Every city that wants to host the Olympic Games must include, as part of its bid, an economic impact forecast.
These independent reports, commissioned by the bid committee, usually project a positive outcome, and the one released Monday by LA 2024 is no exception.
The study prepared jointly by UC Riverside and a consulting firm projects that hosting the mega-sporting event would boost local economic output by as much as $11.2 billion and create more than 74,000 full-time jobs.
“This report shows that L.A. is an ideal, low-risk host for the 2024 Games, and that we have the right plan in place to make sure that a winning bid brings a lasting Olympic legacy back to our city,” Mayor Eric Garcetti said in a statement.
But an economics professor who has compared impact reports from previous Olympics with subsequent data warns that predictions usually fall short.
“When we go back and look, a good rule of thumb is to move the decimal point one place to the left,” said Victor Matheson, an economics professor at the College of the Holy Cross in Massachusetts.
Los Angeles, which hosted financially successful Games in 1932 and 1984, is competing with Paris and Budapest, Hungary, this time. The International Olympic Committee is scheduled to make its selection in September.
More than a year into its campaign, LA 2024 has gotten high marks.
In an effort to cut the type of expenses that have left Olympic host cities with massive deficits, bid leaders have focused on making use of existing arenas and stadiums throughout the region.
They have also proposed housing athletes at UCLA and putting the often costly media center at USC, which could save more than $1 billion in construction.
That puts their most-recent projected budget at $5.3 billion, a total they believe would be covered by revenue from sources such as broadcast rights, corporate sponsorships and ticket sales.
“I think the big issue boils down to how much they need to invest in infrastructure and facilities that may or may not pay off in the future,” said Robert Kleinhenz, executive director of research for Beacon Economics, which partnered with UC Riverside on the report. “For LA 2024, there’s such limited amount of investment required up-front.”
“There is little doubt that hosting the Olympics is an enormous boost for a local economy, both in the short term as driven by activity surrounding the events themselves, and in the long term given how these events raise the global profile of the region,” Christopher Thornberg of UC Riverside and Beacon Economics said in a statement.
Matheson, who had not yet studied the LA 2024 report, said previous economic predictions related to the Olympics have stumbled in three main areas.
They have failed to fully account for the “substitution effect,” money spent on the Olympics that might otherwise have been spent elsewhere in the region.
The “crowding-out effect” is also a potential factor, with some nonsports tourists dissuaded from visiting by concerns about Olympic crowds.
Ski resorts in Salt Lake City experienced a decrease in visitations when their region hosted the 2002 Winter Games, according to the Utah Governor’s Office of Planning and Budget.
London also had a drop in international visitors during the two months of the 2012 Summer Olympics, Matheson said.
“Leakage” is another issue. A significant percentage of the money spent on accommodations, for instance, might be funneled to the hotel chain’s headquarters in another state.
When asked about the employment forecast, L.A. officials acknowledged that many of the new jobs would be full-time but temporary.
“There’s no problem with seasonal jobs,” Matheson said. “You need that money, but you have to take those numbers with a grain of salt.”
The LA 2024 report will be part of a package that must be submitted to the IOC by early next month. Kleinhenz expressed confidence in its projections.
“I’m every bit as skeptical as so many other people when it comes to the payback to communities on new sports venues,” he said. “I think we got a pretty good rendition of how this is likely going to play out.
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