Impact of Hosting Mega Events on Regional Economy

 
 
Influence of Sport Mega Events
on the Economy of a Region
Alex Krumer- University of St. Gallen
17/11/2017
 
 
 
What are possible gains of hosting a Mega-
Event?
General infrastructure that are politically difficult to provide
without the strict deadline of an opening ceremony (roads,
airports, etc.).
An increased number of tourists after the event.
Promotion of a higher sports participation (health).
New stadiums.
Signal to investors that a country is ready to welcome foreign
investments.
“Putting a country on the map” (politically and economically).
 
 
What are possible gains of hosting a Mega-
Event?
But:
There are no gains without (large) investment
!!!
 
 
General infrastructure
Many hosts of mega-events 
are able to use their hosting as a
catalyst to make investments that would not necessarily be
available to them at other times.
Roads, hotels, redevelopment of old or unused buildings,
increased security.
The potential benefits 
from investments in a city’s infrastructure
for the hosting of a mega-event make it difficult to judge the
financial success of hosting such an event.
These costs can contribute to the host ex post for as long as
fifty years after the event has taken place (Gratton et al., 2006,
Soc Rev
)
 
 
Tourism
For example, Peeters, Matheson and Szymanski (2014, 
J Afr
Econ
)  investigated the effect of the 2010 FIFA World Cup on
tourism in South Africa.
The authors found 
a substantial increase of around 220,000
visitors from non-Southern African Development Community
(SADC) countries during the event.
Taking into account the possible dynamic and legacy effects
over the following months and years, this number increases to
around 300,000 extra arrivals (the initial prediction was 483,000
visitors).
 
 
Tourism
The 
2010 FIFA World Cup 
entailed $3.9 billion in expenses
borne by South Africa ($1.3 billion in stadium construction
costs) (Du Plessis and Maenning, 2011, 
Development Southern
Africa
).
This 
implies that South Africa spent more than $13,000 per
visitor.
Even when the authors take a very conservative 
view and only
consider the cost of stadium construction, the estimates still
point to a cost of over $4,400 per additional non-SADC 
visitor.
But obviously, what matters is that there will be a sustainable
growth.
 
 
Tourism
 
 
Tourism
Mitchell and Stewart (2015, 
App Econ
) investigated the impact
of several mega-events on tourism over a longer period of time.
Olympic Games (Seoul 1988, Barcelona 1992, Sydney 2000,
Athens 2004 and Beijing 2008)
FIFA World Cup (France 1998, Japan and South Korea 2002,
Germany 2006)
They also compared these countries to the most similar
countries as possible over the same period of time
.
They
 
found
 a 
very little 
positive impact from these events.
 
 
Tourism
The Beijing 
Olympics did not seem to have any effect on
Chinese tourism (but still higher compared to India over the
same period of time).
The Seoul 1988 Olympics showed a significant 
increase in
tourism.
There is no evidence of any changes for either Australia (2000)
or Spain (1992).
For the 1998 
French World Cup, where they looked at tourist
prices, there was a significant increase in the trend after the
event but this was cancelled out by a decrease in the 
intercept
(
while the comparable country of Germany was not significantly
affected).
 
 
Tourism
The World 
Cup in Germany (2006) showed a significant
increase in hotel stays for the first month in which matches
(mostly the group stage) were held, but not 
the second
(knockout stage).
However, France showed a 
significant increase in tourist prices
during the second 
month.
For the 2002 World Cup, held jointly by Japan and South
Korea, there was a significant increase in tourist numbers for
Japan during the event and a smaller, but still significant
decrease in 
South Korea.
 
 
Tourism
 
 
 
The effect of SARS outbreak (as example on
negative effect on tourism)
 
 
 
Higher sports participation
According to Veal, Toohey and Frawley (2012) there may have
been a positive effect on adult sports participation after 2000
Olympic Games.
Weed, Coren and Fiore (2009) 
argued that hosting Mega-
Events does not naturally lead to an increase in sporting
participation, and that the organizing committee should focus
on ways to ensure that this legacy does occur.
In their comprehensive review on 
developing a physical activity
and health legacy from the London 2012 Olympic Games, Weed,
Coren and Fiore ( 2009) provide additional results on the effect of
hosting Mega-Events on differennt social activities (sports
participation, crime, health indices, etc.).
 
 
Higher sports participation
Frawley and Cush (2011) showed an increase in registration in
Australian junior rugby following 2003 Rugby World Cup that
took place in Australia.
 
 
White elephants
One of the requirements of the organising committees is to
build big stadiums (30,000-40,000 or more).
In many cases such stadiums are 
labelled as unsustainable,
financially-burdening ‘white elephants’
.
Siegfried and Zimbalist (2000, 
J Econ Persp
) found no
statistically significant correlation between sports facility
construction and positive long-term economic development in
the USA.
 
