The Minister News Search Reports & Publications Contacts

Economic Impact of the Winter Olympic & Paralympic Games

News Release
January 16, 2002


2010 Olympic Bid Home Page

Other Links

Vancouver Whistler 2010 Bid Corporation



The Economic Impact of the Winter Olympic & Paralympic Games

Appendix A: The Economic Model

In order to assess the potential economic impact of the 2010 Games, the sensitivity model endeavours to capture the capital and operating costs of the Games, and the tourism expenditures over a 20-year period spanning the Games. The potential impact period begins in 2001 and includes the bid process, selection as host city, the construction phase, the Games phase and up to 10 years of post-Games tourism activity ending in 2020. In all but the Best Effort/Best Response scenario tourism impacts are assumed to fade out by the sixth year following the Games.

This model cannot predict costs or revenues. It does provide a measure of the gross and incremental economic impacts that can be expected for any given set of cost and visitor profiles. These impacts are recorded for Gross Domestic Product (GDP), employment, and federal, provincial and municipal tax revenues. As with any model the quality of the outputs is highly dependent on the quality of cost and visitor estimates that are used as inputs. All data is adjusted to year-2001 Canadian dollars.

Real Versus Nominal Dollars
All dollar calculations are made in constant year 2001 Canadian dollars to provide a consistent basis for comparison over the 20-year observation window. To summarise the 20 years of data as a single, year-2001 total for each variable, the data has been discounted into a Net Present Value at year 2001. The Province of British Columbia real 30-year bond rate is used as the discount rate.

Accounting for Risks
There are two primary methods to accommodate risk in an economic evaluation. The first is to reduce the economic benefit number by an amount deemed sufficient to off-set the perceived impact of a worst case scenario - the visitors do not come, costs are overrun, etc. This is accomplished by discounting future benefits to a present value using a discount rate set sufficiently high to off-set the presumed risk. The choice of discount rate is inherently subjective and largely arbitrary.

The alternative method and the method used in this paper is to construct a model of the economic impacts where the results can be tested under a virtually unlimited range of risk scenarios for the key variables. Having dealt with the risks through the sensitivity analysis, we then apply a discount rate that simply reflects the Province's long-term cost of debt. Six tourism impact profiles were developed, (described in the body of this paper), based on the experiences at other Olympic sites and with Expo 86. These six scenarios generated tourism impacts that were captured within the range defined by the following four scenarios, representing the perceived likely worst case outcome (Low Effort/Low Response), a low moderate outcome (Average Effort/Average Response), a high moderate outcome (Better Effort/Better Response), and the likely best case outcome (Best Effort/Best Response).

Present Values
The costs and the revenue benefits are incurred or received over extended and different time frames. Most of the cost will be incurred between 2003 and 2009 while much of the revenue will occur after 2008. In order to compare the costs and the revenues on an equal footing we have to adjust for the fact that a dollar received in 2008, for example, is worth less than a dollar received, or a dollar spent in any year before 2008, and is worth more than a dollar spent or earned in any year after 2008, due to the cost of money. This adjustment is handled by a standard net present value, or NPV formula which reduces the stream of costs to be incurred over successive years to a single value which represents the total costs if they were paid in a single lump sum now. Similarly, the stream of revenue flows are converted to a single sum representing the total revenue if it was all received now. These two sums can then be compared to determine if the projected revenues will exceed the projected costs.

Costs include both capital and operating and are accumulated in the model under three categories - Gross Costs, Gross in-British Columbia Costs and Net Incremental In-British Columbia Costs. Gross Costs includes all costs, whether incurred in British Columbia or elsewhere, and represent the whole cost of the Games. Gross In-BC Costs is a sub-set of Gross Costs and captures only those costs that have an economic impact in British Columbia. Net Incremental In-BC Costs is a sub-set of Gross In-BC Costs and captures only those costs that have a incremental economic impact in British Columbia. For the purposes of this analysis, only that portion of total Games costs incurred in British Columbia which are offset by Games revenues received from sources outside the province have an incremental impact on the economy.

Costs in each category are aggregated over the 20-year observation period to create a single summary cost statistic in each category. These costs are built up from costs that are (a) the responsibility of the VW2010 Organising Committee of the Olympic Games (OCOG Costs) and (b) costs that are the responsibility of others, such as supportive non-Games infrastructure improvements by the Province, municipality or private individuals (Non-OCOG Costs).

Visitors defined
The model categorizes Games-related visitors as External Visitors, Resident Visitors or Resident Spectators. External Visitors are further subdivided into Games participants, (media, athletes, sponsors, delegates and officials), and tourists, the unifying characteristic being that none are residents of British Columbia. Resident Visitors are British Columbia residents from outside Greater Vancouver and Whistler who attend the Games as spectators and who will stay in rented accommodation. Resident Spectators are those normally resident within the GVRD or Whistler area who would live at home while attending the Games and thus have a different spending pattern than visitors.

