the feds to share the remaining $110 million it needs to make up the shortfall–the first of many such requests, predict critics.

The request for more money should have come as no surprise. Olympic budgets are prepared up to eight years before the event occurs and do not have to take into account inflation or other risks such as a soaring currency or expected increases in construction costs. In January, the federal and municipal governments had to kick in roughly $87.5 million to cover a shortfall in the Torino Games' $4.2-billion budget–a deficit that could have pushed the event into bankruptcy. Indeed, no Olympics in recent memory can lay claim to a legitimate profit except Los Angeles 1984, which was almost entirely funded by the private sector. Athens 2004 was massively over budget, and Sydney 2000 officials asked for more money several times, including just a few weeks before game time.

Canadian-held Games have been just as bad. Worse, in fact. Calgary 1988 had a surplus of between $90 million and $150 million, but that didn't take into account the nearly $500 million various levels of government spent. It should also be remembered that Calgary's final budget was more than double the initial projection. Montreal 1976–widely considered to be the poorest Games ever held–left local taxpayers with about $2 billion of debt that is only now close to being paid off. Then-mayor Jean Drapeau famously promised that the Games “can no more have a deficit than a man can have a baby.” With rampant corruption and lack of financial controls, however, Montreal did indeed lose money. And men still aren't giving birth. The city's Olympic legacy can be seen in the white elephant of a stadium known as the Big Owe and the giant debt–most of which is being retired by a cigarette tax that will remain even after the last payment is made.

Cynics would suggest Games organizers should pay for cost increases out of supposed profits, instead of putting taxpayers on the hook for facilities most will never use. After all, how many Canadians want to take a terrifying plunge down a world-class luge run? But that's not how the Games are run these days. Infrastructure costs are borne largely by the public, creating the illusion of a profitable enterprise, which then entices dozens of cities to bid each time an open slot comes up.

Still, while it can be argued that hosting the Games is a net pain instead of gain, it can also be argued that there are potential spinoff benefits. The B.C. government is spending roughly $3 billion on infrastructure improvements leading up to the Games–improvements it might not otherwise undertake. RBC Financial Group estimates the 2010 Olympics will boost provincial GDP by 0.9 to 1.2 percentage points between 2005 and 2011, one year after the event.

How do the Games make money after they've left town? Brian Krieger, director of the 2010 Commerce Centre, which is the central sorting house for all Olympics business opportunities, says it's possible for companies to parlay their experiences and partnerships at the Games into other projects. He says businesses under contract with Sydney 2000, for example, made an additional $2 billion internationally the year following the Games. Australian firms are also very involved in helping the Beijing 2008 Games. “We in Canada have an opportunity to pick up the mantle to be Winter Games experts. Salt Lake didn't do it. Italy hasn't done it,” says Krieger. “One of the things we're trying to do here is not make this about two weeks in 2010. We're trying to use the Olympic experience as a springboard for the economy.”

Such lasting legacies are, unfortunately, hard to prove. One survey of recent Games concludes that the economic impact of the Olympics comes in the form of “transitory, one-time changes rather than a 'steady-state' change.” Helen Lenskyj, a professor at the University of Toronto who has written two books on the social and environmental impact of hosting the Olympic Games, says that while people assume the host city benefits, it rarely does. There is a blueprint for what a city has to have or build for the Games and “you build it whether the local community wants or needs it or not,” says Lenskyj. “The velodrome in Montreal was converted into some kind of nature centre [the Montréal Biodôme], which wouldn't have been a high priority in 1976. Paying it off for 30 years would have been the big issue and still is. Some of it is just hype.”

Vancouver's hype is well underway. Olympic banners festoon the downtown, but that's just a precursor to 2010 when some 25,000 Games volunteers hit the streets. The city and surrounding area will undergo a noticeable makeover during the next four years. For one thing, the old Woodward's department store on the gritty east side should be gone. Further east up Hastings Street, Chinatown will be revitalized. There will also be an increased number of bicycle paths, greenways and seawalls, not to mention the new or improved sporting/tourism facilities. “In every city's history there are moments that shape its destiny,” Mayor Sullivan said in his inaugural speech last December. “I want this council to see the Games not just as a few weeks of sport for the world's greatest athletes, but as a powerful catalyst that can help us attract resources and focus our efforts on making our city better in every way.”