 
White elephants
According to Siegfried and Zimbalist (2000, 
J Econ Persp
) there
are three 
criticisms of the economic impact of building new
stadiums
Substitution effect- spenders at the stadium would have spent
money elsewhere, implying that spending in the stadium is not in
addition to the normal levels of spending, but is merely replacing
spending that would otherwise be taking place elsewhere in the
economy.
Leakages
- money leaves the local economy. For example,
suppliers to the facility may be based outside of the area, while
large proportions of teams’ revenues are spent on salaries for their
athletes, who are unlikely to live in the local economic area.
Budgetary impact- 
spending by authorities on the stadiums are
often larger than the revenues gained. 
 
 
White elephants
Bason, Cook and Anagnostopoulos (2015) report that the Cape
Town stadium with the capacity of 55,000 seats had on average
6,258 spectators for 
home attendances during the 2014/15
season.
Only two major non-sports event took place there in 2015 (concert
by Michael Buble and British band One Direction).
Stadium is losing approx. 440,000 Euros p.a. in maintenance costs
alone (GDP per capita in South Africa is 4,523 Euros p.a.).
Similar situation occurs in Durban stadium 
with the capacity of
54,000 seats had on average 6,100 spectators for 
home
attendances during the 2014/15 season.
Only one major non-sports event took place there in 2015 (concert
by American artist Chris Brown)
 
 
Will Ekatirenburg Arena become another white
elephant?
The announced gross capacity of Ekatirenburg Arena
is 35,696 visitors (source: FIFA website).
Average attendance of FC Ural in the last 4.5 seasons
(including 9 matches of 2017-18 season) is only 7,437
visitors with only one match was sold out (the current
capacity is 13,000 seats) (source: transfermarkt
website)
 
 
Some thoughts
Russia is a large country extending across northern
Asia and Eastern Europe.
It is worthwhile to make an effort to participate in Asian
Cups (only clubs) in addition to the current participation
in the European Cups.
If the AFC (Asian Football Confederation) and the
UEFA (Union of European Football Associations)
agree, than it is possible to organise two separate
Russian leagues (Europe and Asia), such that each
league will send teams to the UEFA (Europe) and AFC
(Asia) club competitions.
 
 
Some thoughts
This step is likely to increase the participation of young
people in football.
This is likely to increase the number of tourists from
Asia (if Russian clubs qualify to the advanced stages of
the Asian cups).
This is likely to increase the usage of Ekatirenburg
Arena (more games? better performance?).
However, the usual question is whether this expansion
will be financed by public or private money?
 
 
Some thoughts
It is also worthwhile to advertise local unique places
during the World Cup that may attract foreign and
(probably mainly) Russian visitors.
For example, promotion of the local University during the
games.
Azov sea as an example.
The unique location as a border between Europe and Asia may
also be attractive for tourists (may be some tours during the
event).
 
 
Thank you!
 
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Hosting mega events can bring various benefits to a region, including improved infrastructure, increased tourism, higher sports participation, and signaling readiness for foreign investments. However, hosting such events also requires substantial investments and long-term planning to ensure sustainable growth. Research on events like the FIFA World Cup in South Africa shows both the potential for economic gains and the challenges of managing costs effectively.


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  1. Influence of Sport Mega Events on the Economy of a Region Alex Krumer- University of St. Gallen 17/11/2017

  2. What are possible gains of hosting a Mega- Event? General infrastructure that are politically difficult to provide without the strict deadline of an opening ceremony (roads, airports, etc.). An increased number of tourists after the event. Promotion of a higher sports participation (health). New stadiums. Signal to investors that a country is ready to welcome foreign investments. Putting a country on the map (politically and economically).

  3. What are possible gains of hosting a Mega- Event? But: There are no gains without (large) investment!!!

  4. General infrastructure Many hosts of mega-events are able to use their hosting as a catalyst to make investments that would not necessarily be available to them at other times. Roads, hotels, redevelopment increased security. of old or unused buildings, The potential benefits from investments in a city s infrastructure for the hosting of a mega-event make it difficult to judge the financial success of hosting such an event. These costs can contribute to the host ex post for as long as fifty years after the event has taken place (Gratton et al., 2006, Soc Rev)

  5. Tourism For example, Peeters, Matheson and Szymanski (2014, J Afr Econ) investigated the effect of the 2010 FIFA World Cup on tourism in South Africa. The authors found a substantial increase of around 220,000 visitors from non-Southern African Development Community (SADC) countries during the event. Taking into account the possible dynamic and legacy effects over the following months and years, this number increases to around 300,000 extra arrivals (the initial prediction was 483,000 visitors).

  6. Tourism The 2010 FIFA World Cup entailed $3.9 billion in expenses borne by South Africa ($1.3 billion in stadium construction costs) (Du Plessis and Maenning, 2011, Development Southern Africa). This implies that South Africa spent more than $13,000 per visitor. Even when the authors take a very conservative view and only consider the cost of stadium construction, the estimates still point to a cost of over $4,400 per additional non-SADC visitor. But obviously, what matters is that there will be a sustainable growth.

