The Prague Post Online: Opinion: An Olympic boondoggle

November 21st, 2008

Endowment Fund Business Listings ONLINE Reservations Classifieds Subscriptions

An Olympic boondoggle

Each Czech family to pay estimated 146,000 Kč, if games bid happens
Commentary | Search restaurants | Archives

January 23rd, 2008 issue

By Colin Shea

enlarge

I have a proposal for you. Listen carefully. It’s a great deal.

First, you and your family need to give me 146,000 Kč ($8,277). It doesn’t matter if you don’t have it handy; just put it on a credit card or something. In return, I might be able to give you 152,000 Kč back, several years later.

Actually, if history is any guide, I’ll probably end up needing a lot more than that. But let’s start with 146,000 Kč.

Someone else might end up collecting the profit, if there is any to be collected. But don’t worry about that. This is all for the greater good.

Doesn’t sound attractive? No problem. I already took out a loan, guaranteed by you, which I’m going to spend on advertising and public relations to convince you to give me the money anyway.

Trust me. You’ll go along with this in the end. That’s what you pay me for.

Sound crazy? When Prague Mayor Pavel Bém isn’t gallivanting around Nepal, this is essentially what he and his cronies spend their time plotting on our behalf.

This isn’t the new D1 highway, where per-kilometer construction costs are mysteriously far higher here than they are in Germany, or the odd and expensive procurement decisions made by the Defense Ministry, or the excellent microwave toll collection system that must now be replaced by an even more excellent satellite-based system. This is a whole new game, with a whole new trough of slop to wallow in — the Prague 2016 Olympic bid.

Hosting the Olympics in Prague would cost between 88 billion and 135 billion Kč, as estimated by various studies commissioned by city officials. Additional related costs in infrastructure development are “only” 487 billion Kč, for a grand total of about 600 billion Kč. If you divide this amount by 4.1 million households, you get the 146,000 Kč figure I just mentioned.

To be fair, a PricewaterhouseCoopers (PwC) study predicts an incremental net positive effect on gross domestic product of 25 billion Kč, leading to my calculation of a 152,000 Kč “return” per household.

We are expected to believe that “most” of this money is going to be spent anyway, albeit later. Nevertheless, the plan is clearly to spend several hundred billion crowns in incremental and accelerated costs to pursue a marginal and unlikely gain.

This Olympic bid is a farce. This has been said before, but apparently it must be repeated.

Just this week, the government provided required guarantees to the International Olympic Committee for the bid, even as Topolánek innocently insists he has no intention of burying the budget deeper in debt than it already is.

Meanwhile, Bém blithely spends our money on advertising intended to convince us of the wisdom of his ideas.

Some cities in the past have probably benefited from hosting the Olympics. Others have driven themselves recklessly close to insolvency. So any rational analysis of a Prague Olympic bid must answer two very simple but fundamental questions. First, is there a well thought-out strategic rationale for the investment? Second, can the plan be executed competently?

A study for the London government by Oxford Analytica showed that economic benefits accruing directly from Olympic Games are very small — legacy infrastructure remains unused, few incremental foreign tourists visit, and there are no identifiable long-term beneficial social or cultural impacts.

The only way for the investment to pay society back is through a qualitative impact on perception of the host city and its economic future. Several recent Olympic efforts have been successful from this standpoint.

The Barcelona Games may very well have succeeded as part of a plan to turn the city from a crumbling, post-industrial wasteland to one of the most important tourist destinations in Europe. Atlanta’s strategy of becoming a venue for national and multinational corporate headquarters was aided by its Olympics, which were largely privately financed. Sydney is a more visible business and tourist destination in Asia since the 2000 Games.

All three cities had clear and feasible plans as to how they expected the Olympics to broaden their appeal, and their investments were holistic parts of larger revitalization plans.

Even so, the contribution of the Olympics is ambiguous.

Barcelona’s development was stimulated by an influx of European Union structural funds and investment. The impact of the Atlanta Games was negligible compared to the larger macro trends of companies already moving to the southeast part of the United States. The Australian economy has enjoyed an unprecedented economic boom because of rising commodity prices since 2000, obscuring any impact of the Sydney Games.

Most studies emphasizing the value of hosting the Olympics focus on increased tourism during and after the events. PwC claims the London tourist industry will gain £2 billion in incremental tourism from the 2012 Games, for instance. Yet the evidence is ambiguous at best.

The European Tour Operator Association — presumably a body with some interest in getting the facts straight — concludes in its detailed study that there is “little evidence of any benefit to tourism of hosting an Olympic Games, and considerable evidence of damage.”

People actually stay away from host cities because of fears of overcrowding and price gouging.

Tourism to Greece actually declined 15 percent in 2004. Normal tourist spending patterns were dislocated in Los Angeles, Barcelona and Sydney during their respective games, and there is a consistent post-Olympic slump in tourism observed in most host cities. Between 1991 and 1994 in Barcelona, for instance, hotel occupancy rates actually fell from 70 percent to 54 percent.

Disaster may also strike. Montreal very nearly collapsed into insolvency as a result of inept management of its Olympics. Athens’ budget famously exploded in a pyre of chaos, waste and corruption. Cost estimates one year before the opening ceremony were 4.5 billion euros, while the final cost was double that. And no one mentions in polite company that, when Athens originally bid, the cost estimate was about 1.5 billion euros.

Prague has no real strategic reason to host the Olympics. The country spends far too wastefully on infrastructure already. There is no shortage of foreign investment, and the economy is growing robustly. Everyone in the world with the economic means to visit Prague already knows it or has been here, so an Olympics cannot possibly stimulate incremental tourism. It would likely have the opposite effect, if history is any guide.

Remaining legacy athletic infrastructure will be unused, as a casual review of Sazka Arena’s attendance records makes clear. Even London, with more than six times Prague’s population, recognizes that its Olympic facilities will never be used at full capacity after the 2012 Games.

Even if the investment looked reasonable on paper, should we trust the government with the money?

The answer to this question must be a resounding no. Firstly, the cost is never the cost. Athens’ investments were enormously higher than the original plan. Sydney’s budget was “only” twice as high as originally planned, but the public contribution was six times higher. A quick glance at the PwC study shows the city budgeted 25 percent less for security costs than what was actually spent in Athens, for instance — an utterly unrealistic starting point.

It also states in the assumptions that the study “does not count with complications associated with difficult construction tasks or accelerated completion.” Given the Athens experience, this is not merely imprudent, but disingenuous.

PwC’s study budgeted 510 million Kč for “bid preparation” and marketing to convince us to overlook these inconvenient truths. That’s about half the annual advertising budget of one of the major mobile phone providers here, to put it in perspective.

Shall we trust a government run by ex-train drivers, welfare fraudsters and various other clowns, quacks and criminals to run a discretionary investment program this large?

Prague descending into bankruptcy would be an amusing denouement to a procession of transparently corrupt blunders, but not one I am willing to finance. When the country proves capable of selecting a president who does not believe he can refute the conclusions of tens of thousands of reputable climatologists by quoting Michael Crichton, we may consider supporting this kind of project. Not before.

— The author manages The Core Group, a strategic marketing consultancy in Prague.

Be the first to add a comment!

Most e-mailed articles
Standoff Czech education projects earn EU awards The metamorphosis continues

Related articles
The joys of heartbreak

Most visited in Business Listings

The Prague Post Online contains a selection of articles that have been printed in
The Prague Post, a weekly newspaper published in the Czech Republic.
To subscribe to the print paper, click here.
Unauthorized reproduction is strictly prohibited.