South Africa is now hosting the a-month-long football fiesta of 2010 World Cup. This is the first time ever the World Cup is held in Africa continent. Memories of the 2010 Winter Olympic Games in Vancouver fastly melt away. As Vancouver goes about the nasty business of trying to pay off this winter's Olympics and the World Cup in South Africa sees its bill soar toward $5 billion, it's worth repeating something to the cities and countries that think they can be the apple of the world's eye just by hosting a sports spectacular. The message is there are only two words you can be guaranteed nowadays that will highlight every Olympics and every World Cup, and those are: over budget.
The latest issue of the IMF's journal, Finance and Development, has a number of essays on the impact of hosting events like the Olympics and the World Cup. They took a look at the intersection of sports and economics when countries invest huge amounts of money when bidding for the privilege of hosting major sports events. The glory of being in the global spotlight for a week or two is irresistible.
But this isn’t always a rational decision. Plans to rejuvenate a city can turn into regrets complete with white elephants in the form of unused stadiums. Other countries benefit from these events without the financial and administrative burden of hosting. And just bidding can be enough to let the rest of the world you’re ready to step onto the international stage. Andrew Zimbalist's paper "Is it Worth It?" is a brief but balanced and fact-filled summary. For 17 days every four years the Summer Olympics attract the world’s attention and the host city gets immense media coverage. Yet many argue that the huge cost of hosting the Olympic games means that cities are left with crippling bills and empty stadia once those 17 days are over. Montreal, the host in 1976, is still paying off the cost of staging the games today and the Athens Olympics of 2004 ran billions of euros over the original budget - at state expense. The scandal surrounding the bidding process for the Salt Lake City 2002 Winter Games revealed that 13 of the 124 International Olympic Committee (IOC) members who were tasked with deciding who should be awarded the games were ‘bought’ with gifts and bribes. Since then the IOC has tightened up its regulations but rumours of corruption amongst some members remain and were revealed by a BBC sting operation in 2004. Whilst proponents of hosting the games generally accept that they will inevitably cost significant amounts of money, they argue that the ‘feel good factor’ and longer term benefits justify this outlay.
Many dismal report about how Greece is going to drag the whole world into an economic abyss, that only six years ago Athens proudly hosted the Summer Olympics. When Athens somehow borrowed the scratch to put on those Games, the price tag ended up in the realm of $15 billion - way above projections. And now a lot of the magnificent facilities are sitting there, rotting away as the streets run to riot. Greece would surely be a financial disaster whether or not it paid through the nose for the honour to stand in the world spotlight for two weeks one summer.
Likewise, expectations that the big event is going to make a huge positive impact are always the stuff of dreams. Estimates of almost a half-million international visitors to South Africa for this 2010 World Cup have already been substantially cut. Moreover, just as costs are invariably underestimated, benefits are always too optimistic. Hopes that the World Cup would put a quarter of the country's unemployed to work were obviously grossly inflated.Yes, it was benevolent to award the Cup to Africa for the first time. And yes, it's only fair that South America should finally get its first Olympics when Rio hosts the 2016 Games, but, really now, in an age of global television, is it necessary to induce individual countries to pony up for these extravaganzas? As gorgeous as Capetown is, is it necessary to pay billions to show it off to the world with fleeting halftime beauty shots? Somehow I have the feeling that if tourists don't already know about the attractions of Rio from seeing those spicy Carnival photographs every Mardi Gras, billions spent to showcase the likes of gymnastics and field hockey really isn't money wisely spent.
The World Cup and the Olympics belong to us all, people, and so wouldn't it be more appropriate to spread them around rather than to jam them all into one spot? Why not split them up and play games and events in cities spotted about a whole continent -- Europe one time, North America next, Asia and so on. It's time to stop suckering places that can't afford it into believing they'll miraculously change their fortunes just by paying to be the world's TV studio for a couple of weeks. Instead, the games end and everybody forgets who just incidentally paid to build all those superfluous stadiums until, like with Athens, something else expensive puts it back on the map. Read more: http://sportsillustrated.cnn.com/2010/writers/frank_deford/06/02/olympic.host.cities/index.html#ixzz0qtId0mm7
Here is a sample:
[I]n Sydney, Australia, it now costs $30 million a year to operate the 90,000-seat Olympic stadium. Many of the venues used in the 2004 Athens Games are either vacant or seldom used and occupy valuable land in a crowded urban center. The Beijing Games left a legacy of several expensive buildings, including the elaborate Water Cube swimming facility, which is severely underused. In contrast, successful events, like the Los Angeles Summer Olympics, use existing facilities as much as possible, making good use of scarce urban land. The stadium used for the opening and closing ceremonies in the 1996 Atlanta Games was reconfigured into a baseball stadium immediately after the games. Olympic planners need to design facilities that will be useful for a long time and that are constructively integrated into the host city or region.The essay by Andrew Rose and Mark Spiegel is of particular interest, as it discusses a novel finding in their 2009 paper "The Olympic Effect." Rose and Spiegel present evidence that countries that bid to host the Olympics enjoy a permanent increase in international trade. Here is the abstract to the 2009 paper:
Economists are skeptical about the economic benefits of hosting “mega-events” such as the Olympic Games or the World Cup, since such activities have considerable cost and seem to yield few tangible benefits. These doubts are rarely shared by policy-makers and the population, who are typically quite enthusiastic about such spectacles. In this paper, we reconcile these positions by examining the economic impact of hosting mega-events like the Olympics; we focus on trade. Using a variety of trade models, we show that hosting a mega-event like the Olympics has a positive impact on national exports. This effect is statistically robust, permanent, and large; trade is around 30% higher for countries that have hosted the Olympics. Interestingly however, we also find that unsuccessful bids to host the Olympics have a similar positive impact on exports. We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event. We develop a political economy model that formalizes this idea, and derives the conditions under which a signal like this is used by countries wishing to liberalize.It is not clear how this rather large impact on trade can be reconciled with the lack of impact on GDP. Perhaps there is both a signaling effect and a winners curse effect that operates here. At any rate, the full Rose and Spiegel paper (pdf here) is certainly worth calling attention to.
More references as below:
Prize or Penalty
Sports events like the soccer World Cup stimulate trade around the world and spotlight the host country. http://www.imf.org/external/pubs/ft/fandd/2010/03/clift.htm
Is It Worth It?
Hosting the Olympic Games and other mega sporting events is an honor many countries aspire to—but why? http://www.imf.org/external/pubs/ft/fandd/2010/03/zimbalist.htm
The Olympic Trade Effect
Andrew K. Rose and Mark M. Spiegel
Countries that bid for the Olympics are sending a signal that they are ready to open up trade. http://www.imf.org/external/pubs/ft/fandd/2010/03/rose.htm
A Lucky Start
Shekhar Aiyar and Rodney Ramcharan
If life is like cricket, then the luck of a good first job matters a lot in a successful career. http://www.imf.org/external/pubs/ft/fandd/2010/03/aiyar.htm
Heiko Hesse, former pro soccer player, reviews this book by Simon Kuper and Stefan Szymanski on “the world’s most popular sport.” http://www.imf.org/external/pubs/ft/fandd/2010/03/books.htm#4