Abstract
Politicians generally favor hosting mega sports events despite the discouraging evidence of financial benefits or direct economic gain. This paradox is surveyed from two different perspectives. First, we weighed the merits of the most prominent methods of economic analysis of mega sports events. Then, we discuss the ways in which politicians still manage to infer positive gains from hosting this type of event from the literature. Next, we look at a range of frequently intangible effects that could be used in the public debate before submitting a bid but that, paradoxically, rarely are. The most promising of these is making the people proud and happy. However, economists have so far been incapable of adequately valuing the effect of hosting a mega sport event based on happiness. Second, we analyzed the political process parallel to preparing a bid to understand why politicians are persistently keen to host, despite the bleak economic prospects.
Introduction
Many countries and cities compete to host a mega sports event like the Olympic Games or the Soccer World Cup, even though economists generally find that the costs exceed the benefits (see, for example, Porter & Chin, 2012). Initially, nine cities competed for the right to host the 2012 Olympics. 1 Proponents generally stress the economic benefits that come with hosting a mega event (see, for example, Coates & Humphreys, 2008; Crompton, 1995; Rose & Spiegel, 2011) and present biased economic impact studies showing considerable economic benefits. Despite the bleak economic prospects, politicians tend to keep backing bids. This article investigates this “bidding paradox”.
Several criteria can be employed to separate mega sports events from smaller ones, such as the economic impact, revenues or numbers of participants, visitors or TV viewers. These all have multiple dimensions, which makes strictly defining mega events nontrivial (Maennig & Zimbalist, 2012). This is nicely illustrated by comparing Coates (2012), who typified the Winter Olympics as not being a mega event, with Maennig and Zimbalist (2012), who did list it as mega event. This article focuses on the Olympic Games and the Soccer World Cup as the two most undisputed mega sports events. Most arguments can readily be extended to smaller events, especially if they do not take place at a fixed location and are subject to bidding.
To understand the bidding paradox, it is important to consider both political and economic aspects. The section “The Economics of the Bidding Paradox” elaborates on the economic aspects. We start with a discussion of the research methodologies available for assessing the impact of hosting a mega sports event. Next, we discuss a myriad of effects, in terms of social costs and benefits, of hosting a mega sports event. We do so along several dimensions: economic and noneconomic, tangible and intangible, frequently put forward in the public debate and generally only considered by scholars. The latter could provide a refreshing perspective on the process of taking position in the public debate. We also aim to address potential pitfalls associated with measuring the effects of mega sports events. Effects discussed in this section include the costs of security, venues and infrastructure, ignoring the cost of bidding and the probability of winning, additional consumer spending, long-term increases in tourism, additional exports, nation and city branding, increased social cohesion, the home advantage, stimulating sports participation, and increased fun, pride, and happiness of the population.
The section “Political Motives to Favor Hosting a Mega Sports Event” focuses on explaining why politicians are keen to host mega events despite the bleak economic prospects. We succinctly discuss the lock-in effect of early political enthusiasm and commitment, the backup support for the bid of advocates of side projects tied to the event, the biased reading of history, the winner’s curse, the stronger lobbying position of parties benefitting from redistributions sparked by the event, and the (sports) media being frequently biased in their reporting.
The section “Conclusion” concludes with the main message emerging from our survey. It is that politicians with the ambition to host a mega sport event because it brings fun, pride, and happiness to the people could be making a sound decision, while economists are still insufficiently capable of capturing this effect in their cost–benefit calculations. However, it is questionable whether fun, pride, and happiness are so important that alternative explanations for political support can be deemed invalid, despite the discouraging empirical evidence regarding the economic returns.
The Economics of the Bidding Paradox
This section is organized in three parts: (a) which methods are used to measure costs and benefits of hosting a mega sports event and what are their merits, and (b) which costs and (c) benefits of hosting can be identified and how are they quantified?
Quantifying the Economic Impact of a Mega Event
Two methods are available to quantify the economic impact of mega events: economic impact analysis (EIA) and cost–benefit analysis (CBA) for the whole society. The differences between the two methods turn out to be difficult to grasp for noneconomists. As a result, proponents frequently choose to adopt the method that gives the most optimistic result, which is generally the EIA.
Analyzing effects in isolation, for example, studies focusing solely on additional spending by tourists, is a frequently adopted impact evaluation strategy. Such partial impact studies clearly cannot answer the question whether hosting is beneficial to welfare so they are not further discussed here.
The general idea of an EIA is that all economic activity following from the mega event is identified and aggregated (Coates, 2008; Crompton, 1995; Heisey, 2009; Késenne, 2005). Because economic activity consists of both costs and benefits, the resulting figure does not represent the actual economic gains from the mega event, but rather some crude measure of the economic activity induced by the event. Furthermore, as costs and benefits are summed, it is impossible to say whether the benefits exceed the costs, financially or socially. The EIA generally estimates the additional expenditures generated by the event, such as tourism and investments in stadiums, hotels, and infrastructure, and inflates these with a multiplier (discussed below). The outcome is presented as either the additional value added generated by the event or the additional number of jobs generated (or both). However, the outcome of an EIA is not very informative because it does not say anything about the balance between costs and benefits, let alone give an indication of the impact of the event on welfare.