Vancouver has already been transforming. When the city put in its bid for the 2010 Games, B.C.'s economy was stagnating due to lumber tariffs, the slowing U.S. economy, the struggling Japanese economy, continued out-migration and drastic spending cuts by the provincial government. The Conference Board of Canada pegged real GDP growth at 0.7% in 2002, the worst performance in the country. Today, Vancouver is bustling, with GDP forecasted to rise by 4%, making it the fastest-growing city in the country. And provincial GDP is growing at a 3.3% clip, riding a construction boom that should continue for several years.

The Olympics now pose a risk of overheating the local economy, says Derek Holt, assistant chief economist at RBC. It is an issue for businesses that must pay for local labour and materials. “Within that kind of environment, adding the Olympics poses risks to some industries of crowding out their activity compared to what otherwise might have taken place,” says Holt. “Net, we still think the Olympics are a positive. It's just making it more difficult for some industries that source labour and materials locally to compete over the next five years.”

The booming economy means local consumers will have a few extra bucks to spend come 2010. And businesses might be more willing to free up their purse strings for advertising as well as some complementary investing to match the added stimulus of the Olympic projects. But those are minor pluses compared to some of the harder-to-quantify benefits, such as increased exposure as a tourist and business destination, says Holt. Vancouver doesn't seem to have much to gain in that regard. It's already well known as both a tourist destination and an attractive place to live. And Whistler is arguably Canada's top skiing destination. In any case, it's not clear the Olympics has a net positive effect on tourism. Tourist numbers and hotel occupancy rates actually dropped during Atlanta 1996 from the previous two years, primarily because the number of conventions declined. Essentially, one economic activity replaced another.

Still, if Canada can actually win gold on home turf–it's one of only two host nations to come up empty in Olympic history–all will likely be forgiven. Maybe that's why the Canadian Olympic Committee is spending $105 million on Own the Podium, a bold plan to see Canada win 35 medals in 2010. Here's hoping British Columbians don't get financially snowed under along the way.

Road to glory

Feb. 4, 2002: Eight cities submit their intentions to the IOC to bid for the 2010 Winter Games.

Feb. 22, 2003: Vancouver holds a referendum on hosting the Games; 64% vote in favour.

July 2, 2003: Vancouver is awarded the 2010 Winter Games at the 115th IOC session in Prague, beating PyeongChang, South Korea and Salzburg, Austria.

Spring-summer 2005: Construction begins on a $178-million speed skating facility in Richmond, B.C., as well as the $102-million Nordic competition venue and $55-million sliding centre in Whistler.

Feb. 10-26, 2006: VANOC observation team visits the 2006 Winter Games in Torino, Italy. It will also attend 2006 Paralympic Winter Games in March.

April 2006: Construction to begin on the $36-million UBC Winter Sports Centre, one of two hockey venues.

2006-2007: Bids for product licensing deals to begin in earnest.

Summer 2007: Construction to start on the Vancouver Olympic Village and the Whistler Olympic and Paralympic Village. Both are expected to open in September 2009.

Winter 2007-08: Most Games venues are expected to be available for training.

2008: VANOC will begin to recruit estimated 25,000 volunteers required to stage the Games. Services contracts will go up for grabs.

Aug. 8-24, 2008: VANOC will send an observation team to the 2008 Olympic Summer Games in Beijing, and the following month's Paralympic Summer Games.

Fall 2008: Ticket sales to begin for the Vancouver 2010 Winter Games.

Winter 2008-09: Official test events will be held for the 2010 Winter Games.

Fall 2009: 2010 Winter Games Olympic Flame Relay will start its journey to Vancouver.

Feb. 12-28, 2010: XXI Olympic Winter Games.

March 12-28, 2010: X Paralympic Winter Games.