The tourist component of both the External Visitor and Resident Visitor categories require special attention to correct for displacement of "normal" tourism that occurs around mega-events. Some British Columbia residents who would normally take a vacation skiing in British Columbia in February may vacation outside British Columbia instead to avoid the Olympic crowds. Some regular visitors to British Columbia will stay away to avoid anticipated congestion. Both of those groups represent negative incremental economic impacts for British Columbia.

Conversely, some residents who might normally vacation in Hawaii, for example, in February will forego that trip to stay in British Columbia to be part of the Olympic experience. Some foreign visitors not otherwise destined for British Columbia will be drawn to the province by the Games' publicity, before, during or after the event . Both of those groups represent a positive incremental economic impact for British Columbia.

Finally, Resident Visitors and Resident Spectators who would have stayed in the province with or without the Games represent a gross economic impact but not an incremental impact.

Jobs Defined
The jobs data in this paper are calculated using the industry employment multipliers generated by the provincial Input Output Model. The Input Output Model is maintained by BC Stats, Ministry of Finance and is based on data collected by Statistics Canada. These employment multipliers are determined from actual historical data on industry income and employment provided by Statistics Canada. As such, the multipliers present an historically accurate picture of the job creation associated with a particular level of income, or conversely expenditure, in an industry sector. Because an industry's structural characteristics change relatively slowly over time, these multipliers provide a fairly reliable basis to forecast the typical or average employment impacts of future expenditures.

For practical purposes the job count should be considered as the aggregate person-year equivalents created over the life of the project, not simply new full time jobs. Hence, if 5,000 full time, 5,000 half time and 10,000 quarter time jobs were created in the first year of a three year spending/investment program, and the same level of spending occurred in the next two years, the same pattern of employment would be maintained in the second and third year for an aggregate person-year equivalent for the project of 30,000 jobs. If more of the spending occurred in the first year and less in the second and third year, the same 30,000 person-years of employment would be created but more of it would occur in the first year and less in the subsequent years.

While many jobs associated with the 2010 Games project or the VCEC expansion would be new full time jobs there would also be many jobs represented by some existing part time jobs that become full time, some casual jobs that become full time, some casual jobs that become part time and some new casual jobs. The aggregate of all of these additional hours of employment is equivalent to the number of jobs projected by the employment multiplier.

As new spending funds these hours of employment, the pace of spending and the duration of spending determine the pace of job creation. In a vibrant economy, as one spending stream shrinks it is off-set by increase elsewhere and total employment rises.

Calculating impacts
Similar to the cost statistics described previously, the annual visitor spending data from the 20-year observation window (20 years in the Best Effort scenario) is rolled into single Net Present Value totals for Gross Visitor Spending in British Columbia and Net Incremental Visitor Spending in British Columbia to create summary visitor expenditure statistics. Both the summary cost statistics and the summary visitor expenditure statistics are then individually distributed across the major industrial sectors categories according to how the direct expenditure is perceived to occur. For example, for each dollar an external tourist spends in British Columbia at the Games, historical analysis may suggest 39 cents or 39% will go toward accommodation, 10% to transportation, 25% to food and beverages, 15% to retail purchases (Games souvenirs, etc.) and the balance for entertainment (event tickets). Similarly, the construction of a bob/luge run will involve expenditures for physical construction, business services (architects, engineers etc.), furniture fixtures and equipment, transportation and insurance, among others. These distributed amounts are then multiplied by the appropriate sector Input/Output multipliers from the British Columbia Input Output Model tables and accumulated to create an aggregate economic impact number.

In calculating the impacts, money that is removed, or leaks, from the economy has to be identified and excluded from the calculations. Leakage occurs through a variety of transactions, the most obvious being the payment to foreign suppliers for goods we import. The economic multipliers used in the provincial Input/Output model capture normal leakages based on historical economic performance, the typical import content in construction of an apartment building for example, but the multipliers do not capture what this model calls Extraordinary Leakage. Construction of a bob/luge track for the Games will be a unique economic event in the province. If that facility requires, for example, the importation of a $5 million freezer plant, that leakage will not be reflected in the multipliers and must be manually deleted to avoid over-stating the impacts.