Nonetheless, the EIA is often the preferred instrument of bidding committees or other proponents for investigating the economic impact of a mega event, as the outcome is almost always positive. 2 Crompton (1995) discusses the rationale of the EIA before analyzing 11 sources of misapplication of this method. EIAs are frequently undertaken to justify a particular position that sports organizations or community-elected officials have adopted or are proposing to take. Too often, the motives of commissioners seem to lead to adopting assumptions that bias the results in favor of their own position (see also Heisey, 2009). 3
To gain a proper perspective on the actual welfare implications of hosting a mega event, a cost–benefit analysis is the most appropriate instrument (Coates, 2008; Heisey, 2009; Késenne, 2005). Andreff (2012) cites several economists who distrust EIA and prefer CBA, although often with skepticism regarding ex ante application. In a CBA, the costs are subtracted from the benefits to give a proper welfare account. The costs should also include opportunity costs, such as distortionary taxes imposed to enable the government to finance the event. In a CBA, different alternatives to the event scenario and their welfare implications are considered (Coates, 2008; Crompton, 1995; Matheson, 2006), and every relevant effect resulting from the event should be quantified and valued, including effects which are difficult to quantify, such as the environmental burden, or the feelings of pride and joy among the people derived from hosting the event in the area (Heisey, 2009).
Coates (2008) even argues that only ex post studies provide a valuable tool for assessing the impact of mega events. However, given the need for ex ante information while deciding to bid, CBA is the best available tool. Ex post studies serve to evaluate the costs and benefits of the event afterward and form key input for ex ante CBAs. This requires due care in interpreting, as there could be an incentive to be overly positive about a past event (Teigland, 1999).
Assessing the Costs of a Mega Sports Event
This section surveys the main costs of mega sports events. In many cases, specific costs are ignored, overlooked, or underestimated, obscuring a clear view on the welfare implications of the event.
Security and other costs for the government
The costs of security are often not included or seriously underestimated in EIAs and CBAs. The main reason for underestimating these costs is that they concern the police, municipalities, and ministries. These officials would be assigned a different task if the event were to take place elsewhere, and their wages would still have to be paid. However, as they have to put their regular tasks on the backburner during the preparations and the actual event, the opportunity costs of the security efforts should be taken into account (de Nooij, van den Berg, & Koopmans, 2013). These opportunity costs are worth at least their wages plus other expenses; otherwise, they would not be employed by the government in normal circumstances.
Generally, the security costs of mega events are not fully transparent. For example, security for the 2004 Olympics in Athens, Greece, was an estimated €1.08 billion for a security staff of 40,000. Beijing (2008) employed twice as many security officers (Embassy of Greece, 2004; Zimbalist, 2010). de Nooij et al. (2013) estimated the security costs of the 2006 World Cup in Germany at around €450 million (with a bandwidth ranging from €117 million to €1 billion).
Preparation costs for the event by civil servants are also frequently overlooked. Think of activities such as city dressing, organizing side events, and implementing temporary traffic measures. Again, the opportunity cost argument is relevant, as regular tasks of public officials will be crowded out by event preparations. To the best of our knowledge, de Nooij et al. (2013) mark the sole attempt to account for these costs, estimating them to range between €35.8 and €65 million for the anticipated 2018 World Cup in the Netherlands. 4
Coates (2008) argues that the distortionary effect of tax revenues employed for the mega event also needs to be accounted for. Taxes distort preferences and choices of individuals, which marks a social cost. In the academic literature concerning CBAs, it is frequently argued that the cost of distortionary taxes could amount to an additional 25% of the public costs (see, for example, Brent, 2006, Chapter 9; de Nooij & Koopmans, 2004).
Underestimating the costs of facilities and other investments
The ex ante cost estimates of mega events are usually made years before the event. They frequently turn out to flagrantly underestimate the actual costs. The 1976 Olympic Games in Montreal are a textbook example: Initial cost estimates of US$124 million culminated in a total debt of US$2.8 billion, which took three decades to pay off (Zimbalist, 2010). The estimated US$105 million of 2010 World Cup venues in South Africa at the time of bidding increased to US$1.35 billion just before the event (Du Plessis & Maennig, 2009). The ex post costs of the Olympic Games in Athens were €9 billion, twice the initial estimate of €4.5 billion (Embassy of Greece, 2004). The budget of the 2012 London Olympics was £4 billion when the bid was submitted. In March 2007, the budget was revised to £9.3 billion (House of Commons Committee of Public Accounts, 2008). This still excluded several substantial cost figures, such as acquisition of land for the Olympic Park for £650 million, the private sector’s contribution to the costs of the Olympic Village, the expenditures of the Local Organizing Committee (some £2 billion), the government staff working on the event, and improvements of public transport in London (House of Commons Committee of Public Accounts, 2008). For more examples of cost overruns, see Andreff (2012).
Flyvbjerg and Stewart (2012) systematically compared the costs in the bid book with the ex post costs of the Olympic Games between 1960 and 2012. They investigated the sports-related costs only, excluding infrastructure costs. They conclude that Games differ in two respects from other megaprojects. First, Games always run out of budget. Second, in real terms, the Games show cost overruns of 179% on average (324% in nominal terms) which is significantly larger than for other types of megaprojects.
There are several explanations for the persistence of cost overruns. One is that costs are difficult to predict ex ante because construction costs and land value tend to increase between submitting a bid and the event taking place. Hosting a mega event can cause gross misuse of land and provoke wage and resource price pressures, fueling inflation, especially in developed economies where land is scarce and input markets are already under pressure (Zimbalist, 2010). Another explanation is that budgeting guidelines are often not properly followed. This is said to be one of the main explanations for the cost overrun of the 2012 London Olympics. Before the bid was submitted, the size, scale, and complexity of what was to be delivered had not been fully appreciated (House of Commons Committee of Public Accounts, 2008). Furthermore, bids are frequently enriched to woo officials of the organizing sports institution. Such adjacent projects are frequently not properly worked out in the bidding stage (Zimbalist, 2010). Also, proponents of the event may find it in their interest to underrepresent the true costs while seeking public endorsement, particularly if they need public financing (see, for example, Matheson, 2006; Zimbalist, 2010).
