The Ups and Downs of Olympic Hype

Frances Bula, Published: March 01, 2009, BC Business magazine

Charting an emotional path toward the next Olympic Games.

The scary thought creeps into your mind on little cat feet one night as you’re lying awake contemplating both the impending global economic conflagration and your own recent 12-page Visa bill. What if the Olympics aren’t, after all, the fiscal angel of mercy that you’ve always believed?

What if your faith that the Olympics will boost the local economy – and by extension your small part in it – falls into the same category of economic thinking as the frat-boy entrepreneurial plan? This plan posits that, Hey, let’s throw a party at our communal house. We’ll decorate it in a theme and invite everyone we know but charge money for people to get in and charge for the drinks – and we’ll make a killing.

Incredibly, people do pay to get in and to drink, as the plan envisioned. But then, by the time the frat boys subtract the cost of the liquor, the disco ball, the flyer photocopying bill, all the stuff that Brad thought they needed for the World of Warcraft theme to make the place look more cool and the repair bill generated after one of the guests set fire to the front porch, well, it turns out they’ve actually lost money.

No, this is just middle-of-the-night thinking, you tell yourself. The Olympics are not a 20-something’s party with no real likelihood of an economic payoff.
You’re sure they’re not. But then, you wonder, how would you know?

If you Google the word “Olympics” and the phrase “economic benefits,” you will come up with 145,000 hits. The information that pops up in just the first few pages covers the waterfront. There’s that glowing press release from the B.C. government back on Jan. 16, 2002, that portrayed the Olympics as a kind of tsunami of cash that would hit the province:

FORT ST. JOHN – A winning bid for Vancouver/Whistler to host the 2010 Winter Olympics and Paralympic Games, combined with an expanded convention centre in Vancouver, could generate $5.7 billion to $10 billion in direct economic activity, a study by the Ministry of Competition, Science and Enterprise indicates. The Games and expanded centre would also create an estimated 118,000 to 228,000 direct and indirect jobs across the province, plus $1.3 billion to $2.5 billion in total tax revenues, in addition to other major benefits, such as permanent community and sports legacies.

On the other end, there is this article from the Fall 2005 The Industrial Geographer (one of those niche academic journals that usually runs articles on land prices in Japan or the structural dynamics of the pharmaceutical industry). In it, economics professor Jeffrey Owen states fairly unequivocally:

Cities who host the Olympic Games must commit to significant investments in sports venues and other infrastructure. It is commonly assumed that the scale of such an event and the scale of the preparation for it will create large and lasting economic benefits to the host city. Economic impact studies confirm these expectations by forecasting economic benefits in the billions of dollars. Unfortunately these studies are filled with misapplications of economic theory that virtually guarantee their projections will be large. Ex-post studies have consistently found no evidence of positive economic impacts from mega-sporting events even remotely approaching the estimates in economic impact studies.

Among those 145,000 hits, there is also everything in between. There are studies of the impact of various sporting events, not just the Olympics. There are statements from residents and officials from past Olympic cities swearing that their lives took a permanent turn for the better after being touched by the Games. Or that they didn’t change at all. Or that it depended on how aggressively local governments marketed their cities or countries in relation to the Olympics. Or that the city was going to boom anyway, with or without the Games. There are whole books weighing the evidence and concluding that it’s all very complicated.

In essence, what the proliferation of studies and articles tell us is this: You don’t know jack and never will. What you are about to read will not help you sort through any of that information or confirm that you have correctly assessed the situation. But it will help you understand the psychology behind your conviction that the Olympics are great or that they’re terrible or that they’re a wash. It will also help you understand that, no matter what happens in the next two years, you are likely to hang on to that opinion.

Human decision-making is a wonderful thing to behold, as those who study its inner workings have discovered. “There’s just a load of research about people and decision-making that shows that we tend to latch on to an idea that something is good without assessing a lot of evidence,” says JoAndrea Hoegg, a marketing professor at UBC’s Sauder School of Business. “And people rarely go into judging something without a motivated hypothesis. You have some expectations based on previous experience – the Olympics are good, the Olympics are bad.”

Hoegg is a practitioner in what has become a fashionable field of economics in the past decade: behavioural economics, which has turned what used to be the hardpan of reality in fiscal theories into quicksand. Economics was for decades, centuries actually, premised on the idea that people make rational decisions about money. Behavioural economics, on the other hand, studies the ways in which people actually make many irrational decisions when it comes to all things money.