  7. Tourism

  8. Tourism Mitchell and Stewart (2015, App Econ) investigated the impact of several mega-events on tourism over a longer period of time. Olympic Games (Seoul 1988, Barcelona 1992, Sydney 2000, Athens 2004 and Beijing 2008) FIFA World Cup (France 1998, Japan and South Korea 2002, Germany 2006) They also compared these countries to the most similar countries as possible over the same period of time. They found a very little positive impact from these events.

  9. Tourism The Beijing Olympics did not seem to have any effect on Chinese tourism (but still higher compared to India over the same period of time). The Seoul 1988 Olympics showed a significant increase in tourism. There is no evidence of any changes for either Australia (2000) or Spain (1992). For the 1998 French World Cup, where they looked at tourist prices, there was a significant increase in the trend after the event but this was cancelled out by a decrease in the intercept (while the comparable country of Germany was not significantly affected).

  10. Tourism The World Cup in Germany (2006) showed a significant increase in hotel stays for the first month in which matches (mostly the group stage) were held, but not the second (knockout stage). However, France showed a significant increase in tourist prices during the second month. For the 2002 World Cup, held jointly by Japan and South Korea, there was a significant increase in tourist numbers for Japan during the event and a smaller, but still significant decrease in South Korea.

  11. Tourism

  12. The effect of SARS outbreak (as example on negative effect on tourism)

  13. Higher sports participation According to Veal, Toohey and Frawley (2012) there may have been a positive effect on adult sports participation after 2000 Olympic Games. Weed, Coren and Fiore (2009) argued that hosting Mega- Events does not naturally lead to an increase in sporting participation, and that the organizing committee should focus on ways to ensure that this legacy does occur. In their comprehensive review on developing a physical activity and health legacy from the London 2012 Olympic Games, Weed, Coren and Fiore ( 2009) provide additional results on the effect of hosting Mega-Events on differennt social activities (sports participation, crime, health indices, etc.).

  14. Higher sports participation Frawley and Cush (2011) showed an increase in registration in Australian junior rugby following 2003 Rugby World Cup that took place in Australia.

  15. White elephants One of the requirements of the organising committees is to build big stadiums (30,000-40,000 or more). In many cases such stadiums are labelled as unsustainable, financially-burdening white elephants . Siegfried and Zimbalist (2000, J Econ Persp) found no statistically significant correlation construction and positive long-term economic development in the USA. between sports facility

  16. White elephants According to Siegfried and Zimbalist (2000, J Econ Persp) there are three criticisms of the economic impact of building new stadiums Substitution effect- spenders at the stadium would have spent money elsewhere, implying that spending in the stadium is not in addition to the normal levels of spending, but is merely replacing spending that would otherwise be taking place elsewhere in the economy. Leakages- money leaves the local economy. For example, suppliers to the facility may be based outside of the area, while large proportions of teams revenues are spent on salaries for their athletes, who are unlikely to live in the local economic area. Budgetary impact- spending by authorities on the stadiums are often larger than the revenues gained.

  17. White elephants Bason, Cook and Anagnostopoulos (2015) report that the Cape Town stadium with the capacity of 55,000 seats had on average 6,258 spectators for home attendances during the 2014/15 season. Only two major non-sports event took place there in 2015 (concert by Michael Buble and British band One Direction). Stadium is losing approx. 440,000 Euros p.a. in maintenance costs alone (GDP per capita in South Africa is 4,523 Euros p.a.). Similar situation occurs in Durban stadium with the capacity of 54,000 seats had on average 6,100 spectators for home attendances during the 2014/15 season. Only one major non-sports event took place there in 2015 (concert by American artist Chris Brown)

  18. Will Ekatirenburg Arena become another white elephant? The announced gross capacity of Ekatirenburg Arena is 35,696 visitors (source: FIFA website). Average attendance of FC Ural in the last 4.5 seasons (including 9 matches of 2017-18 season) is only 7,437 visitors with only one match was sold out (the current capacity is 13,000 seats) website) (source: transfermarkt

  19. Some thoughts Russia is a large country extending across northern Asia and Eastern Europe. It is worthwhile to make an effort to participate in Asian Cups (only clubs) in addition to the current participation in the European Cups. If the AFC (Asian Football Confederation) and the UEFA (Union of European Football Associations) agree, than it is possible to organise two separate Russian leagues (Europe and Asia), such that each league will send teams to the UEFA (Europe) and AFC (Asia) club competitions.

  20. Some thoughts This step is likely to increase the participation of young people in football. This is likely to increase the number of tourists from Asia (if Russian clubs qualify to the advanced stages of the Asian cups). This is likely to increase the usage of Ekatirenburg Arena (more games? better performance?). However, the usual question is whether this expansion will be financed by public or private money?

  21. Some thoughts It is also worthwhile to advertise local unique places during the World Cup that may attract foreign and (probably mainly) Russian visitors. For example, promotion of the local University during the games. Azov sea as an example. The unique location as a border between Europe and Asia may also be attractive for tourists (may be some tours during the event).

  22. Thank you!

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