Studies of cost overruns in large infrastructure projects could be helpful in understanding the large cost overruns of mega sports events. Flyvbjerg, Holm, and Buhl (2002) and Flyvbjerg, Bruzelius, & Rothengatter (2003) argue that the cost estimates on which infrastructural decisions are based are highly and systematically misleading. Flyvbjerg (2007) offers three explanations for cost underestimations of megaprojects: technical errors in cost estimates, planning fallacy and optimism bias, and deliberately and strategically overestimating benefits and underestimating costs to increase the likelihood of approval. He rejects the first two explanations as they would diminish over time due to learning effects. The most likely explanation for underestimation is strategic misrepresentation (lying); strategic misrepresentation occurs because it pays off (Flyvbjerg, 2007). Those responsible for the cost overruns are not those who pay the bill, that is, the taxpayer (Flyvbjerg et al., 2003). The implication is obvious: Anyone who desires an accurate assessment of the cost of a mega sports event should be very careful in interpreting estimates presented by event proponents in the bidding stage.
The infrastructural and venue investments, causing part of the cost overruns, are often not included in the cost figures, because they are still of value after the event (infrastructure often has a life span of over 50 years). The question which fraction of these investments should be attributed to the event is nontrivial. Preuss (2004) argues that it is not appropriate to assign the full cost of these investments to the event, as they are of later use. However, the requirements for a mega event will generally not fully overlap with infrastructural everyday needs. As Kuper (2010) put it, “If you need a new airport, build it. If you only need a new airport for four football matches, don’t build it. The demands of a football tournament are seldom those of daily life.” Facilities built for an event are so often useless afterward, that there is a proper term for this phenomenon: white elephants. There are many examples of this. Many venues built for the 2000 Olympic Games in Sydney have already been shut (Atkinson, Mourato, Szymanski, & Ozdemiroglu, 2008). Many facilities of the 2004 Olympics in Athens went unused afterward (Rhoads, 2010). Greece pays in excess of US$100 million annually to maintain these facilities while considering how to put them to better use (Walton, Longo, & Dawson, 2008). Lillehammer, a Norwegian town with just 24,000 inhabitants, features two ice hockey venues with 11,000 permanent seats built for the 1994 Winter Olympics, while two neighboring towns simultaneously built comparable venues (Teigland, 1999). Also nonsports infrastructure pegged to an event, such as Information and Communication Technology (ICT) or transport infrastructure, could either go unused afterward or prove to be a suboptimal investment (Matheson, 2006).
Ignoring bidding costs and winning probabilities
Submitting a successful bid requires a considerable investment in itself. These costs are generally ignored when assessing the economic impact of a mega event. Chicago’s unsuccessful bid for the 2016 Summer Olympics cost about US$100 million (Zimbalist, 2010). An Australian senator demanded US$48.8 million back from FIFA to compensate for the cost of the unsuccessful bid for the 2022 World Cup (Reuters, 2011). 5 The probability of a bid not being successful is considerable and should also be considered (de Nooij, 2014). For example, Preuss (2004) reported nine contenders of the 2012 Summer Olympics. Assuming bid preparation costs of US$100 million each, the net present value of organizing should be at least US$900 million to compensate for the probability of being unsuccessful, that is, assuming risk neutrality and an equal probability of winning among contenders (de Nooij, 2014).
Assessing the Benefits of a Mega Sports Event
This section discusses the issues tied to assessing the benefits of mega sports events, ranging from exaggerating economic gains to omitting intangible benefits.
Additional consumer spending and the income multiplier
Two steps are crucial in estimating the direct economic gain of an event. The first step is to estimate the additional spending generated by the event. Only foreign spending is relevant, because domestic spending on a mega event will crowd out regular spending, yielding a zero net balance (Coates, 2008). 6 The second step is to estimate the additional income resulting from the additional spending. The initial impulse generates future spending at an ever decreasing pace with each step further back in the supply chain (the multiplier effect). The multiplier is frequently set at two, doubling the initial surge in spending (Matheson, 2006; Porter & Chin, 2012). See, for example, Crompton (1995), Hudson (2001), Szymanski (2002), and Matheson (2009) for a critical discussion of the income multiplier and how it can be abused to generate artificially large income effects. One of the problems with multipliers is the underlying assumptions. For example, a multiplier requires availability of idle resources that can be utilized at no additional cost. However, this is not a realistic assumption except for times of recession (Preuss, 2004; Szymanski, 2002). Normally, additional spending will increase the demand for labor, driving up wages and inflation. The higher wage level will render certain other economic activities unprofitable. The net effect will be a change in the composition, but not in the level of national income. This is also referred to as the general equilibrium effect. 7 Such general equilibrium effects are well-known but often ignored. For example, Preuss (2004) assumes underemployment, as most economies face unemployment. This ignores the underlying reasons for unemployment, such as search frictions and efficiency wages, leading to permanent unemployment. 8 Baudewyns and van der Linden (2010) do acknowledge in their EIA of the Belgian bid for the 2018 World Cup that the economic impulse of the event could come at a time when the Belgian economy is already overheated, but do not account for this in their calculations.