That’s true when it comes to the quirky decisions people make about how much $10 really means to them (it depends on whether you unexpectedly find it or lose it) or about hosting, say, a multibillion-dollar party. And businesspeople, it turns out, are only slightly better than the rest of us when it comes to assessing information. “I have not seen strong evidence to support the idea that they are more rational,” says Hoegg, who studies things like how the colour of a product alters our perception of it and the way people assess political candidates by their faces alone.

People who make decisions about business do have one significant advantage over the average individual, she adds, which is that they typically have access to a wider range of information as they make their decisions. On the other hand, apparently having more information isn’t enough to guarantee success.
One study by a couple of British professors, Sue Birley and Niki Niktari, found that, roughly two-thirds of all businesses fail. While there are multiple reasons for this, one of the significant ones is irrational thinking. Birley and Niktari found that 40 per cent of owners of failed businesses had relied “too heavily on intuition and emotion in their decision-making.”

Uh-oh.

And SFU marketing professor Lindsay Meredith notes that certain types of market phenomena, where there’s a bandwagon effect as people pile on, do tend to produce even more irrational decision-making. “Do we get into a period where there’s a suspension of rational business belief? Yes, I think so.”

So given all that, it’s not surprising that as people involved in local businesses thought about the Olympics in the beginning, they, like everyone else, came to their opinions with a predisposition to love it or hate it. It’s the kind
of event that’s almost impossible to make a completely informed decision about because it’s so economically complex. The equivalent of a gigantic PNE, it has its own gravitational force in the economy due to its massive but short-term requirements for buildings and labour, along with its ability to attract corporate sponsorships. But it also generates enormous costs, some of which are obvious (bills for sports venues, Olympic village development disasters) and others that aren’t (what you could have done with this money to build your economy if it weren’t being spent on the Games, the so-called “opportunity cost”).

In the business world, the majority decided early the Games were a definite Good Thing. In 2002 two-thirds of business leaders polled by the B.C. Chamber of Commerce thought the 2010 Olympics would bring economic growth to the province. About a fifth thought they wouldn’t, while 10 per cent were unsure. That would be Hoegg’s “motivated hypothesis” in action.

Once the initial decision-making phase is over, people enter the next phase: confirmation bias. “You look for information that is going to support your original decision,” says Hoegg. “If the information is ambiguous, you bias that information so it seems supportive. And anything that’s supportive can get over-weighted.” So as Vancouver rolled through the next few years – compiling its final bid, lobbying, holding a referendum on whether to support it – people on both sides continued to gather information that supported their initial decision.

The third phase arrives when extremely negative information starts to come in that is beyond ambiguous. It’s actually at odds with the original opinion you formed. For some people, that might be about the place where Vancouver is right now, one year out from the Olympics; this point is known as the trough.

VANOC CEO John Furlong has frequently reminded staff about this parabolic curve, which represents the emotional path toward the Games. People are euphoric when the bid win is first announced and get euphoric again about three or four months before the Games start. But in the middle “trough” period, people are at their grumpiest, as costs and complications dominate the news but the event itself is still distant. Furlong even had visuals to demonstrate, recalls Daniel Fontaine, the one-time chief of staff to former mayor Sam Sullivan and a former director of communications at 2010 Legacies Now (an organization whose mission is to generate visible Olympics-related programs – from school art programs to souvenirs for minor-league hockey tournaments – in the years leading up to the Games).

“When we were at 2010 Legacies, our goal was to keep that dip as high as possible,” said Fontaine. “And I assume they’re still monitoring at Legacies to see what the public mood is.”

Right now the mood is undeniably cranky. There have been cost overruns. The athletes village has turned into a financial disaster with no clear resolution in sight. Everyone’s sick of construction messes. The world’s economy is in a tailspin. No one seems to want to buy the thousands of condos that were being built in the expectation of an Olympics boom. As well, businesses are now in the slow process of discovering that what seemed like an Olympic tsunami is not quite as all-encompassing as some might have believed.

