Hosting major sports events: : A game between economies
BY YASHODHRA KATAKI/ AUGUST 12, 2023
While the idea of hosting sporting events like the World Cup or Olympics appears profitable, it demands significant capital investments and management of running expenses from both developed and developing nations.
he Olympic Games and the Football World Cup are the two biggest sporting occasions in human history since the turn of the 20th century. Both of them take place every four years, and states from all over the world compete to host them in an effort to boost economic activity and create favourable political, psychological, sociological, and cultural impacts in their home country. However, of all other activities, the economic impact of hosting large sporting events is the one that has been studied and researched the most.
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However, studying ex post analyses in the last two decades, only a few of them seem to have an improvement on aggregated wages, income, or employment generated by mega sport events.
As new facilities and infrastructure are built following such events, the public and private sectors invest heavily, and the economies of the host countries are expected to grow as a result. However, studying ex post analyses in the last two decades, only a few of them seem to have an improvement on aggregated wages, income, or employment generated by mega sport events. Since the last twenty years, new methods have occurred using more disaggregated data and different variables.
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The decision to be the host is typically chosen through a bidding process in which the international governing bodies, for example, the International Olympic Committee (IOC) or the Federation Internationale de Football Association (FIFA) invites different cities or countries to bid through a tender process for the right to host the event. Although it varies slightly for other championships, the economic project is the primary factor in attribution. Subsequently, politics must also be considered but the economic part becomes more crucial as it allows the host nation to construct or upgrade facilities, infrastructures, etc.
Hosting a major sporting event can give many economic, social, and cultural benefits. A city can reap long-term economic rewards by raising its profile. From hosting the Olympics, Barcelona, Sydney, and Beijing have all observed that there is a consistent rise in tourists and recognition. This can also help a nation like China, which has a contentious human rights record, get more recognition abroad. The Rugby World Cup and later the Football World Cup were held in South Africa, and both times it was a pivotal occasion in showcasing the new, ‘post-apartheid,’ South Africa. However, even hosting the Commonwealth Games can be beneficial for a city like Manchester, which gained from hosting the games, despite the persistent rain.
The Rugby World Cup and later the Football World Cup were held in South Africa, and both times it was a pivotal occasion in showcasing the new, ‘' post-apartheid,’'' South Africa.
In addition to the potential for positive exposure, there are also possibilities for negative publicity where the costs of hosting the event can also be quite high. There have been numerous instances which show negative publicity in the past. Due to the poor condition of its infrastructural facilities during the Commonwealth Games, Delhi received bad press. Another example of this was the Sochi Winter Olympics, where protesters claimed that Russia overspent on at least 10 of the Olympic venues by spending twice as much as was required. Also, the football World Cup in Qatar would have faced severe criticism, if the athletes had voiced their concerns about the heat and working conditions of migrant workers. Olympic expenses frequently end up being substantially more than anticipated. The expected cost of the Montreal Olympics was USD 120 million in 1970 and increased to USD 310 million in 1976. The final price, at USD 1.6 billion, was roughly 13 times higher. While they were able to pay off this Olympic debt in 30 years which itself indicates the burden of economic debt on an economy.
Apart from the high cost involved, cities often need to make investments in infrastructure and transportation to handle an influx of tourists. For instance, the 2012 London Olympics led to the improvement of public transit in the east of London. The 2022 FIFA World Cup has attracted significant financial investment because Qatar needed to construct numerous stadiums and hotels to host the event. One of the important benefits of planning for a big event is the long-term investment returns. The city's/sports nation's facilities improve as a result. Planning and investment over a number of years contributes to employment creation and helps revitalise downtrodden cities. This was a key justification for the London Olympics picking Eastern London as the hosting location, which at the time was experiencing a severe economic downturn.
One of the important benefits of planning for a big event is the long-term investment returns.
Another such prominent sporting journey is of the Indian Premier League (IPL). The lucrative star-studded event is a whole entertainment package tied to several economic ideas, including brand strategies, investments, IPL for GDP growth, etc. The biggest corporations support and market the IPL heavily, and they eventually pitch in to buy players and franchises. The GDP of India has benefited significantly from hosting the IPL. Massive global fandom and large-scale branding have all aided in the GDP's constant increase. A report provided by the UN General Assembly for Peace and Development emphasised that IPL generated USD 3.2 billion in economic value. Additionally, the market size for sporting goods has also significantly increased, reaching INR 40 billion.