Additional spending depends, for example, on the numbers of foreign visitors and their spending. Many studies are wildly optimistic about both (Matheson, 2006). Especially, the number of tourist arrivals is frequently overestimated. As Crompton (1995) already noted, controlling for tourists who would have visited anyway (“casuals”), or reschedule their stay to be able to visit the event (“time-switchers”), is frequently omitted. Furthermore, crowding-out can be substantial. Tourists may stay away because of a mega event because they expect congestion, chaos, fully booked accommodations, high prices, and construction nuisance (Matheson, 2006). These factors taken into account the ultimate number of additional tourists could be very disappointing. Several studies suggest that mega events have little net impact on the number of tourist arrivals (see, for example, Coates, 2010b; European Tour Operators Association [ETOA], 2008). New York welcomed fewer tourists than usual during the month in which it hosted the 1994 World Cup (Baade & Matheson, 2004). The FA expected 250,000 visitors in England while hosting Euro 1996, just 100,000 turned up (Kuper & Szymanski, 2009). The number of international arrivals during the World Cup in South Korea in 2002 actually decreased by 12% relative to the previous year (H. J. Kim, Gursoy, & Lee, 2006). Maennig and Du Plessis (2007) found no evidence that the 2006 World Cup generated additional overnight stays in Germany. Preuss, Kurscheidt, and Schütte (2007) showed that crowding-out increases with the popularity of a city as a regular tourist destination, to over 100% for Munich and Berlin. While selling 3 million tickets, South Africa welcomed a mere 40,000 to 90,000 additional tourists during the 2010 World Cup (Du Plessis & Maennig, 2010).
Long-term growth of tourism
It is also frequently argued that a mega event will promote long-term growth for tourism, as the host city will be the center of attention for several weeks, leading to increased awareness and promoting the city’s image (Preuss, 2004). This was also an objective of the 2000 Olympic Games in Sydney. However, ex post research does not show any positive long-term impact on tourism (Zimbalist, 2010). The only available quantitative study on long-term tourism effects (Fourie & Santana-Gallego, 2011) uses a standard gravity model. It shows that hosting a mega event significantly increases tourist arrivals by a considerable 8%. However, if the event takes place during peak-season, as it frequently does, this effect could disappear completely.
Additional exports
Proponents often argue that hosting will stimulate exports. Rose and Spiegel (2011) found strong evidence for a large and persistent effect of hosting mega events on exports and trade, but interestingly, unsuccessful bids have a similar impact on exports. Rose and Spiegel therefore concluded that the effect of hosting a mega event on trade is not caused by the economic activity associated with it. Instead, submitting a bid is a costly policy signal for (future) trade liberalization. They also argued that other signals of trade liberalization might be more effective. Note that already liberalized countries submitting a bid to host a mega sport event suggests that there are other reasons at play outside the policy signal argument. In addition, it is rather remarkable that the public should be perceptive to such a subtle policy signal, while economists have completely overlooked it thus far. Maennig and Richter (2012) criticized Rose and Spiegel because they compared fundamentally different groups of countries. In an alternative analysis, Maennig and Richter (2012) applied a matching procedure to compare Olympic hosts with fundamentally similar countries and found no Olympic effect on exports.
Nation and city branding
Nation or city branding is frequently put forward as an underestimated effect of hosting a mega sport event. Being the focus of the world for a while and showing the world that you are able to host a successful event supposedly boosts the host country’s or host city’s image. A few examples stand out; the 2006 World Cup in Germany is said to have improved the image of Germany and the Germans considerably (Florek, Breitbarth, & Conejo, 2008). The same is said of the 2010 World Cup in South Africa, sending out a positive message to the world after the days of apartheid isolation. S. S. Kim and Morrison (2005) presented evidence suggesting a significant image boost for South Korea among foreign tourists following the 2002 World Cup. Despite the empirical evidence supporting this argument, valuing it in economic terms remains difficult. Indirect measures of improved image are increased tourism, exports, and investments. There is little empirical evidence demonstrating long-term economic gain from hosting a mega event in terms of, for example, growth of tourism (Coates, 2012; Crompton, 2004; Matheson, 2006). One explanation is that reputation effects are smaller and more short-lived than often anticipated, and under adverse conditions (e.g., bad weather or terrorist acts), the hosts’ reputation may even be harmed (Coates, 2012; Zimbalist, 2010, citing a 1991 study by Ritchie and Smith). 9 Note that positive experiences of one host cannot easily be transferred to another, because the reputation effects of an event are highly location specific, something which is frequently ignored by the advocates of hosting an event. Furthermore, a more fundamental question that remains is whether organizing a mega event is the most cost-efficient way to boost the reputation of a host and whether it is a public task to engage in hosting a mega event to boost the local economy at the expense of the taxpayer (Szymanski, 2002). Broadcasting advertorials is probably a more cost-efficient and effective image enhancing strategy than sizable public investments in stadiums (Coates, 2007).
Social cohesion
Hosting an event like the World Cup or the Olympic Games, and being the center of attention for a while, can give a considerable boost to the sense of pride and community among the public (Zimbalist, 2010). Barget and Gouguet (2007) argued that community formation and social ties generally benefit from developing a common plan such as organizing a mega event. Furthermore, much of the work in the build-up to and during a mega event is done by volunteers, which also promotes the sense of community and accomplishment (Zimbalist, 2010). These effects are not frequently put forward by proponents of hosting a mega event, partly because they are difficult to express in monetary terms.
Home advantage
Home teams have a greater probability of winning than the visiting opponent (e.g., Courneya & Carron, 1992; Poulter, 2009). This can be a nonfinancial benefit of organizing a mega event. This effect is difficult to monetize. The home advantage effect materializes in two steps. First, participation in the event is frequently guaranteed for the organizing country, whereas the other participants have to qualify. 10 Second, teams representing organizing countries tend to perform well, frequently even better than expected. These effects are illustrated by some anecdotal football history; six out of 20 World Cups are won by the organizing country and three out of 14 European Cups. 11 In addition, the United States reaching the round of 16 in the 1994 World Cup was considered a major success, as was the unexpected appearance of South Korea in the semifinals of the 2002 World Cup. The home advantage might not be a free lunch though. For example, at the Olympic Games, the home advantage is often (partially) triggered by extra investments in athletes and their preparation. This was the case for Team GB preparing for the 2012 London Olympics.
