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From CWG in Delhi to Hockey World Cup in Rourkela: Do sports events benefit host cities?

A random sampling of 10 Olympics held between 1964 and 2008 found that tournaments did not correlate with any future GDP growth for the host nation, according to a Council on Foreign Relations report

Written by Mira Patel | Mumbai |
Updated: December 15, 2021 7:14:28 am
Olympics, commonwealth games, hockey world cup, hockey world cup 2023, rourkela, football world cup, qatar, russia, sports financing, host city, economics sportsCommonwealth Games in Delhi, 2010 (Reuters)

Odisha recently announced it would be investing Rs 650 crore in Rourkela as part of preparations to host the 2023 Hockey World Cup in the state. While a large chunk of this investment will go into constructing sporting venues, a significant amount will also be spent on infrastructure development.

However, historical evidence shows that hosting a major sporting tournament, and the preparations that entail it, don’t always have the desired effect on the host cities. According to Andrew Zimbalist, author of Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup, it may, in fact, have a detrimental impact. Zimbalist tells that “as a general proposition, the costs of major sporting events far exceed their benefits,” a notion that is “especially true in developing nations”. 

While very few countries that have hosted events like the Commonwealth Games, the Olympics, and the World Cup have seen a direct economic benefit correlated with the tournaments, some point to the intangible gains they elicit. Which is why AK Jain, the former Planning Commissioner for the Delhi Development Authority, says “the value of these events cannot be calculated in terms of profit or loss”. Additionally, there are several factors that determine the success or failure of a sporting event, all of which need to be taken into consideration when planning a tournament or preparing a bid for it.

How is the money spent?

In a research paper titled Going for Gold, sports economists Robert A. Baade and Victor A. Matheson detail the various financial outlays that hosts incur during tournaments. The first, they state, involves the general infrastructure required to accommodate the onslaught of athletes and tourists that descend upon the host city. The Olympics require host cities to have a minimum of 40,000 hotel rooms available to spectators and the construction of an Olympic Village capable of hosting 15,000 athletes. During the Olympics in Rio, the city, already a popular tourist destination, required the construction of over 15,000 new hotel rooms. Many of those facilities cease to be in demand after the event concludes. Following the 1994 Winter Olympics in Lillehammer, Norway, 40 percent of the town’s full-service hotels went bankrupt.

Olympic Stadium in Beijing, China (AP)

Baade and Matheson also note that tournaments require spending on specialised sporting infrastructure, with Zimbalist estimating that the Olympics require approximately 1,800 acres of land for sporting facilities alone. According to him, “these sort of investments are not conducive to economic development” as after the tournament, they are often unused and cities, in turn, are left with massive maintenance bills for decades to come.

Once the facilities are constructed, the hosts also need to account for operational costs, the chief of which is related to security. Zimbalist notes that major sporting events have increasingly become targets of terrorist attacks or other forms of violence and as a result, security costs often exceed USD 1 billion per event. This phenomenon is especially true in the post-9/11 era.

Another factor worth noting is the cost of submitting a bid in the first place. Cities routinely spend tens of millions of dollars and countless years preparing tournament bids, with some of them inevitably being rejected. Additionally, the actual costs of hosting usually significantly exceed the projected costs, without even factoring in the price of maintenance and the opportunity costs. This cost is often borne by the taxpayer, especially in developing economies.

Benefits to the local economy

According to a Council on Foreign Relations report, both the short- and long-term benefits of hosting major sporting tournaments are “at best exaggerated and at worst non-existent”.  A random sampling of 10 Olympics held between 1964 and 2008 found that tournaments did not correlate with any future GDP growth for the host nation. Economists have also found that the impact on tourism can be mixed, as crowding and higher prices deter many visitors. Boston’s National Bureau of Economic research, however, found that hosting has a positive impact on a country’s international trade, although subsequent studies have questioned the validity of those findings. Income from the tournaments also only covers a portion of the expenses.  

However, according to Jain, the net benefits are usually positive. He points to the 1982 Asian Games and the 2010 Commonwealth Games, both held in Delhi, as evidence of this. “In the 1970s and early 2000s, Delhi prioritised sporting development in order to prepare itself for the tournaments,” he says. “They introduced a competitive bidding process for the latter, and overall, did a very good job with both.” Jain notes that for the Commonwealth Games, a concentrated effort was made to prioritise infrastructure in depressed areas, financed almost entirely by the Delhi Development Authority (DDA). Jain states the DDA spent around Rs 3,000 per square foot of land developed (not including the cost of the land) and now that same land is valued at Rs 15,000 per square foot. “That’s a great return on investment,” he argues. He also notes that the Games had a huge impact on transforming the public perception of the DDA from being a body that primarily focuses on luxury development, to one that is in tune with the needs of the common man. According to Jain, most importantly, the Games inspired young athletes across the country, which is something that cannot be measured tangibly.

