Does hosting the World Cup (or Olympics) actually pay off?

Hosting a global sporting occasion won’t make a country rich, and isn’t even that good for tourism — but it will make its people happy.

Does hosting the World Cup (or Olympics) actually pay off?

Brazil may have never wanted for places to play soccer, but that didn’t stop the country from spending billions of dollars on stadiums for the 2014 World Cup. The Arena Amazonia, a €250m edifice designed to look like a woven basket, was built in a rain-forest city where the professional team regularly draws fewer than 2,000 fans per game. And Brazil is only getting started. The country, which is also hosting the 2016 Summer Olympics in Rio de Janeiro, has embarked on an infrastructure splurge that may top €25 billion. The spending is meant to underscore Brazil’s emergence as an economic power. The country’s leaders insist that it’s also intended to increase the nation’s prosperity.

The idea that big sporting events are good for growth is relatively new. A 1956 article in the New York Times newspaper noted the curious hopes of Australian officials who were “somewhat optimistic” that visitors to the Melbourne Olympics might settle in the city, or perhaps do a little business there. “Ordinarily,” it said, “being host for the Olympic Games is unlikely to gain a nation much beyond prestige.” But as the cost of hosting rose inexorably, so did the supposed benefits. The Olympics and the World Cup are now routinely described as economic engines. Four American cities — Boston, Los Angeles, San Francisco and Washington — recently announced that they were flirting with hosting the 2024 Summer Olympics, and in each case a justification was economic development. In Massachusetts, a state-appointed commission led by a construction executive suggested that a Boston Olympiad could “catalyze and accelerate the economic development and infrastructure improvements necessary to ensure that Massachusetts can compete globally now and into the future.”

Such claims are based on the idea that the Games can serve as a tourist attraction, a chance to catch the eye of global business leaders and a way to rally political support for valuable infrastructure projects. The lean and profitable 1984 Los Angeles Olympics are often invoked. So are the 1992 Barcelona Games, which amplified the city’s revival.

But there is strikingly little evidence that such events increase tourism or draw new investment. Spending lavishly on a short-lived event is, economically speaking, a dubious long-term strategy. Stadiums, which cost a lot and produce minimal economic benefits, are a particularly lousy line of business. (This is why they are usually built by taxpayers rather than by corporations). And even though Brazil, like other recent hosts, has sought to make stadium spending more palatable by also building general infrastructure, like highways and airports, the public would derive the same benefit at far less cost if the transportation projects were built and the stadiums were not. The Los Angeles Olympics were successful, after all, because planners avoided building new stadiums. Barcelona, long neglected under the rule of Francisco Franco, was in the midst of a renaissance that would have probably occurred without the Olympics.

Organisers and their supporters routinely neglect what economists call “opportunity costs” — in this case, what might have happened if a country didn’t host the Games. In some of the world’s most expensive cities, perhaps the greatest opportunity cost is the loss of scarce and valuable real estate. While many facilities remain in use after the Games or are converted for new purposes, quite a few sit virtually as empty as the original in Olympia, Greece. Tourists can ride a Segway around the Bird’s Nest in Beijing for €15.

Similarly, it’s misleading to calculate how much money is spent in a city during the Olympics. A fair comparison requires some estimate of how much would have been spent without them. When the Games come, after all, other kinds of tourism go. During the 2012 Games, the Adelphi Theatre in London’s West End suspended performances of “Sweeney Todd.”

The British Museum received 480,000 visitors that August, down from 617,000 the previous year. Indeed, Britain received about 5% fewer foreign visitors in August 2012 than it did in the same month the previous year. Those who showed up spent more, sure, but London spent billions of dollars to lure them. “If Boston hosts the 2024 Olympics, there’s no doubt that [the city] is going to be overrun with sports tourists,” said Victor Matheson, an economist at the College of the Holy Cross in Massachusetts. “But Boston is already overrun with tourists in the summer.”

Many hosts, of course, don’t care all that much about breaking even. The Olympics have always been a debutante’s ball for emerging economies, from Japan in 1964 and Germany in 1972 to China in 2008 and Russia in February. And there is some evidence that it works.

Countries that host the Olympics experience a significant increase in trade, according to a 2009 study by Andrew K. Rose, an economist at the University of California, Berkeley, and Mark M. Spiegel, an economist at the Federal Reserve Bank of San Francisco. But their research determined that this was also true of countries that made losing bids for the Olympics — spending tens of millions rather than billions. The benefit, in other words, came from the signal that a country was open for business, not from the spending itself. “One city thinks winning the Games is worth more than all the other cities do,” said Andrew Zimbalist, an economics professor at Smith College and the author of the coming “Circus Maximus: The Economics of Hosting the Olympics and the World Cup.” “And that city is likely to be making an error.”

And while Brazil may be eager to signal its economic might, the Games can also tarnish a host country’s reputation. The enduring image of the Munich Olympics is a man in a ski mask; decaying venues from the 2004 Olympics became a metaphor for Greece’s economic crisis. Sochi’s legacy was overshadowed by security concerns and warm weather — even before Russia ended hopes for a tourism boom by annexing Crimea.

In a study of the impact of the 2000 Olympics in Sydney, Australian researchers interviewed people in four countries — Hong Kong, Malaysia, South Africa and the United States — one year before and after the Games. They found little change in perceptions, with one surprising wrinkle: South Africans had soured on Australia “because of the way in which the Aboriginal issue was highlighted and portrayed by the South African media,” which drew comparisons with that nation’s history of apartheid.

Philip Porter, economist at the University of South Florida who has studied the impact of sporting events, believes the evidence was unequivocal. “Every time we’ve looked, we find no real change in economic activity,” he said. Still, even for established cities like Boston or San Francisco, there is one clear reason to chase the Olympics or the World Cup: People like hosting major sporting events. Economists tend to pay more attention to money than to happiness. But it’s no small matter that surveys routinely find high levels of public support in the host nation before, during and after the Olympics and the World Cup.

“It’s like a wedding,” Matheson said. “It won’t make you rich, but it may make you happy.”

The trick is deciding how much that’s worth.

(c) New York Times 2014

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