Stimulating sports participation
Proponents of hosting frequently claim that the event and the attention it generates will foster participation in sporting activities. This supposedly has numerous benefits, including improved health and well-being of the population leading to cost reductions in health care, increased productivity due to reduced absenteeism, more consumer spending on sports-related commodities and events, and even increased life expectancy (CPB, 2009). The Dutch Minister of Sports made this claim during a parliamentary debate defending the support for the 2018 World Cup bid (Tweede Kamer der Staten-Generaal, 2010). However, empirical evidence that shows hosting increases sports participation is nonexistent (Gratton, Shibli, & Coleman, 2006; Kavetsos & Szymanski, 2010; Walton et al., 2008). In addition, increasing sports participation in the long run probably requires costly support programs. This raises the question whether the success of such supporting schemes ultimately depends on the mega sports event catalyzing them. Furthermore, if the benefits of increased well-being and improved health of the public are tied to the event, the costs of the accompanying support programs should be included as well. However, this is not common practice.
Happiness
As the economic gains from hosting a mega event are generally nonexistent, the intangible effects are key in the justification of the ambition to host (Kuper & Szymanski, 2009). Feelings of happiness, pride, and joy derived from having a mega sport event in the region, or the psychological value to the hosting community, are among the most promising in this respect (Matheson, 2006). Crompton (2004) referred to this as the psychic income for existing residents. This could emanate from the pleasure derived from attending, being involved as a volunteer, the option value of having the event hosted nearby, and feelings of national pride of being the host (Kavetsos & Szymanski, 2010). Valuing such intangible, nonmarket effects is difficult, but necessary to get a grasp of the true balance of social costs and benefits. Valuing intangible benefits is typically done by means of the contingent valuation method (CVM), the ultimate aim of which is to infer the willingness-to-pay (WTP) of residents for hosting an event in the region. The underlying assumption of this method is that the WTP of an individual adequately reflects the amount of pleasure he or she derives from hosting the event. There are numerous examples of applying the CVM to hosting mega sport events. See, for example, Coates and Szymanski (2014) concerning the 2024 Summer Olympics; Atkinson et al. (2008) and Walton et al. (2008) regarding the 2012 Olympics in London; Heyne, Maennig, and Süssmuth (2007) covering the 2006 World Cup in Germany; and Heisey (2009) regarding the Olympics. Süssmuth (2012) provided an excellent introduction to CVM design, welfare economic foundations, implementation, and econometric analysis. He observes that a mega event is a typical good experience, where consumers cannot assess its value in advance but only upon consumption or based on past experience. Therefore, ex ante and ex post WTP estimates can (and probably should) differ. Also, uncertainty regarding the course of events could cause a considerable gap between ex ante and ex post WTP estimations (Heyne et al., 2007; Kim et al., 2006). Walton et al. (2008) concluded that citizens outside the hosting region have fun and pride as well. However, the WTP of residents inside and outside the hosting region is likely to differ and should not be assumed equal.
Furthermore, WTP estimates crucially depend on whether it is clear upfront to the respondent that hosting the event will involve costs borne by the taxpayer (Elling & van der Werff, 2011). Heisey (2009) argued that it is unlikely that the WTP of residents closes the gap between the tangible economic benefits and costs. However, this might depend on the event and country or city in question. For example, de Nooij et al. (2013) estimated that the WTP of Dutch residents for hosting the 2018 World Cup required to make the event socially profitable will average €9. This does not seem improbable.
Kavetsos and Szymanski (2010) used an alternative method to CVM employing data regarding self-reported life satisfaction of citizens of 12 European countries. Their findings suggest that the “feel good” factor associated with hosting football tournaments is large and significant but short-lived.
An additional benefit for the attendees from the hosting region emanates from their WTP for a ticket should that exceed the ticket price. This consumer surplus is hardly ever mentioned in the literature and less so by proponents of hosting (Coates & Humphreys, 2008). Whitehead, Johnson, Mason, and Walker (2013) studied consumer surpluses of hockey game attendance. Consumer surplus per game is estimated to amount to US$50 for those who attended a hockey game and about 50% less for those who did not. Compared with an average ticket price of US$80, the consumer surplus is substantial. Including travel costs, the costs of attending are US$110 to US$120, implying a consumer surplus of 40%.
Other benefits: economic growth, consumption, ticket proceed, urban regeneration
Economic gains which are in reality nonexistent, either by reasoning or by proof, are frequently enlisted. First, hosting a mega event is sometimes claimed to promote economic growth. Such an effect has never been proven empirically (Siegfried & Zimbalist, 2000; Sterken, 2006). And even if it were, double counting could be a serious threat, as the spending or income effects are generally considered separately. Second, for illustrative purposes, additional consumption induced by a mega event is frequently expressed in terms of TV sets sold, and beer and chips being consumed during matches. However, this does not entail additional consumption that can be tied to hosting the event per se but to it being organized anywhere or to participating in it. Even if consumer expenses of residents could be tied to the event taking place in the region, they would not entail additional consumer spending as they crowd out regular expenses (Matheson, 2002, 2006). Third, benefits that ultimately do not fall to the host are sometimes mistakenly considered financial gains. For example, ticket proceeds fall to FIFA, but PricewaterhouseCoopers (2009) considered ticket proceeds a financial benefit to the United Kingdom in their analysis of hosting the 2018 World Cup. Fourth, also urban regeneration and restructuring enabled and driven by the Games could be a benefit (Burbank, Andranovich, & Heying, 2012). A mega event can help speed up decisions and get funds arranged. However, the evidence is mixed and the cost–benefit trade-off is unclear. Burbank et al. (2012) analyzed the urban regeneration effect of the Olympic Games of Los Angeles, Atlanta, and Salt Lake City. They concluded that there will be no shortage of candidate cities, and that ongoing commercialization of the Games will continue, therefore the Olympics will not to automatically translate into urban regeneration for the benefit of the people.
