Politics, Business & Culture in the Americas

Ask the Experts: Sports—Business, Integration & Social Change

Reading Time: 5 minutesDoes hosting sporting events promote social and economic development?
Reading Time: 5 minutes

Larry Rohter Answers:

In Rio de Janeiro, a fierce debate over preparations for the 2014 World Cup and the 2016 Summer Olympics is under way. Brazilians are proud to have been chosen to host these important sporting events and to have the world’s attention. But they reasonably worry that both competitions may end up being a bonanza for business and a boondoggle for the rest of the country.

Here’s the scenario I’ve heard repeatedly from Brazilian friends, mindful that the world soccer federation chastised Brazil for running behind schedule. The awarding of contracts for construction and modernization of stadiums and other infrastructure has been slow, which gives the upper hand to the handful of big construction companies that are perhaps the largest donors in Brazilian politics. They are now in a position to prolong construction until the last minute, and then present taxpayers with huge bills for cost overruns, arguing that Brazil’s prestige is at stake and that the country cannot afford to have its image besmirched, as India’s was as a result of the 2010 Commonwealth Games in New Delhi.

The 2007 Pan-American Games, which were also held in Rio, provide a cautionary tale. As part of its winning bid, the city promised to make major improvements in its infrastructure: cleaning up polluted Guanabara Bay, for instance, and extending the Metro by about a dozen miles to the Barra da Tijuca, the main locale for the games. Neither of those schemes ever got off the ground, but the games still managed to come in way over budget, with some projects costing 10 times their original projection. Others, like a baseball stadium, were so shoddily built that competition had to be suspended. Some streets in the area where Olympic events are scheduled are now sinking or cracking.

At the same time, human rights groups complain that in order to clear areas that are designated for the World Cup and the Olympics, poor residents on the outskirts of Rio and seven other cities are being forcibly removed from their homes without adequate compensation or offers of substitute housing. This problem, which also emerged in South Africa before the 2010 Cup, is a particularly embarrassing one for a nominally left-wing government that claims to be devoted to social justice but has now squared off in the courts against public defenders.

So one can pardon Brazilians if they remain skeptical of the notion of sporting events as a device to channel economic and social development to those who need it most.

Mick Cornett Answers:

In Oklahoma City, the answer is a thunderous “yes.”

Through a series of temporary sales-tax-funded initiatives we call MAPS (Metro Area Projects), Oklahoma City invested in a number of capital projects, including a minor league baseball park and the Oklahoma City Arena, now home to professional basketball’s Oklahoma City Thunder.

A key to the success of our MAPS initiatives is that we pay cash for our capital projects. Our arena is debt-free.

There are quantifiable financial benefits to these sports facilities. Each home Thunder game generates a direct economic impact of $1.2 million. Downtown sporting events drive traffic to our thriving Bricktown district, as well as to restaurants in other emerging downtown neighborhoods. The financial ripple is real. It creates buzz. It creates business. And it creates jobs.

As great as that is, I would argue that the intangibles actually outweigh the very real financial benefits.

Professional sports add to Oklahoma City’s quality of life, which adds to the attraction of human capital, which adds to job creation—which helps everyone.

The old paradigm was that people moved to where the jobs were. The new paradigm is that people move to where they want to live—attracted by quality of life benefits—and the jobs follow. We are creating a city where your children and your grandchildren are going to want to live. Professional sports are part of that equation.

The arrival of the NBA has elevated Oklahoma City’s visibility and changed the perception of who we are, both internally and externally, and who our peer cities are. With the Thunder, our peer cities—on a very superficial, “SportsCenter” level—are other NBA cities like Dallas, Houston and Los Angeles.

We are now a community that offers big-city attractions with a low cost of living, very little traffic congestion and the nation’s lowest unemployment rate.

Robert A. Baade Answers:

Competition has been as intense for the right to host sporting events as the athletic competition among players. Seduced by the promise of an economic windfall, nations and cities hope to parlay the significant amounts of money and energy spent on the bidding process and infrastructure accommodation into event gold. Is that economic promise realistic? The evidence argues against it.

The size and scope of mega-events require a significant infusion of public funds. Only on rare occasions have private investors financed the infrastructure and efforts to host a sporting event on their own. The profits are not there. It requires public support as well, and taxpayer funding requires a rationale. And that usually comes from commissioned economic impact studies. These studies, however, are often fatally flawed and influenced by the economic interests who stand to prosper from the event.

Two fundamental errors account for exaggerated benefits. First, calculations of gross spending related to the event—such as ticket purchases, hotel rooms and meals at restaurants—often ignore how event expenditures simply substitute for other spending that would occur anyway. The real calculation should be net spending. By calculating only gross spending, the analyses often turn an event that would generate marginal increases in spending into a perceived economic bonanza. Second, the money spent on an event may not remain in the host’s economy. The economic success of an event relies on the re-spending of created income within the host economy by the providers of goods and services that benefited from the event. But large sporting events like the Olympics or the World Cup are global productions, and much of the income created through them flows from the host’s economy to where those involved with creating and accommodating the event reside—often outside the host country.

In addition, cost overruns are alarming in both frequency and amount. Some of the well-publicized financial stress experienced by the Greek economy, for example, has been attributed to the excessive costs incurred in hosting the 2004 Summer Olympic Games.

Nations and cities seeking a quick fortune through hosting mega-sports events would be well advised to heed the old financial adage:  if it sounds too good to be true, it is.

Marty Markowitz Answers:

The last professional sports team that called Brooklyn home left after the 1957 baseball season. When basketball’s Brooklyn Nets play their first game in Barclays Center in October 2012, it will be almost 55 years to the day since the last Brooklyn Dodgers game. A lot has changed over five decades. Today, Brooklyn is among the hottest places to live, work and play in America. Increasingly, tourists are flocking to Brooklyn, the next Silicon Valley is emerging in DUMBO, and Brooklyn is the creative capital of New York. It has truly become the home to everyone from everywhere. In fact, there is no racial, ethnic or religious majority in Brooklyn.

We are proud of that diversity—but it also means residents have no singular unifying identity. Sixty years ago, Brooklynites lived and died by every Dodgers game. Brooklyn collectively lamented the Dodgers’ inability to beat the Yankees. When the Dodgers finally won the World Series in 1955, Brooklyn celebrated together. The return of professional sports to Brooklyn can provide the same unifying identity today as it did in the past—and further add to the attraction of  Brooklyn.

More importantly, the Nets and private developer Forest City Ratner are building a state-of-the-art arena in the middle of one of New York’s fastest-growing neighborhoods.
Barclays Center will be part of a 16-tower residential and commercial development site that will occupy 22 acres of land that had previously served as a rail yard. The residential towers will provide badly needed affordable housing in downtown Brooklyn. There will be retail space and office buildings to help cement the area’s status as an economic engine for New York City. Even before a single game is played, the construction project has created jobs in Brooklyn at a time when we really need them.

Of course, basketball won’t be the only event at Barclays. The arena will host concerts and other shows—ensuring revenue and jobs all year long. There will be the circus and Disney on Ice, and I’m guessing that Nets part owner Jay-Z will perform once or twice.

No other single decision could have had as significant an impact on economic development in this area as locating a professional sports team in Brooklyn and building an arena at Atlantic Yards.


Tags: Bobert A. Baade, Larry Rohter, Marty Markowitz, Mick Cornett, Sports
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