The Downtown Vancouver Business Improvement Association (DVBIA) brought in a survivor from Salt Lake City this spring to drive home just that point. “We were hearing from a number of our members about high expectations,” says DVBIA executive director Charles Gauthier. Bob Farrington, who was director of Salt Lake City’s Downtown Alliance during the 2002 Winter Games and is now that city’s economic development officer, brought them back down to earth gently in the DVBIA’s session, letting them know that some businesses – those close to actual venue sites, those with something Vancouver-related to sell – would likely do better. But many would not. And some might actually do worse. Local residents have a tendency to put off major purchases, said Farrington, either because it’s more difficult to physically get to some stores or because they’re spending all their money on the Games. And visitors won’t be filling the gap.

The Vancouver Economic Development Commission has been refining its analysis of who will benefit and who won’t – and as it turns out, people don’t actually come to the Olympics to spend huge amounts of money. “Most purchasing is relatively small items because people are travelling. And many who come are people who are friends and family,” says John Tylee, the commission’s policy and communications director. “They’re typically not big spenders.” While marathoners, doctors at conventions, and gays and lesbians are much beloved by the tourism industry because of their propensity to spend heavily while visiting, the “friends and family” visitors spend the least amount per day. One bright spot, according to Tylee: furniture sales rise about six to nine months before the Olympics as people prepare for those freeloading friends and relatives to arrive.

Add to that the reality that the Olympic year typically produces a slowdown in business development, according to a 2006 Avison Young report, since businesses thinking of investing in the region either do it before or much later to avoid the presumed busy period.

In spite of the quickly lowering expectations, Olympic believers are unlikely to turn into doubters, says Hoegg. “You don’t want to feel like an idiot,” she says, so if you determined early on that the Olympics were a Good Thing, it’s difficult to change course because doing so would mean you’d have to accept you made a stupid or uninformed decision in the first place. That’s why, around now, you’re likely to be hearing new arguments about why the Olympics are good, even though the economy is crashing and the benefits aren’t as widespread as people originally thought.

That would be arguments like: Well, it’s a good thing B.C. will have the Olympics, because otherwise the recession would hit harder. Or: Yes, it’s true that many businesses won’t actually see improved sales because of the Olympics, but the city as a whole will benefit from Vancouver’s enhanced brand in the world. More people will come here to live or visit or buy condos and more businesses will locate here because of our, as condo marketer Bob Rennie always calls it, “$5-billion branding exercise.”

If you originally believed the Olympics were going to boost the economy, you will continue to search for evidence that you made the right decision. You will, indeed, probably sound something like Salt Lake City’s Bob Farrington. He, along with many other people in the Utah capital, are sure that the 2002 Games benefited the city – even though they can’t always point to statistics. “Whatever the data shows is kind of immaterial,” says Farrington. “People believe that it really made this region boom. It’s hard a put a dollar value to that.”

The biggest challenge to people’s belief systems may come if there’s a profound slump at the end of the Games – which some people fear may happen.

There’s already some underground anxiety among people who analyze finances and markets that the American recession may be so deep that it will still be in full swing as the Olympics end, and so all of B.C.’s investment in this marketing effort may fall flat. If the U.S. does recover by February 2010, however, things will be all right. “It could be huge if the timing is right. But I’m worried the timing isn’t going to be there,” says one such analyst, who’s not allowed by her employer to comment publicly. “If the U.S. is in a much bigger mess, then I don’t think this Olympic super-boom is going to happen.”
Publicly, David Negrin, the head of development for the Aquilini Investment Group, says he doesn’t think the condo market will come back in Vancouver until well after the Olympics.

Well, then we may all have to refer to what Hoegg calls hindsight bias or other forms of rationalization. We’ll say that the decision to go after the Games was a good one – it’s just that we got caught in an unforeseeable economic disaster. Or we’ll say that we had a feeling all along it wasn’t going to work out. (And, of course, those who pooh-poohed the Olympics from the beginning will revel in having their opinion confirmed – but even if the post-Olympics boom appeared, they’d find a way of discounting it.) But if the boom comes, well, whether it’s because of a general recovery or one of a dozen other reasons, we’ll lock on to the most obvious reason we can think of quickly for that: the Olympics.

And it will become part of the mythology of Vancouver. Just as many people firmly believe Expo 86 made Vancouver what it became afterwards – not the Hong Kong exodus, not a predictable jump to a new stage of city building – so many more will come to believe the Olympics took the city to yet another new level. And all the studies in the world won’t convince them otherwise.