A shot in the dark
Proponents of hosting tend to launch a myriad of arguments in favor of hosting. So much so that they seem to hope that the sheer number of arguments presented automatically provides them with substance. This should induce skepticism for two reasons. First, a stylized fact from the adjacent field of economic policy is that every policy goal should be attained by a separate policy measure. This is known as the Tinbergen rule. However, when it comes to hosting mega events, it seems customary to employ one instrument (the event) to attain multiple goals. Second, the intangible effects are rarely quantified and monetized by proponents. Although intangible effects are inherently difficult to quantify, the preceding discussion showed that monetizing them could even be in the interest of proponents of hosting. However, as Allen Sanderson phrases it quite bluntly: “Anytime anybody uses the word ‘invaluable,’ they are usually too lazy to measure it or they don’t want to know the answer” (cited in Matheson, 2006).
Political Motives to Favor Hosting a Mega Sports Event 12
This section discusses seven aspects of the political process that help explain the bidding paradox.
Early Political Enthusiasm
In their evaluation of infrastructural project appraisal, Mackie and Preston (1998) found that proposals are frequently difficult to reject because of the degree of political commitment they had accumulated. The outline appraisal needs to come sufficiently early in the project cycle for graceful withdrawal to be possible. And commitment should not be such that it becomes impossible to withdraw at a later stage. For mega sports events, the decision to prepare a bid and to hand it in is of course not taken in a vacuum by the bidding committee and the National Olympic Committee. Prior to preparing a bid, they engage politicians to investigate whether the ambition to prepare a bid is received with enthusiasm and what the chances are of getting the necessary government support. Prospective bidders generally do not ask for a budget, nor do they show precise plans right away (as they are usually nonexistent at that stage). Politicians generally respond enthusiastically to such requests. These early commitments make it more difficult for politicians to withdraw support at a later stage when actual commitments regarding budgets and costs are being asked.
For example, the Dutch Prime Minister expressed an interest in organizing the World Cup in the Netherlands 3 years before the final decision to bid was made. Some Members of Parliament also expressed their enthusiasm, and the majority of Parliament sympathized with the idea (NU.nl, 2007). On July 3, 2009, the Dutch government confirmed its support for the joint bid with Belgium for the 2018 World Cup (Ministry of Sports, 2010). Dutch policymakers did not fully appreciate how extensive the requirements imposed by FIFA were until the summer of 2009. When the implications of the FIFA requirements were finally fully appreciated by the ministries involved, in the fall of 2009, the support among public officers quickly eroded (see the evaluation of the Dutch bidding process, Berenschot, 2011). In early 2010, just weeks before the final decision was made (on April 20, 2010), a social cost–benefit analysis commissioned by the Ministry of Economic Affairs was published, followed by a parliamentary debate in late April. The bid was officially submitted on May 14, 2010. Graceful withdrawal of support for the bid at that stage would have been difficult. 13 This was further hindered by the fact that the bid was submitted in a joint-venture with Belgium. It is unclear whether the timing and order of events characterizing the decision process preceding the bid submission was a strategic choice or coincidence.
Political commitment should be considered in a broad perspective (Mackie & Preston, 1998). Not only politicians with parliamentary voting power are relevant stakeholders in the decision-making process, but also, for example, leading opinion makers. For example, a former Minister was appointed chair of the Dutch committee preparing the bid submission for the 2028 Olympic Games, in which the King of the Netherlands (a former International Olympic Committee [IOC] member) was also involved. Such nonpolitical stakeholders could find it difficult to publicly withdraw their support for a bid as well.
Tying Side Projects to the Bid to Raise Political Support
It is frequently claimed that hosting will spur the approval of side projects tied to the event that require such a cumbersome and time-consuming decision-making process, supposedly, that they would not materialize without the mega event. With proper planning, hosting a large event can serve as a catalyst for the construction of modern transportation, communication networks, and sports infrastructure (Zimbalist, 2010). Getting worthwhile projects off the ground may require undertaking projects that are in themselves irrational, like hosting a mega sports event. Examples are the regeneration of urban areas in London tied to the Olympics, or investments in sports participation in the Netherlands.
This strategy raises several problems. First, it may not be beneficial in social terms if infrastructural projects get approved just because of a mega event. Investments in urban regeneration may require investments in facilities for everyday use rather than “signature projects” (Kavetsos & Szymanski, 2010; Kuper, 2010). Ruijgrok (2011) found that infrastructural projects in the Netherlands generally cost more than they benefit, often to the surprise of their advocates. Ruijgrok explained that because the Netherlands is well developed, it is more in need of proper maintenance than of new projects. A mega sports event with side projects, such as infrastructural investments, incurs additional welfare cost rather than benefits by spurring side projects (see also the section “Assessing the Costs of a Mega Sports Event”). Second, the bid may be approved because it is backed by advocates of side projects who do not necessarily support the mega event itself. Third, generally, there are decision procedures regarding, for example, infrastructural projects that weigh the different effects for all stakeholders properly. Speeding up the decision-making trajectory, and maybe even skipping steps, because of a mega event may mean that not all stakes are properly taken into account and that hidden costs of, for example, environmental effects are incurred. These projects are generally publicly funded and may crowd out alternative investment projects that might be better for general welfare.
