Buyi Wang

Pyeongchang and the Winner’s Curse

As Pyeongchang warmly welcomes the 2018 Winter Olympians, bleak economic forecasts loom in its future. Pyeongchang is about to discover what dozens of other host cities have learned too late: they’ve crippled themselves with debt.

By: Buyi Wang

As Pyeongchang warmly welcomes the 2018 Winter Olympians, bleak economic forecasts loom in its future. Pyeongchang is about to discover what dozens of other host cities have learned too late: they’ve crippled themselves with debt.

Pyeongchang is a small mountain town famous for cattle and potatoes. It’s one of the least developed towns in South Korea, despite being only 80 miles from Seoul. This meek town would seem quite insignificant if it wasn’t hosting the 2018 Winter Olympic Games. Now, suddenly in the global spotlight, Pyeongchang is basking in the vibrant culture of the Winter Games. However, when the celebration fades, the town will have to reckon with huge debts and sunk costs. The shocking reality is that hosting the Olympics may leave Pyeongchang economically worse off than it was to begin with.

Certain aspects of the local economy are sure to improve, most notably transportation, which has already made considerable advancements. Pyeongchang has historically been investment-deprived, largely because it’s hard to reach. Fortunately, that’s been changing in recent years. Before the Olympics, the journey from Seoul to Pyeongchang went through a mountain road that locals describe as “a sheep’s intestines” (Premack 2018). Nowadays, the Wonju-Gangneung double track railway, built for the Olympics, has made the journey faster and more pleasant. According to the Olympic Legacy report, released before the railway’s completion, “When the construction is finished, it will only take an hour from Cheongnyangni, Seoul to Jinbu-myeon, Pyeongchang-gun, Gangwon-do” (2016, p. 133).

When transportation improves, investment and tourism are expected to increase, contributing to regional development. To that end, 97 tunnels, 78 bridges, a new bullet train and a highway have also been built, greatly streamlining transportation between Pyeongchang and the capital city of Seoul (Sang-Hun 2018). Meanwhile, stadiums have risen from the ground, and forests have been replaced by ski slopes. A bold new Pyeongchang has emerged, marketing itself as the latest national and global haven for winter sports.

However, such drastic transformations tend to come at exorbitant costs, which in this case begin with the bidding process to become the host city. Traditionally, to improve their chances of winning, cities make bold promises to build huge, fancy stadiums and a luxurious Olympic Village. An interesting phenomenon called “The Winner’s Curse” enters the scene here. The phenomenon typically occurs at an auction where the winner overpays for an asset for the sole sake of winning. When it comes to the Olympics, the winning city is usually the one which most severely over-values the economic benefits that the Games can bring, and ends up spending itself into an economic disaster. In particular, small towns like Pyeongchang are often enticed to bid aggressively because they have more potential for economic growth. However, they face costs which generally amount to a much higher percentage of their GDP. For some reason, this seems to happen much more often in the Winter Olympics than in the Summer Olympics, which are more commonly hosted by big cities.

Budget overruns are one of the most common problems commonly faced by host cities. Research by the World Economic Forum has shown that “no Games since 1960 has come in under budget. In fact, nearly half have cost overruns of more than 100%. Montreal 1976 had a cost overrun of 720%, Barcelona 1992 of 266% and Lake Placid 1980 of 324%” (Myers 2016). The $13 billion budget of the Pyeongchang Games, though modest compared to that of the previous Winter Olympics in Sochi, severely overruns its own initial goal of $7 billion; the cost overrun exceeds 85%. Moreover, budget overruns are already troubling Tokyo, the city hosting the 2020 Summer Olympics.

The excess investment in the Olympics will become more obvious after the event ends. For instance, the main stadium at Pyeongchang cost approximately $109 million to build. However, it’s only going to be used to hold the opening and closing ceremonies of both the Winter Olympics and the Paralympics, a total of 4 events. To make matters worse, the main stadium, which can hold 35,000 spectators, is going to be torn down after the Games end. This is to be expected since Pyeongchang only has a population of 40,000 people.

