International Sports Events: A Risky Bet
A year ago, the world celebrated the start of the 2018 FIFA World Cup in Russia. For a month, the best national football teams met in Russia competing with each other in an attempt to obtain the title of World Champion. Importantly, the sports festival brought economic gains equivalent to 1.1% of the Russian economy and employed thousands of people. However, in the past couple of decades, the hosts of the world’s greatest international sport events have incurred significant economic losses.
Montreal stands out as of the most famous cases of economic loss to a host of the Olympic Games. Having contracted significant debt, the Canadian city was only able to pay these back after 30 years. While Montreal may be one of the most well-known cases of economic loss, it certainly isn’t the exception. Indeed, the most recent profitable Olympics was Barcelona’s venture in 1992. Since then, cities with large losses and debts contracted have been the norm: such as Sidney (2000), Athens (2004) and Rio de Janeiro (2016).
Likewise, the last two hosts of the World Cup before Russia, have not acquired their projected economic benefits either. Despite the billions of dollars invested by South Africa (2010) and Brazil (2014) both countries incurred significant economic losses, wallowing the country in debt and forcing a growth in taxes on their citizens to balance these losses. In Brazil, for example, the 11,000 million dollars that had been spent on organizing the event have caused great societal discontent. Indeed, many claim that the money could have been spent on public services, social investment, education and health.
So, what is causing this phenomenon? First, we have to understand how international sport events work. In order to host of one of these athletic events, a series of optimal parameters must be reached that guarantee a robust development of the facilities required for competition. Indeed, the country must enjoy good services, good security bodies, as well as infrastructure like airports, trains, public transportation, stadiums and sports arenas. Infrastructure investment is particularly relevant for the host nations as infrastructure is crucial for earnings. In places where developed critical infrastructure does not exist, costs incurred are substantially higher — ultimately reducing profitability. High costs of developing infrastructure were most clearly exemplified by South Africa and Brazil.
Furthermore, in these types of events, governments and organizers generally underestimate the costs, while overestimating the benefits. Although six billion dollars have been proposed for Tokyo 2020, the city has already spent more than double of its initial budget. Meanwhile, Tokyo’s stated potential gains from tourism are exaggerated. In both Beijing (2008) and London (2012), year-on-year visits decreased during their Olympic years, and the same phenomenon occurred in Sochi (2014) and Vancouver (2010).
Ironically, the true winners of these events are sports organizations such as the International Federation of Association Football (FIFA) and the International Olympic Committee (IOC). Both, FIFA and IOC maintain almost all the sponsorships, television rights, and sales of merchandise. For their part, the hosts obtain benefits from the sale of tickets and tourism yet must shoulder the costs.
Indeed, the high costs have disincentivized candidacies. For the 2024 and 2028 Olympic Games, only Paris and Los Angeles remain interested. On the other hand, cities in nations such as Germany, Italy and Hungary, have withdrew their proposals. In addition, the capital of Sweden, has decided to renounce its host status of the Winter Olympics Games in 2022.
Some experts point out that the solution to this problem is a change in the logistics of these events, such as having multiple active hosts. For example, the 2026 World Cup will have three host nations, Canada, the United States and Mexico. Likewise, the candidacies to host the 2030 World Cup are also joint candidatures: a group formed by Chile, Argentina, Paraguay and Uruguay, and another group formed by Portugal and Spain. Perhaps by splitting up costs, nations will be able to maximize profits. Could this be the future of the greatest international sport events?