Biased Reading of History
The impression generally created in public debates is that previous mega sports events have been successful. Advocates of bidding have an incentive to focus on successful examples. The 1992 Olympic Games in Barcelona is generally referred to as a textbook example of a successful Olympics that also gave the hosting city a boost as a tourist destination. 14 Iconic examples may have turned out iconic for specific reasons, which cannot be readily extended to new candidate hosts. For example, Barcelona was a worn-down industrialized city concealing many cultural highlights in the second league of European tourism destinations (Duran, 2002). Tourism in general grew substantially in the 1990s anyway, and Barcelona invested heavily in advertising before and during the Olympics. Furthermore, the Olympic Games catalyzed the founding of a Board for Tourism and specific policies aimed at developing tourism as a sector (Duran, 2002). These developments and policies would have spurred tourism in Barcelona even without the Olympic Games.
Less favorable examples are generally ignored. After Barcelona, the Summer Olympics were hosted by Atlanta, Sydney, Athens and Beijing. The effects on tourism in these cities were much smaller and are therefore rarely referenced. Advocates of bidding generally exploit the textbook examples, carelessly transferring the supposedly large beneficial effects to the case at hand without considering historical similarities or disparities.
The Winner’s Curse
Bidding to host a mega sports event is like an auction. It can therefore suffer from the winner’s curse (Thaler, 1988). Each bidding party estimates how valuable the event will be to the host and to the initiating sports federation (e.g., IOC, FIFA). Provided these estimates are unbiased, the mean value placed on hosting the event should be equal to the actual value. However, the country with the highest estimated gain will probably submit the highest bid and win. The winner can, however, be cursed in two ways: (a) the winning bid exceeds the actual value of hosting the event, causing a welfare loss, or (b) the value of hosting turns out to be lower than the estimated value, leaving the winner disappointed. There would be no winner’s curse with perfectly rational and perfectly informed bidders. In that case, the actual value will be estimated properly and bidders take the number of competing bids into account in their bidding strategy (Thaler, 1988). Although a mega event is not equally valuable or costly to all bidding parties, the same welfare effects are relevant, albeit at different levels. This is particularly relevant as bids are assembled by local organizing committees. These generally have little past experience as bidding procedures are rare, yielding little scope for learning from experience. Furthermore, the organizing sports federations tend to concede the right to host in a rent-seeking way maximizing their own utility (Baade & Sanderson, 2012; Humphreys & Van Egteren, 2012).
Andreff (2012) analyzed ex ante and ex post estimates of the costs and benefits of hosting the Summer or Winter Olympics and concluded that the winner’s curse is highly relevant. Heisey (2009) argued that the winner’s curse is an important explanation for the phenomenon that scholars find little or no tangible economic benefits of hosting the Olympics. Coates (2010a) is pleased that the United States was not awarded the 2022 World Cup, because the winner’s curse makes it unlikely that the event will have economic benefits. However, strategic thinking in terms of the winner’s curse about the actual value of winning hardly ever seems part of the decision-making process leading up to the bid submissions.
Redistribution and Lobbying
Organizing mega sports events has substantial redistributional effects on welfare, which drives lobbying and impacts upon policymaking. Lobbying can of course influence the decision-making process (if lobbying were without effect, no one would invest in it). 15 Examples of redistribution are plenty: from taxpayers to clubs playing their matches in brand new (partially) publicly financed venues after the event (Coates, 2010b; Kuper, 2010; Kuper & Szymanski, 2009), to the construction sector (Coates & Humphreys, 2008; Kuper, 2010), to professional athletes (Coates & Humphreys, 2008), and to sports federations (Coates, 2010b); from the central government and regions within the country not hosting the event to the region or city where the event is being hosted (van Driel, 2010); from general merchandisers and department stores to hotels and restaurants (Baade, Baumann, & Matheson, 2008); or from women (on average less keen on football) to men (Kuper, 2010).
The beneficiaries of mega events are generally a relatively small group with a clearly identifiable and substantial gain for each actor. This makes it relatively easy to organize them (e.g., because of the relatively moderate risk of free riding). The stakeholders on the cost side are more diffuse and less easily identifiable. Their numbers are much larger and their individual stakes smaller (consider, for example, individual taxpayers as a group), so they are much more difficult to organize. 16
Note that the financial incentive for bidding committees to lobby might even be stronger, as they benefit from acquiring sponsors who will pay a substantial part of the bidding costs. Sponsors who will receive media attention in return. The Dutch committee preparing the bid for the 2018 World Cup was subsidized by the Dutch government well before the Dutch government had taken an official decision on whether to back a bid.
A major complication of lobbying is that information in the public debate tends to get diluted with information from selectively chosen, biased or subjective studies plugged by lobbying parties. In the Dutch debate on the bid for the 2018 World Cup, the bidding committee referred to Belgian and German studies on the matter, but not to the far more relevant Dutch cost–benefit analysis (CBA). Even the Dutch Minister of Sports selectively quoted a series of overly optimistic studies on the potential gains of hosting the World Cup, but not the CBA commissioned by the Dutch government (de Nooij et al., 2013; Ministry of Sports, 2010). Numerous academic papers noted that the quality of commissioned studies conducted for lobbying purposes do not stand up to academic scrutiny and are biased in favor of the interest of the commissioner (see, for example, Coates & Humphreys 2008; Crompton, 1995; Heisey, 2009; Matheson, 2006; Szymanski, 2002). It is often even impossible to weigh or replicate the results of the commissioned reports because these studies tend not to be publicly available (Coates 2010b; Heisey, 2009). Matheson (2006) refers to this as the “missing study” syndrome.
