Chicago's Olympic bid: An expensive proposition
The Windy City would face a tough financial challenge in hosting the Olympics, experts say, but it's well prepared with stadiums, infrastructure.
NEW YORK (CNNMoney.com) -- With help from hometown heroes like the Obamas, Chicago is aggressively lobbying to host the 2016 Summer Olympics. But making the games profitable would not be an easy win.
Chicago is competing with Tokyo, Madrid, Spain and Rio de Janeiro in wooing the International Olympic Committee in Copenhagen. A decision is expected Friday.
Chicago 2016, the organization leading the effort to host the games, expects a cost of $3.8 billion, including a "rainy day" fund of $450 million in case of unforeseen increases.
But there's good reason to be skeptical of that projection, said Robert Livingstone, producer of GamesBids.com and a leading expert in the Olympic selection process. Host cities routinely overrun their Olympic budgets, he said.
"It's going to be more expensive than we think it's going to be, because it typically is," Livingstone said. "I think every [host] city is going to lose money. It's not an efficient event."
The bidding process alone is costing Chicago about $100 million, even if it doesn't win, Livingstone noted.
An argument often made by host city advocates is that presenting the international spectacle is good for a local economy. But such "trickle-down effects," like benefits to local businesses, are "almost impossible to measure," Livingstone said.
"I think a lot of people look at the Olympics, and they try to justify it by how much money it adds to the economy," said Livingstone. "[But] if you're in this to make money and improve your economy, you're in it for the wrong reasons."
A Chicago 2016 spokesman, who asked not be named, stood by the $3.8 billion projection. "Our numbers are completely feasible thanks to the infrastructure already in place, the number of venues already built and the temporary nature of the majority of those we're planning to build," he wrote, in an e-mail.
Olympic budgets and preparation differ widely from city to city.
Athens, host of the 2004 summer games, budgeted $8.3 billion, including $5.8 billion to overhaul its infrastructure, with a new subway network, airport, roads, railway and tram system.
"It depends upon what you have to do to host the Olympics," said Andrew Zimbalist, an economics professor at Smith College in Northhampton, Mass., who has written on the subject of sports economics. "Some cities are more equipped at day one [in terms of arenas and other facilities.] "Some cities need to build infrastructure, others don't. Some cities need to build hotels, others don't. Some cities have security they need to build up, others don't."
It also depends on what the cities want to do. While Athens focused on badly-needed infrastructure to accommodate the Olympics, Beijing spent more heavily to turn the 2008 summer games into a lavish spectacle. Beijing spent an estimated $40 billion on infrastructure and on such eye-popping venues such as the Bird's Nest stadium, Zimbalist said.
The stadium isn't even used for sports events anymore; it's being converted into a shopping mall and hotel. Zimbalist said the building of such extravagances is the risk they turn into under-used "white elephants." But he added that Beijing got what it wanted: to present itself to the world as a major player.
"What you're trying to shoot for, realistically, is some kind of psychological benefit," he said. "It's the social-economic benefit of the cost, not pecuniary."
Don't expect a Beijing-style spectacle in Chicago, said Mark Rosentraub, professor of sports management at the University of Michigan and an expert in stadium finance and construction. In Chicago, the pressure is to save money, not pull out the stops for a jaw-dropping show.
"The Chinese made facilities that they're never going to use again, but that's what they wanted to do," he said. "They wanted to market [themselves]. Chicago doesn't need to market. It's a world-class city. It has a phenomenal reputation already. Making a profit off the Olympics would only enhance that."
Chicago bears a closer resemblance to Atlanta, the Olympic host in 1996, and Los Angeles, the 1984 host, Rosentraub said. The three cities already have existing infrastructure and sports stadiums, he pointed out, alleviating some of the financial pressure of hosting the summer games.
"The great thing about Chicago is that it needs very little infrastructure to pull off the Olympics," he said.
Chicago could also learn from Atlanta, which wisely re-used the housing that it built for Olympic athletes by turning it over to the Georgia Institute of Technology and Georgia State University for use as dorm housing, as well as below-market housing.
Atlanta and Los Angeles each turned a profit as Olympic hosts, and Chicago has the potential to do the same, so long as it acts wisely by using existing facilities, such as Soldier Field, so it doesn't have to build more than one or two stadiums, according to Rosentraub.
"The key to doing the Olympics is: don't build a lot of infrastructure that you don't need," Rosentraub said. "If you don't go crazy building facilities, you can make money on the Olympics. If you don't go crazy, it's impossible to lose. But if you go crazy, you lose your shirt."