Interestingly, not 100 miles away, close to the North Korean border, stands the remains of a once-famous ski resort. Nowadays, it’s a ghost town that nobody cares to visit. Some people worry that the same fate will befall Pyeongchang after the Olympics. There are many other examples of stadiums being abandoned and wasted. For instance, in Athens, a training pool has become a dirty container for rain-water. Rio saw the exteriors of some of its stadiums fall only six months after the end of its Olympic Games.

The abandoned stadiums aren’t the only problems haunting the host. The long-term economic growth seemingly promised by the Olympics doesn’t always come to pass. For example, there are hopes that Pyeongchang will become a world-class ski destination following the Olympics, but there are many reasons that this might not happen. First, for most international ski lovers, Austria, Switzerland, France, the U.S. and Canada are still overwhelmingly popular. Meanwhile, it’s very costly and time-consuming for ski lovers in Europe and US to come to South Korea. The proximity of Pyeongchang to North Korea– only 50 miles– might be a deterrent as well.

The government of Pyeongchang is in a difficult position right now. The national government in Seoul has stated that it has declined to help Pyeongchang maintain the remaining facilities after the Olympic Games, believing it would be unfair to other Korean cities that have held similar events. Consequently, Pyeongchang is left on its own to take care of six Olympic stadiums, which are projected to cost the province a total of $8.5 million every year (CBC 2017). Considering Pyeongchang’s relatively low income levels, this is a serious burden.

Hosting the Olympics is like throwing a massive party. You have lots of guests, great entertainment, and state-of-the-art amenities. For years to come, everyone will remember what a good time they had. Despite all this, when you wake up alone the next morning, you realize that you’re stuck with bills that will plague you for the rest of your life. Only then do you regret what you’ve done.

The Pyeongchang Games are sure to leave a unique legacy. During the Opening Ceremony, the North Korean and South Korean delegations historically marched as one. Adam Rippon, one of the few openly homoesexual athletes, inspired millions during the figure skating event. There were countless moments of triumph, shock, and pure thrill. Despite all of this positivity, the Pyeongchang Olympics are unlikely to be considered economically successful for the host city.

The Olympic motto, “Faster, Higher, Stronger,” will leave a bitter aftertaste in Pyeongchang for years. “Faster” will serve as a reminder of the fleeting nature of the Games; “Higher” will only describe their rising costs; while athletes grow “Stronger,” Pyeongchang natives will be stuck in a weak economy. The good news is that the International Olympic Committee’s Sustainability and Legacy Commission has stated that it intends to provide more guidance for host cities in the future, in order to make the Games more sustainable and economically sensible. Hopefully, future Olympic competitions can provide all of the spectacular entertainment we’ve come to expect, without the economic burdens that host countries have historically shouldered.

References

CBC Sports. (n.d.). South Korea trying to ensure positive legacy from Winter Olympics. Retrieved from http://www.cbc.ca/sports/olympics/pyeongchang-games-post-olympics-costs-1.4447984

Lee, Y. N. (2018, February 15). The future of the Olympics may depend on how South Korea makes this one work. Retrieved from https://www.cnbc.com/2018/02/15/south-koreas-pyeongchang-winter-olympics-costs-benefits-of-hosting.html

Myers, J. et al. The cost of hosting every Olympics since 1964. Retrieved from https://www.weforum.org/agenda/2016/07/the-cost-to-cities-of-hosting-the-olympics-since-1964/

Premack, R. (2018, January 30). Pyeongchang Is Hoping The Olympics Will Make It A Winter Sports Capital, But It’s A Costly Gamble. Retrieved from https://www.forbes.com/sites/rachelpremack/2018/01/30/pyeongchang-is-hoping-the-olympics-will-make-it-a-winter-sports-capital-but-its-a-costly-gamble/2/#630fbb35671f

Pyeongchang 2018 Olympic Committee. (2016). Legacy reports. Retrieved from https://www.pyeongchang2018.com/en/sustainability/reports/legacy

Sang-hun, C. (2018, February 03). Pyeongchang’s Winding Path From Obscurity to Olympics Fame. Retrieved from https://www.nytimes.com/2018/02/03/world/asia/pyeongchang-winter-olympics-south-korea.html

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