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Hosting mega-events not as valuable as thought

Date Released: Mon, 23 June 2014 11:00 +0200

THE run-up to this year’s Fifa World Cup in Brazil was marred by widespread popular protests. Underlying these demonstrations are numerous social, political and economic issues, but the protesters are united in arguing that the money spent on building World Cup stadiums and related infrastructure could have been better used for housing and facilities for the poor. There are also claims of corruption and of well-connected elites having inflated the construction costs and syphoned off funds into their own pockets.

These accusations stand in stark contrast to oft-cited claims that hosting mega-events such as the World Cup and the Olympic Games is economically beneficial. Supporters of this view point to the foreign currency spending by huge numbers of international fans and tourists. The host also continues to enjoy long-term benefits as satisfied attendees and their friends return as tourists in the future. The prestige and reputation of the successful host nation is enhanced around the world, bringing potential further benefits of future foreign investment. The infrastructure built for the event will also continue to benefit the hosts for decades.

While these undoubtedly occur, the host city or country truly benefits economically only if these positives outweigh the costs of hosting the event. Brazil’s recent experience, as well as South Africa’s hosting of the 2010 World Cup, show that the actual costs of hosting are invariably much greater than claimed.

The most obvious cost is that of the stadiums. When South Africa successfully bid for the 2010 World Cup, it was not considered necessary to have all the opulent stadiums that subsequently were built. The event was initially to be hosted mainly in slightly refurbished rugby stadiums. Possibly it was the grandeur of the 2006 World Cup in Germany that prompted South Africa to commit to building new stadiums even in cities where there were already suitable alternatives.

Immediately we decided to do this, the economic benefits of hosting the World Cup were substantially reduced. They were further reduced by the enormous cost overruns in actually building the stadiums.

Even the short-term benefits of mega-events must be weighed against the displacement costs that are inevitable while the events are being hosted. Football fans fill up local hotels and entertainment venues. But they displace other tourists and business visitors, who postpone their trips while the event is being hosted. The net gain to the host country is only the number of visitors over and above the number who would have visited in the absence of the event.

What about the long-term benefits? Certainly, South Africa continues to benefit from the infrastructure upgrades. Obvious examples are expanded airports and improved roads in host cities. Tourism numbers are also up, but it is unclear how much of this is due to the World Cup and how much because South Africa is a cheap destination for tourists as a result of the weak rand. There is also no doubt that hosting the 2010 World Cup brought South Africans together as a nation. In a deeply fractured society such as ours, a financial value cannot be placed on such a benefit.

But we still bear the financial burden of World Cup-related expenditure. Interest on the R18bn spent on stadiums alone amounts to more than R1.4bn a year, placing long-term financial strain on host cities. Stadiums are also enormously expensive to maintain and, when they are now seldom used, add to the financial burden.

The lesson is that when expensive infrastructure must be built, much of the benefit of hosting a mega-event is lost. This is especially true when the venues constructed are unlikely to be used again. An event such as the Olympic Games requires specialised facilities for sports that are not played locally. Even Sydney, which planned its Olympics with careful thought about future usage, today has underutilised facilities. Beijing has demolished some Olympic facilities rather than bear the cost of their maintenance.

Despite the obvious negatives, countries and cities continue to compete fiercely for the right to host mega-events. Either the prestige of hosting trumps costs, or the costs of hosting are consistently (possibly deliberately) underestimated. Economic benefits are most likely when hosting the event does not require expensive new facilities or infrastructure. Large international conferences held in existing venues, with participants hosted in existing accommodation facilities, are likely to benefit host cities. Hosting sporting events that attract smaller, but still significant, numbers of foreign visitors, such as the Africa Cup of Nations, or the Rugby World Cup, but use existing facilities are also likely to be economically beneficial.

As a strategy, host countries would generally be better off boosting foreign tourism by aggressively advertising abroad their natural assets and facilities, rather than hoping for the unlikely "quick fix" of a mega-event.

By Gavin Keeton

Keeton is with the economics department at Rhodes University.

Picture: Sao Paulo Stadium.

Picture source: GETTY IMAGE/AFP

Source: Business Day 

Source:Business Day website