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Pictured: Illustration by unknown via pinterest
The organisers need more workforce to build new facilities and to manage the event so it facilitates an increase in employment. However, the generation of these jobs does not really make a difference for the country in the long run. A major part of these new jobs disappears in the long run. The employment implications of the 1974 FIFA World Cup in Germany were demonstrated through a study (Hagan F. and Mennig W, 2007). Thus, they proved that the 1974 World Cup in Germany failed to have any employment effects in the medium to long term that differed significantly from zero.
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Essentially, a major athletic event should increase employment in the nation. However, this rise might not have a big enough impact to be felt across all industries. It will affect more service-related industries than the mining or utility sectors. Due to a rise in demand for hotels, food services, retail trade, and event management, the hospitality industry may be one of the most severely damaged sectors. Additionally, the construction sector may be impacted because it needs more people to upgrade and construct new infrastructures like stadiums.
Moreover, the desire to host these mega sporting events is widely held, but so is the belief that developing countries shouldn’t be the host. Developing nations are aware of various shortcomings that can make it expensive to organise these sporting events. The cost of infrastructure is probably going to be higher in developing nations than in developed nations. For instance, to host the World Cup in 1998, France merely required to construct the ‘Stade de France’ and renovate existing stadiums, whereas South Africa needed to construct brand-new venues in 2010. The reason is because, compared to industrialised nations, their existing stocks of sport infrastructure are lower, and emerging enterprises involved in the development and preparation may be aware of a shortage in the technology and management expertise available.
Affluent countries have a stronger need for sports infrastructure than developing nations do since sport is viewed as a luxury good in those nations. They must be cautious to avoid making investments in ‘' white elephant ' infrastructures.
Another issue is the potential increase in the opportunity cost of capital for developing nations. For instance, Nigeria spent USD 330 million building its new national stadium in 2001. This sum exceeds the annual national government spending on health and education (Farah, 2001). It is criticised in these nations to spend as much money on infrastructures when there are more pressing problems. Affluent countries have a stronger need for sports infrastructure than developing nations do since sport is viewed as a luxury good in those nations. They must be cautious to avoid making investments in ‘white elephant’ infrastructures.
Finally, industrialised states are more likely to draw tourists than less developed countries. Visitors may be concerned about infrastructure, security, and lodging standards. For instance, it prevented people from coming to South Africa, where crime rate is highly serious and where, according to the UNO in 2000, it had the highest rate of rape per capita in the world. As a result, stadiums in emerging nations are relatively less crowded. Additionally, developing nations that host the World Cup need to concentrate more on marketing and draw fewer spectators.
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For any country, the potential to enhance its international standing is provided by hosting the World Cup. Because of the massive global exposure provided by media broadcasts, the host nation is able to demonstrate their newly developed facilities to the public. As lucrative as it is to be the organiser, it is important to be able to comprehend what are the drawbacks of it. In the near term, various forms of expenses are borne by the host countries. Long-term upkeep of the new stadiums is still exceedingly expensive, and some nations have abandoned their brand-new venues as a result. A country hosting an event must consider the ‘after event’ as well, or there could be a financial predicament down the road. Due to security, additional police time, rental equipment, and other costs, considerable amounts of running expenses are also incurred. Although the overall benefits and drawbacks are essentially identifiable for any host country, the situation may be worse for developing nations due to their limited financial and infrastructure resources.
Keywords
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Hosting, major sporting events, World Cup, Olympics, economic impact, infrastructure, developing nations, employment, positive exposure, long-term investment.
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References
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​(2014, January 27) Sochi Winter Olympics: Activist Alleges Cost Overruns and Conflicts of Interest. The Guardian, Guardian News and Media, https://www.theguardian.com/world/2014/jan/27/sochi-winter-olympics-alleged-cost-overruns-alexei-navalny
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Mcconnell M. (February 22, 2022) Winter Olympics : 5 Biggest Controversies and Scandal History Teen Vogue . Teenvogue.com
https://www.teenvogue.com/story/winter-olympics-controversies
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Mrd M.(2020, December 20). Does hosting a World Cup make Economic Sense? The St.Andrews Economist
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Pettinger T. (2019, October 24) Advantages of hosting a major event.Economics Help
https://www.economicshelp.org/blog/4909/economics/advantages-of-hosting-a-major-event/
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