Media Bias in Favor of Hosting
The optimism of the public and the political elite is founded in a positive bias of the media toward hosting. 17 There are two reasons for this. First, positive effects regarding great business opportunities for hotels, bars, and restaurants in the vicinity of event venues are easier to find and report, because these beneficial effects are highly concentrated. The negative effects are much more diffuse and frequently intangible and make a far less gripping story (Coates, 2008). Second, the media benefits from a mega sports event take place locally, resulting in overly enthusiastic reporting (Jørgensen, 2005; van Hoof, 2010). Jørgensen (2005) found that financial interests determine the agenda of sports journalism, and that journalists tend to overlook the economic and political aspects of the sports industry. Jørgensen sees a global business partnership between the sports industry and the sports press as the driver of the booming sports economy. The sports industry needs the media to make people excited and get them involved, and the media needs the sports industry to attract audiences that pay or attract paying advertisers. This makes independent sports journalism a challenge (Jørgensen, 2005). van Hoof (2010) illustrates this with the 2008 European football championships in Austria (jointly hosted with Switzerland). Academic research showed ex post that the number of tourists, the additional value added, and employment generated by the event turned out to be much lower than ex ante calculations by the Austrian government. Despite the modest economic benefits of Euro 2008, the impression put forward by the media afterward is that the event was a major economic success. Remarkable coincidence in this respect is that a major Austrian newspaper was a sponsor of the event and television broadcasts were produced by a subsidiary of Union of European Football Associations (UEFA). This illustrates how tightly knit the media and the sports industry are, and how the media may not have any interest in objectively reporting the downsides or disappointing economic gains of hosting a mega sports event.
Happiness and Pride
Major sports events are usually weighed in terms of their quantifiable economic impact. Only recently, policymakers have begun to place greater emphasis on possible intangible effects. Feelings of happiness and pride derived from hosting a mega sports event are among the most promising in this respect (see the section “The Economics of the Bidding Paradox”). Kuper and Szymanski (2009) argued that politicians know by now that organizing a mega sport event will not give the economy a boost, but that they opt for hosting as it makes people happy. However, politicians tend not to use the term happiness in their argumentation, because debating in such terms is uncommon. Instead, they debate in terms of small monetary gains for specific voter groups. Politicians are gradually discovering the importance of happiness, and the fact that small monetary gains may not be all that important (happiness does not increase in income for per capita income levels over US$11,000 per annum; Kuper & Szymanski, 2009).
Bidding can also be attractive to politicians. As Kuper and Szymanski (2009) phrased it, Even politicians are made happier by hosting. Most of their work is frustrating. You try to get money to build, let’s say, roads, but other politicians stop you. Even when you get the money, it’s hard to build the roads because people pop up to object. It’s the same with housing or foreign policy or recycling: being a politician is an endless tedious struggle with your enemies. But it isn’t when you want to host a sports tournament. Suddenly everyone gets on board. (p. 288)
The fun and pride derived from bidding for and hosting a mega sport event may also lie in beating a particular competing contender in the bidding process. Tomlinson and Bass (2012) argued that Londoners derived more pleasure and pride from beating Paris in bidding for the 2012 Olympic Games than from actually gaining the right to host the event itself.
Conclusion
This article addresses what we coined the bidding paradox: Why do politicians continue to favor bidding for mega sports events despite the bleak economic prospects. We investigated this paradox from two different perspectives. First, we weighed the merits of the most prominent methods of economic analysis of mega sports events and discussed ways in which politicians still manage to infer positive gains from hosting from these strands of research. Second, we investigated why politicians stick to their hosting ambitions, despite the bleak economic prospects, by analyzing the political process paralleling the process of preparing a bid.
Supposed economic gains associated with mega sports events frequently do not stand up to academic scrutiny. Positive effects of hosting, such as spending by foreign visitors; positive long-term effects on tourism and sports participation, general health, and well-being; and positive effects on exports and economic growth are frequently put forward in the public debate, but yield largely insignificant results when put to the test empirically. In addition, income multipliers are frequently exaggerated and the general equilibrium effect is frequently ignored. Costs of the event are often grossly underestimated. However, there are several intangible effects, which are more difficult but not impossible to measure, such as nation branding, feelings of happiness and pride, the improvement of social cohesion among the population, and the home advantage for the host country’s team, that could provide a source of social gain falling to the host. However, these effects are frequently ignored or only used as ancillary arguments.
Possible explanations for the existence of the bidding paradox derived from the political process can be summarized as follows: early political enthusiasm leading to a lock-in effect, the tying of side projects to the bid to boost political support, deliberately biased reading of history, the winner’s curse, lobbying fueled by redistributions, a media bias in favor of hosting, and the ambition to boost happiness and pride of the population.
Politicians with the ambition to host a mega event because it brings happiness to the people might be making the right decision, while economists are yet insufficiently capable of capturing this effect in their calculations. Nonetheless, increasing happiness of the people seems to be the only source for welfare gains that politicians could credibly employ to justify backing a bid to host. However, it is questionable whether happiness and pride are so important that the alternative explanations for political support can be deemed invalid despite the discouraging empirical evidence of economic returns. It may just as well be due to what Coates and Humphreys (2008) call “collective foolishness taking over when it comes to matters of the heart like sports” (p. 311). Finally, hubris and vanity may play a role as well considering that politicians sometimes aim to be remembered for landmark projects and events of which the Olympics and the World Cup are fine examples.
Footnotes
Acknowledgements
We thank Wolfgang Maennig, Loek Groot, Koen Breedveld, anonymous reviewers, and conference participants at the European Association for Sport Management (EASM) 2013 conference (Istanbul) for valuable feedback and comments. Any remaining errors are our own.
Authors’ Note
The content of this publication does not necessarily reflect the official opinions of Statistics Netherlands. Responsibility for the information and views expressed in this article lies entirely with the authors.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.