Picking up the tab for sport
It’s difficult to put a value on a sporting event but we should try, says Shamubeel Eaqub.
Are sporting events worth it? The costs and benefits fall on different people. The net benefit is usually small.
More important is the harderto-quantify effects a fun event has on the community, and long-term impacts on enabling economic potential.
Prospective sporting events are accompanied by reports of economics benefits of millions of dollars. Some seem too good to be true. They are.
We should be careful in interpreting the numbers.
Government organisations should set strict criteria to ensure only the net additional benefit to the country or region is counted.
The financial benefits of sporting events tend to accrue to a small number of industries. But many of the large costs of infrastructure fall on the taxpayer or ratepayer.
Because the costs are thinly spread across many people, but the benefits concentrate at significant levels for a few, there is always an asymmetry in the debate around funding for sporting events.
Lobbyists from industries that benefit talk up the gains for the wider economy and community to justify the public spending that will crystallise their private gains.
There can be wider economic and community benefits, but there are strong incentives for lobbyists to significantly overstate them.
More often than not, the reports we see tend to identify economic activity that relates to an event, say the America’s Cup or the Rugby World Cup.
So the new spending on sporting arenas, new businesses that develop, the extra tourists that come and their spending, are all tallied up. But they rarely count economic activity that would have otherwise occurred.
Studies done before the project, usually for lobbying purposes, tend to overstate the benefits. Studies done after the fact usually find the gains were much smaller.
In a comparison of mega sporting events such as World Cups and the Olympics, beforeevent studies found economic benefits of around 1 per cent of GDP. Studies done after the event found benefits of just 0.1 per cent of GDP.
There are good examples of occasions that create positive economic and community contributions. But the impact tends to be small.
The benefits are small partly because the sporting event might displace other activity. For example, if public funds are used to build a new venue, it is not really new money.
It is money that has been moved from another project which does not go ahead, and its economic benefits are lost.
Spending by locals on eventrelated activities is similarly money that would have been spent anyway, not new money being injected into the economy.
But spending by overseas visitors, and by syndicates in the case of the America’s Cup, is new.
These are real additional economic advantages to many industries, including marine, retail, accommodation, hospitality and travel.
Even here, there is need for caution. For example, not all the people who came for the Rugby World Cup were lured here for that occasion alone. Many would have come anyway, and some deferred or brought forward their trips to coincide with the event. In fact, some people delayed their visits to avoid crowds and higher hotel and airfare costs.
So the increase in visitor numbers may be smaller than we think.
In the case of the America’s Cup, spending by syndicates can benefit the local economy, and boost the marine industry.
This spending would not otherwise occur and can have long-term benefits for the marine sector. But these can be difficult to attribute with accuracy.
There are, of course, other positive effects. An event can be a catalyst to get major infrastructure and city beautification projects done.
They can lead to global awareness, local feelings of pride and happiness. It can be a good party.
Sporting events can be fun. They can create small economic and community gains.
When public funds are involved, we should be careful and realise that other worthwhile projects will be delayed.
A sporting event is not a free lunch and staging lots of them is not a route to riches.