For the half-year to 30 June 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Alberto Bellan, Darren Meale and Nadia Zegze.

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Monday, 28 May 2012

Katonomics 18: the Olympics -- or should that be Olympigs?

In this, the sixth and final post in her third Katonomics series, the ever-competitive Doctor Nicola Searle goes for Gold when she takes on her toughest assignment yet: an IP-sensitive economic appraisal of the Olympic Games:

What do Olympigs (a pork stand), Polympics, Monopolymics (economic structure of international sports), Holympics (church sponsored fitness classes) Woolympics (Harris tweed uniforms), and Olympits (deodorant manufacturer) have in common? They all potentially violate the London 2012 Olympics protected rights. Described by the London Organising Committee of the Games and Paralympic Games (LOCOG) as “extremely valuable assets,” what is the relationship between IP, the Olympics and economics?

Economic analysis of the Olympics lives up to its dismal science nickname. The analysis argues that wealth and population size predict the number of Olympic medals a country will win. This slightly undermines the whole international-display-of-athletic-prowess image of the competition. Instead, Greek researchers Vagenas and Vlachokyriakou find that the size of the Olympic team, which is a measure of population and wealth, predicts 70% of the number of medals. Americans Bernard and Busse have similar findings but note that the host country typically enjoys a 2% bump in medals. Unfortunately, “you came all this way and lost because we have a statistical advantage” is unlikely to succeed as a sports chant.

Hosting the Olympics should have a positive impact on regeneration, tourism, legacy and cultural values. This tends to focus on the host city, but British-bases economists Walton, Longoand Dawson find that Brits outside London also support the games. They calculate that the positive impact of the games in the South West of England is around £173 million in addition to the £480 million positive impact in London. This is done using the Contingent Value Method which is based on asking how much the population is willing to pay for the event. The DCMS report uses a similar technique and argues a £3.2 billion overall positive impact on the UK over 10 years.

Like the valuation of IP, measurements of the value of events, particularly events that have yet to happen, include the valuation of intangibles. This leaves these valuations open for debate and, particularly as the valuations of the Olympics were conducted in pre-austerity times, subject to change. The DCMS report includes seven intangible benefits: feel-good factor, improving awareness of disability, inspiring children, legacy of sports facilities, environmental improvements, promoting healthy living and events. At the same time, there are six intangible costs listed: crowding, increased petty theft, security risks, local disruption, transport delays and, one to which I am contributing, excessive media coverage.

Surprisingly, respondents didn’t cite enforcement of IP right as either a cost or a benefit. The enforcement of Olympic IP right has come under some heat recently. On one side, control over these rights is an important funding mechanism and guarantees exclusivity for event sponsors. On the other, the public may associate these IP rights as freely used cultural symbols which form part of the feel-good intangible benefits. For example, we have objections that estate agents were threatened with legal action for creating an Olympic ring display out of hula-hoops. And who wouldn’t want to eat at the banned Olympigs food stall, which presumably is an important part of a training diet?

For IP and the Olympics, therein lies the conflict. A public which sees the Olympics as cultural event and is funding a £9.3 billion public sector package, and LOCOG who has raised £670 million from sponsors who have paid for exclusivity (I should confess some confusion here as the DCMS financial report refers to the LOCOG funding as part of the £9.3 billion public sector funding package). Would the public be willing to pay an extra £670 million to have London 2012 cupcakes unregulated?

Regeneration of the Olympic sites is also an economic benefit. Barcelona is often touted as an example of the positive impact the games have on the local area. British-based economist Kavetsos finds that the Olympics are responsible for a 2.1-5% increase in property prices in the area, which translates to £1.4 billion increase overall. The regeneration of East London should have long-term positive economic impact on the area.

At this point, my head is synchronised swimming with all of these numbers. It is much easier to tally the costs of the Olympics than the benefits. The positive impact figures I’ve mentioned should be net of the costs involved. The £9.3 billion public sector package doesn’t simply disappear -– it represents contracts for UK businesses, employment, development and the intangibles mentioned earlier.

Excuse me while I’m off to rehydrate with my Oympips orange-flavoured sports drink.
NOTE TO DOCTOR NIC’S DEVOTED READERS: while this post may mark the end of the third series of Katonomics posts, it does not mark the end of her contributions to this weblog. Stay tuned for further news, and be prepared to be delighted ...

1 comment:

Anonymous said...

I agree with these statements: "Economic analysis of the Olympics lives up to its dismal science nickname. The analysis argues that wealth and population size predict the number of Olympic medals a country will win."

What was the point in making such a basic analysis, and was any analysis even required? Did their analysis also conclude that rich countries are more likely to win events that require sitting down on expensive equipment (cycling, rowing, sailing), whilst poor countries had a better chance where only natural talent and decent shoes are required (sprinting, marathon running)?

So why have I bothered to write such a negative post? The point is basically that economic analyses tend not to be of any real use - the broadest, most general outcomes are too obvious to make the exercise of conducting an analysis worthwhile, whilst more specific observations which have the possibility of surprising people tend to be rendered completely unreliable by the 'complexity deficit' in any underlying model and the inevitable flaws in the assumptions that have to be made in order to make the analysis practicable.

In the IP context, I have read numerous economic analyses in recent months in which the basic question is too general (does IP promote growth?) or which make overly broad and erroneous assumptions ("for the purposes of analysing cross licensing in a FRAND context, this author has assumed that telecoms patents promote innovation").

My recommendation? Before embarking on an economic analysis in the patent space, consult a cross section of people who use the patents system. Those working with chemical pharmaceuticals are likely to view it as a well-functioning promoter of innovation. Biotech companies are probably less flattering, especially about early patents filed by the big boys. At the other end of the spectrum, those working in the mobile telecoms field are likely to view it as a destructive consumer of resources, which provides virtually no motivation to produce new products, other than for the purposes of artifically side-stepping existing patent rent-seekers.

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