- The Curse of Good Hospitality:Why Developing Countries Shouldn't Host International Sporting Events
Every few years, governments spend millions to craft bids for a chance to host the Olympics or the World Cup. As Rose and Speigel point out in "Do Mega Sporting Events Promote International Trade?," the desire to host these mega sporting events is widely held. The international prestige and publicity is alluring, and a successful bid provides governments the prospect of increased tourist inflows and employment, as well as easy justification for heavy spending on infrastructure improvements. In the past, many Olympic and World Cup host cities have enjoyed millions in tourism revenues and generally have fetched a slight net profit.
Lessons From the Past
Barcelona's 1992 Olympic Games, in particular, left a dramatic economic legacy still coveted by host country hopefuls. "The Barcelona Effect" created over 20,000 permanent jobs, a four-year construction boom, and significantly enhanced regional infrastructure. From 1986 to 2000 alone, international visitors to Spain doubled. Spain's use of pre-existing facilities and prudent budgeting were key to these returns. Of the total budget, commercial investors footed a hefty 60 percent, and just 9.1 percent was put towards new sports facilities. The rest went to infrastructure improvements in Barcelona and other sub-host cities and included new roads, sewage systems, and development of tourist areas, ensuring long-lasting economic benefit to Spain.1
Regrettably, these events are not always so well managed. In preparation for the 1976 Summer Olympics in Montreal, the local government financed the construction of a new stadium, Olympic village, and other sports recreation facilities. Labor strikes and construction delays caused total expenditures to balloon to double the projected cost, and left taxpayers with US$1.5 billion in Olympic debt that took thirty years to pay off.2 The 2004 Athens Olympic Games were a similar story. Although the Greek [End Page 99] capital benefited from some transportation upgrades, the cost of constructing multiple new stadiums and arenas pushed actual expenses to double the initial budget forecast. Of the nearly nine billion Euros spent on the Olympics, 80 percent was footed by the Greek government and less than 15 percent of the total budget was spent on infrastructure. The games left Athens saddled with increased public sector debt of 5 percent of GDP, and a cost of a hundred million Euros per year to maintain their new, unused facilities.3, 4
All eyes are now on Brazil, Russia, and Qatar, who are making preparations to host the World Cup in 2014, 2018, and 2022, respectively. Rio de Janeiro was also chosen to host the 2016 Summer Olympics. For Brazil and Russia, the games are part of a development-focused strategy. Both countries desperately need updated internal infrastructure in order to help their producers compete abroad, and see the games as an opportunity to make major improvements. Inadequate education and health services are also major constraints for both.5 But, how will hosting international sporting events address these problems? In preparation for the World Cup, Russia will build sixteen new stadiums in thirteen cities, as well as new budget hotels to accommodate Cup-goers. Current estimates put Russia's total World Cup investment at US$30 billion, with at least half funded from government coffers. Brazil will build at least five stadiums, and renovate six. Brasilia estimates the total cost will be US$13 billion, with just US$6.5 billion dedicated to infrastructure improvements. For Russia and Brazil, the prospects of achieving an operating profit from the games look dim. For both, at least half of government spending will be squandered on new stadiums, which, like the Athens Olympics, will likely leave both with an albatross of high debt and sustained stadium maintenance costs.6, 7
For hydrocarbon-rich Qatar, which boasts a GDP per capita of nearly US$60,000, high literacy rates, and free education and health care for all citizens, the World Cup is more of a marketing tool to lure investment than a development strategy. For the Qataris, the costs seem irrelevant. Doha will build twelve new (allegedly carbon-neutral) stadiums that will flaunt solar...