By Aaron Low, Assistant Money Editor
What price sporting prestige?
Mega sporting events may put the host country on the world map - but lead to huge economic lossses
Published on Jun 26, 2014 11:54 AM
It was perhaps fitting that the 2014 World Cup's first goal was scored by a Brazilian.
The Brazilian defender Marcelo Veira latched onto a cross drilled from the left and put it into an empty net - his own.
It was the football-mad country's first own goal in a World Cup match, leaving thousands of Brazilians at the Itaquerao stadium, where the opening game was played, red-faced.
It was also hugely symbolic.
Like the embarrassing own goal, Brazil's hosting of the world's most popular sporting event has been plagued by fiascos too. The beautiful game has long been an opiate for the masses in the largest South American country. Retired Brazilian footballer Pele is revered almost as a saint and today the country's star striker Neymar da Silva Santos Junior is among the most recognisable football players on the planet.
But instead of rejoicing at playing host, waves of anger have coloured the world event so far.
Protests and violence have erupted across the country, with teachers, transport workers and regular citizens joining in the strikes against the government for hosting the World Cup.
Reports of exorbitant spending on the new stadiums and the eviction of thousands of poor families to make way for new football facilities have dominated international media coverage of the event.
A survey by American research organisation Pew Research showed that six in 10 Brazilians think hosting the World Cup is bad for their country's economy.
They are right. In fact, economic studies have shown that, with a few exceptions, the hosting of a mega sporting event has resulted in losses rather than full pockets.
SPORTS today is as much about business and money as it is about people and passion. In the case of mega sporting events such as the Fifa World Cup and Olympic Games, the money runs into billions of dollars. The Olympic brand alone is valued at close to US$47 billion (S$59 billion), according to research firm Brand Finance.
Likewise, football is also deep in the money. Fifa estimates that the television rights to the World Cup will bring in nearly US$1.85 billion. In total, Brazil will net Fifa US$4 billion in revenues, close to what the last World Cup, in South Africa, brought to the world football body.
That's not all. In terms of economic benefits to the host country, the Brazilian government has been trumpeting the event's huge positive impact. Brazil's tourism minister, Mr Vinicius Lages, has said the World Cup will add US$13.6 billion to the economy this year.
He added in an interview with Agence France-Presse: "The Cup is not an economic panacea but a catalyst for Brazilian development. It was a key factor behind Brazil finally overhauling its infrastructure."
A separate report by Ernst & Young Terco said the event "should generate 3.63 million jobs a year and R$63.48 billion (S$35.47 billion) income for the population in the period 2010 to 2014, besides an additional R$18.13 billion in tax collections."
The media coverage of the sporting event, broadcast to billions around the world, is also a huge incentive. When China hosted the Beijing Olympics in 2006, and spent an estimated US$20 billion on the spectacle, many analysts said it was a show of influence rather than sporting prowess. Likewise, for Brazil, the World Cup was meant to be a coming-out party for the seventh largest economy in the world. Measured by these standards, the cost of US$11 billion might appear well-justified.
Mega sports, mega costs
BUT what is often missed is that these are simply forecasts, made with a large dose of optimism and by the very people who were already supporters of the event.
Independent analyses of the impact of mega events on countries and economies paint a very different picture. Economists have shown that in most cases, hosting mega sports events is likely to result in large economic losses.
In a 2008 paper which evaluated the potential of another US bid to host the next World Cup, University of Maryland sports economist Dennis Coates argued that instead of a boon, it would cost the economy billions.
"There is no evidence that the benefits promised by event organisers have ever materialised," wrote Professor Coates. He noted that in the case of the 1994 World Cup hosted by the US, the predicted benefit, according to a commercial research agency called Aecom, was US$4 billion for the country.
Instead, a post-event study by two sports economists - Lake Forest College economics professor Robert Baade and associate professor of economics at the College of the Holy Cross Victor Matheson - published in 2004 found the opposite was true.
The paper said "the average host city experienced a reduction in income of US$712 million relative to predictions", resulting in an overall negative impact on the host city to the tune of some US$9.26 billion.
This was based on a time-series analysis which predicted the income growth of each city involved in the 1994 World Cup, as if they did not host the event.
They then compared their model to the actual growth and found that overall, a net loss was recorded, largely due to falls in non-football related tourism.
To be fair, the benefits are real. But the problem is that many governments over-state their value.
Employment does go up when host cities build new infrastructure such as stadiums and hotels.
But such spikes in job creation are most likely to be temporary, noted Dr Baade, in a separate paper that studied the economic effects of the Olympics on Los Angeles in 1984 and Atlanta in 1996.
Similarly, while consumption and the number of tourists do rise during mega events, not all of the increase is due to the event.
Dr Matheson, in an interview with the New York Times in 2009, noted that when Salt Lake City hosted the Winter Olympics, many of the restaurants were full. This gave the impression that tourism was up.
But what was not covered in the media is that tourist spots not related to the event, such as department stores, saw their business fall as other non-sport tourists stayed away from the city.
"Overall, economic activity in the region actually fell during the Olympics," he said. "Economists generally find that local organisers and sports boosters routinely exaggerate the benefits and underestimate the costs of hosting major events such as the Olympics."
What about the purported media attention that is supposed to raise the profile of the city? This is where it gets fuzzy. It is extremely difficult to measure prestige or standing.
Economists have tried to measure this by using proxies such as advertising value but estimations have fluctuated, depending on the assumptions about how long such effects last.
As such, in conventional costs and benefit analysis, this is usually ignored. On the flip side, economists also point out that external costs are often not calculated when politicians tout the benefits of hosting the event. These include everything from noise and environmental pollution to traffic congestion.
Lessons for Singapore
SINGAPORE too has its own mega sport event hosting experience. It hosted the Youth Olympic Games (YOG) in 2010 and still hosts the Formula One race every year.
Initial estimates in 2007 put the cost of the YOG at about US$75.5 million; it eventually tallied up to $387 million in 2010.
Then Community, Sports and Youth Minister Vivian Balakrishnan defended the expenditure by stating that hosting the inaugural YOG would create a permanent legacy for Singapore in the international community.
"The next time anyone is making an investment decision, or are trying to decide where to site an international or regional headquarters, or deciding to expand their businesses overseas, they would have heard of or they may have visited us, and they would know that we stand for certain quality and reliability," he said then.
Singapore now has its eyes set on the Fifa World Youth Cup in 2019, with Football Association of Singapore president Zainudin Nordin revealing last September that it is in the midst of discussions to hold the event in the country.
It would be a fantastic opportunity to show off the spanking new Sports Hub, built at a cost of $1.33 billion, and hopefully ignite the passions of young footballers in Singapore.
History has shown that in pure economic terms, it is hard to justify the enormous price tag associated with such events.
The YOG has also demonstrated that despite one's best efforts, costs can spiral.
So unless Singapore is prepared to pay a premium for prestige and branding, or unless organisers here are very confident they can keep costs in check, it would be wise to proceed with caution.