Gross impacts versus incremental impacts
The model produces both gross impact data and incremental impact data. The gross economic impact measures generally conform to what one would expect if the gross expenditures were run through the British Columbia Input/Output model. Gross economic impacts on GDP, employment and tax revenues are valid and useful measures of the impact of expenditures but they do not distinguish between the impact of a dollar spent on the Games in British Columbia by a British Columbia resident who would otherwise have spent that dollar in the province anyway, versus a dollar spent in British Columbia by a non-resident. Similarly, for Canada, the gross impact does not distinguish between the impact of a dollar spent in Canada by a Canadian resident versus a foreign resident. This distinction is important to the respective provincial and federal treasuries and to the taxpayer because the dollar spent in British Columbia (or Canada) by a resident simply re-circulates within the economy generating the same tax revenue, on average, whether it is spent on a Games ticket or a theatre ticket. The dollar spent by the non-resident visitor for a ticket is an additional or incremental dollar of spending introduced into the economy, which, among other things, generates incremental tax revenue the respective federal and provincial treasuries could not otherwise capture if the non-resident did not spend the dollar in British Columbia or Canada respectively. For British Columbia, non-resident means anyone not normally resident in the province, including other Canadian persons, organizations and governments plus all foreign-based persons and organizations. At the federal level, non-resident means only persons, organizations or governments not normally resident in Canada. Hence, an Ontario visitor or sponsor spending in British Columbia has an incremental impact at the provincial level but not at the federal level.

While gross impact data is a useful description of the overall economic impact of the Games, it is the incremental economic impact of the Games that determines whether hosting the Games really makes economic sense. In calculating impacts, the model firsts adjusts the gross Games-related expenditures to eliminate identifiable extraordinary leakages. The result is Gross In-BC Costs.

Gross in-BC Costs are then multiplied by the percent of Gross in-British Columbia costs that are known or are anticipated to be offset, directly or indirectly, by Games revenues sourced outside British Columbia. That is, the percentage of costs that are anticipated to be covered by the share of broadcasting fees the IOC provides, sponsorship revenue from non-British Columbia sources, federal contributions, etc.- revenue that would not otherwise flow to British Columbia. For the equivalent federal calculation, only revenues originating outside Canada are counted. The product of this calculation is labeled Net Incremental In-BC Costs in the model. Multiplying these costs by the I/O multipliers provides a measure of the incremental economic impact for British Columbia, or, in other words, the economic impacts that would not otherwise occur in British Columbia without the Games.

Sales tax in the Input/Output Model
The British Columbia Input/Output Model multipliers do not capture federal and provincial consumer sales tax on the initial tourist expenditure. Indirect and induced impacts of these taxes are captured. Hence, the multipliers do not capture the PST and GST that a tourist pays on a taxable purchase. This tax impact is calculated separately and added to the tax calculations generated by the multipliers. According to Statistics Canada, about 6% of visitor GST is refunded under the federal rebate program for visitors.

Non-Games infrastructure enhancements
A singularly important aspect of a successful bid to host the Games is a convincing, rational plan for the physical movement of athletes and spectators between and amongst the various venues efficiently and within the time standards set by the IOC. In the Salt Lake City 2002 program, for example, significant upgrading or expansion of highways and passenger rail systems was undertaken. Such capital expenditures have been typically described in bid documents of previous Games as "non-Games" expenditures. While these expenditures may not build the Games infrastructure per se, they are certainly fundamental to the smooth and efficient delivery of the Games and to the impact of the Games exposure on long-term tourism growth. While not hosting the Games would certainly represent a tourism development opportunity foregone, the media exposure from hosting a Games punctuated by traffic chaos could be immensely destructive to the tourism industry.

Since creation of the Resort Municipality of Whistler, Highway 99 access to Whistler has been under virtually continual upgrade in order to improve highway safety and access to the enormous tourism development potential of Whistler and the Lillooet region beyond. Tourism development will become an increasingly important economic engine in the region whether or not the Games are held. Highway upgrading will continue regardless, to improve safety and carrying capacity. Winning the host city bid will necessitate a formal commitment to an adequate upgrading program on an acceptable timetable in order to ensure appropriate access during the Games. As these improvements are funded from internal provincial resources, they create a gross economic impact but not an incremental impact in the context of this model. To the extent such Non-OCOG Costs are part of the province's conventional highways upgrade capital plan and schedule, their impact is not attributable to the Games.

As with OCOG Costs, there may be extraordinary leakages in this category - an imported tunnel-boring machine, for example.

The Games Legacy
If the 1998 Bid Book cost and revenue estimates were achieved, the Games revenues would exceed costs to leave a bank balance, or funding legacy exceeding $200 million. The Games legacy fund is assigned to a designated post-Games administrative vehicle to fund on-going sport development. One of the principle activities of the legacy administration is the care and feeding of the permanent competition facilities built for the Games but also handed over as part of the Games legacy. A Bob/Luge track, for example, has been estimated to require an annual operating subsidy of perhaps $2 million.

A legacy fund created from net revenues received from sources external to the province and the economic activity involved in the post-Games use of the facilities might be treated as an incremental benefit to the Province. For the purposes of this model, pending reliable data on the post-Games capital maintenance and operating costs of the legacy facilities, the Games legacy is assumed to equal the post-Games costs of those facilities and, hence, has no net incremental economic impact.


FeedbackPrivacyDisclaimerCopyrightTopGovernment of British ColumbiaMinistry Home