Politics, Business & Culture in the Americas

Too often, especially in emerging economies, the exorbitant investment necessary to prepare for these events goes to projects with little long-term economic value.

Reading Time: 4 minutes[i]Do megasports events contribute to economic development? [b]No[/b][/i]
Reading Time: 4 minutes

Illustration: Wesley Bedrosian

Reading Time: 4 minutes

The World Cup, the Olympics and other mega sports events give cities and countries the opportunity to be in the world’s spotlight for several weeks. And the competition among cities to host these events can be as fierce as the competition among the athletes themselves. Bids that had traditionally gone to wealthier countries have recently become a prize to be won by prospective hosts in the developing world. South Africa became the first African host of the World Cup in 2010; and this summer, Brazil is hosting the first South American World Cup in 36 years.

On the surface, this may appear to be leveling the playing field, allowing developing countries to finally share in the riches that these events bring to their hosts. A closer look, however, shows that hosting duty is an enormously expensive and risky undertaking that rarely makes economic sense.

The expenses involved in organizing, administering and securing the games are high. Security costs alone for the 2004 Athens Olympics topped $1.6 billion, a figure six times that spent by Sydney just four years earlier, before the events of 9/11. Infrastructure spending, however, increasingly accounts for even larger bills.

Some tournaments, notably the 1984 Los Angeles Olympics and the 1994 World Cup in the United States, minimized construction expenditures and not coincidentally earned hefty profits by relying on existing facilities. But the bids that now win approval from FIFA and the International Olympic Committee are increasingly those that impress the selection committees with spectacular new architectural monuments like Beijing’s Bird’s Nest or Johannesburg’s Soccer City.

For developing countries, that makes large sports events an even riskier proposition. Developing countries rarely have the sports or tourism infrastructure in place to meet even the minimum requirements of organizing sports bodies. While the U.S. bid to host the 2022 World Cup identified 70 stadiums across the country that met FIFA’s stringent requirements, Qatar’s competing
bid identified only one existing stadium that was World Cup-ready.

Of course, since FIFA is not responsible for building costs, it happily chose Qatar over the U.S., paving the way for a tournament that may wind up with total expenditures exceeding $200 billion.

Other recent events have had similarly eye-popping price tags. Sochi’s Winter Olympics cost at least $51 billion, more than all the previous Winter Games combined. Beijing spent $45 billion hosting the Summer Games, and Brazil’s total budget for the World Cup and 2016 Olympics is nearly $30 billion, even before the anticipated cost overruns.

Such megaevents result in a huge influx of sports fans during the event itself, but the net short-run economic impacts are surprisingly small. First, many spectators at these events are local residents who are spending money to watch sports rather than spending elsewhere in the local economy.
Thus, these events don’t always generate new economic activity, but instead simply rearrange existing spending within the economy.

Second, the influx of sports fans often displaces other tourists. Both London and Beijing reported that the number of international visitors to their cities actually fell during the month of their Olympic Games. Similarly, the 2002 Salt Lake City Winter Games resulted in increased skier visits to Colorado, but a nearly 10 percent reduction in the numbers heading to Utah, as skiers avoided the crowds and congestion associated with the Olympics.

Third, money spent at a major sporting event may not stick in the local economy. For example, while hotels may be full and room prices high during an event, the wages of desk clerks and room cleaners rarely rise in proportion—leading to high profits funneled back to corporate headquarters but perhaps not so much in the way of local increases in income. For these reasons, economists not connected with the event organizations can rarely identify large short-run gains associated with megaevents.

Any economic justification for such massive spending, therefore, relies on the long-term legacy. Unfortunately for host cities, the overwhelming evidence is that the long-run economic impact of investment in sports stadiums and arenas is negligible. The specialized venues required by the Olympics have little use once the games are gone, and even large multi-purpose facilities are often white elephants. Beijing’s magnificent Bird’s Nest sits largely unused just six years after the Olympics, and the 10 new and refurbished stadiums built for the World Cup in South Africa—at a cost of over $2 billion and with an average capacity of over 51,500 seats—are now used in a domestic soccer league that averages fewer than 7,000 fans per game.

Investments in general infrastructure such as highways and transportation facilities can result in long-term economic growth, but they are often designed to accommodate the kind of high traffic volume that is rarely repeated after the last medals are handed out. And while the urgency of a megevent may allow governments to generate domestic political support for much-needed infrastructure investments, the tight time frames of the events also frequently result in rushed construction, cost overruns, and non-competitive bidding. In addition, infrastructure projects undertaken in preparation for megaevents can result in widespread dislocation of local residents. More than 1.5 million people in Beijing may have been displaced due to the 2008 Summer Olympics.

Countries also count on using megaevents as an advertising tool. In the case of a hidden gem like Barcelona, this strategy was highly effective: the city became one of the top tourist destinations in Europe following the 1992 Summer Olympics. Barcelona, however, seems to be the exception rather than the rule. Certainly, the reputations of Munich and Atlanta were tarnished by the terrorist incidents that occurred at their games, and the Sochi Olympics only cemented the impression of an autocratic Russia rife with corruption and security concerns.

International sporting competitions can certainly bring out the best in all people. When South African President Nelson Mandela presented the Rugby World Cup trophy to South Africa captain Francois Pienaar in 1995, it was a dramatic symbol of his country’s emergence from decades of apartheid and racial oppression to rejoin the world community. However, host cities should acknowledge these events for what they are—an opportunity to celebrate the pinnacle of human athletic achievement, not a path to long- or short-run economic growth.

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