Debt Crisis Could Complicate Olympic Bids

While two debt-ridden European countries are bidding for the Olympics Games, an economist tells Around the Rings that hosting the Games won’t cure their balance sheets.

Victor Matheson is a professor at the College of Holy Cross in the U.S. and has written on the economic impact of the Games on host cities.

He said that cities rack up massive debt by building specialized infrastructure.

"You need to build baseball stadiums, equestrian facilities, water cubes and things like that…. and its stuff that generally doesn’t transform itself into general infrastructure very well," said Matheson.

"Greece has a world-class baseball stadium in a country that doesn’t play baseball," he noted about the 2004 Olympics in Athens.

Of the six cities now in the race for 2020, Rome and Madrid will face the most scrutiny over the impact of the sovereign debt on the books in Italy and Spain.

"It is a bit odd that they are actively competing with one another to see who can increase their debt burden the most," said Matheson, referring to the bids from Rome and Madrid.

IOC President Jacques Rogge, in an interview last week with Around the Rings, says he believes that the Rome and Madrid bids may not be affected much by the size of the national debt.

"In the case of Madrid and the case of Rome, very little must be built. Much of the existing infrastructure is already in place. It will here and there need some refurbishment and upgrading, but they don’t expect to have a big budget in terms of needing to add all the infrastructure," said Rogge.

Istanbul, making its fifth bid for the Games, appears to have overcome the financial issues that were a concern a decade ago in Turkey. Doha, Qatar and Baku, Azerbaijan both enjoy oil revenues that buttress those economies. For Tokyo, economics could be an issue as Japan battles recession and the recovery from natural disasters.

Michael Bell, an expert in public debt and finance, says Italy’s situation is worrisome, but not as bad as Greece’s, which turned to the European Union twice for help paying off its debts. Indeed, there is some belief that unbridled spending by Greece to prepare for the Olympics pushed the country towards its current debt crisis.

"Italy and Spain are not in as bad of shape of Greece, but they are countries where I think the national debt is in excess of the gross domestic product," said Bell, who is a professor at Georgia State University’s Andrew Young School of Policy in Atlanta.

Bid Committees Respond

Mario Pescante, chair of Rome’s bid and a vice president of the IOC, said the bid will not be inhibited by Italy’s economic crisis.

"The Olympics can be seen as a sign of growth," Pescante said at a committee meeting on Sept. 12.

His comments were backed by Rome Mayor Gianni Alemanno, who said the austerity measures should not be connected to the bid and that the committee should steer away from "from the controversy of everyday life and politics."

"It’s an investment for the future," said the mayor.

Spanish Olympic Committee president Alejandro Blanco says the bid will not be affected by the country’s debt, because the city has already built the majority of the needed infrastructure.

"Madrid has a big advantage, as 80% of the planned infrastructures, which appear in the bid file, have already been built. Therefore, necessary investments are minimaland they will also be made throughout the coming years," said Blanco.

He added that the Games could help repair the country’s stagnant economy.

"The Olympic Games are the most important display of sport and society that any city and country can organize. They are a magnificent opportunity to energize the economy of that very city and country," Blanco said.

Crisis – or Wait and See ?

A less rosy view is taken by Lars Haue-Pedersen, managing director of the sports advisory firm TSE Consulting in Lausanne.

"This financial crisis will play a major role," he said, claiming that Italy and Spain's economies remain the most troubled in Europe after Greece. "It will be a big question mark above these two bids."

Haue-Pedersen said the situation was very different four years ago when Madrid was bidding for 2016.

"Four years ago the world was moving forward, it was heading towards a big crisis but hadn't reached that point," he said.

"So the race at that time was about who can do the most amazing things. Brazil was a new superpower coming up. Chicago had the power of marketing. Madrid was a strong Spanish bid economically. Tokyo was the financial power of Asia."

Haue-Pedersen added: "Now the world has changed. The world is in a weaker position and the bidding process is taking place in the shadow of the financial crisis.

Richard Carrion, the chair of the IOC Finance Commission and head of the largest bank in Puerto Rico takes a more measured view of the situation with Italy and Spain.

While acknowledging both nations face struggles today, time will tell if that’s an issue when the IOC votes for a 2020 host in Sep. 2013.

"18 months can be a long time," he says. "It is more important to judge those economies and whether they have recovered closer to the vote in 2013," says Carrion.

Written by AnnCantrell.

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