Zimbalist in contrast, rejects the argument. “If people have to point to intangible gains,” he states, “that probably means there aren’t any.” According to him, countries need to justify the exorbitant costs of hosting and have therefore created a narrative of economic gains. In reality he states, “there is no real short or long-term value associated with hosting a major tournament.” 

Variety of factors

While no country arguably sees a net return on investment, some fare better at hosting tournaments than others. For much of the 20th century, the Olympics were hosted in developed nations, most of which already had the existing infrastructure required to manage the influx of athletes, press and tourists. For developing nations or nations that don’t already have a sporting history (like Qatar with the 2022 world Cup), that burden is often considerably higher. According to Zimbalist, “the more underdeveloped a nation is, the more investment it requires.”

Al Thumama Stadium in Doha (AP)

However, as some experts have noted, many developing countries don’t care about breaking even. A 2009 study by Andrew Rose, an economist at Berkley, found that developing countries experience gains simply by bidding for tournaments. For China, India, and Qatar, hosting a tournament is less about the actual economics of it, and more about signalling to the world that they’re open to trade. In developing nations there is also more potential for job creation in the build up to the tournament as they typically have higher unemployment rates which benefit from the increased demand for jobs. 

Also worth factoring in, are questions surrounding where the money is deployed. Zimbalist states that the 2016 Rio Olympics in particular is one example of how not to plan for a major tournament. He says that in Rio, money was diverted towards improving transportation linkages in the richer neighbourhoods of the city where the Games were held. That investment, he states, “was misguided as the opportunity costs of not investing instead in the city’s downtown areas was too high and the gains from the infrastructure created didn’t justify the costs.” To make matters worse, one state auditor in Brazil found that the subway constructed for the Olympics was overbilled by at least 25 per cent. Today many of the facilities remain in a state of neglect and sit vacant since the games.

Barcelona, on the other hand, is an example of a city that maximised the financial impact of the Olympics. After the 1992 Olympics in Barcelona, one report found that the city had moved up on the ease of doing business rankings from the 11th best to the fourth best in Europe. The report notes that this was because Barcelona’s impeccable planning signalled to investors that it was prepared to become a global commercial hub. That planning includes the reclamation of more than two additional miles of sea facing public space and heavy investment into the city’s hospitality sector. London, for its construction of dynamic stadiums during the 2012 Olympics, is also frequently cited as a good example of planning. Many of the venues constructed or upgraded in London serve as multi-purpose arenas today.

The rise of sports-washing

The football World Cups in Russia and Qatar, along with the decision to host F1 races in Jeddah, are often cited as a by-product of the corruption that runs rampant within sporting bodies. It has also been called a case of sports-washing, wherein countries attempt to launder poor reputations through the lens of sport. This practice is not new. It dates back to the 1936 Berlin Olympics (known as the Nazi Olympics,) to the 1978 World Cup in military ruled Argentina to the 2010 World Cup in South Africa and most recently, to the 2022 Winter Olympics in Beijing.

The practice sometimes yields positive benefits, but, according to Zimbalist, more frequently, it draws attention to the city’s congestion, poor infrastructure, and questionable human rights records. Brazil received bad press related to its poor sanitation record in the build up to the Olympic games in Rio and Qatar currently faces widespread condemnation over its treatment of migrant workers leading up to the 2022 World Cup. Recently, the governments of the US, Australia, and Canada highlighted human rights abuses in China when they announced their intent to diplomatically boycott the 2022 Winter Olympics in Beijing over concerns surrounding China’s treatment of Uighur Muslims. This is part of the diplomatic games that politicians play according to Zimbalist and can tarnish the country’s reputation on the global stage but will unlikely lead to any significant changes in policy domestically.

The German Men’s national team wear shirts in protest of the 2022 World Cup in Qatar (AP)

Concerningly, the trend of hosting events in authoritarian states is on an upward trajectory.  Azerbaijan hosted the European Games in 2015 while Russia hosted both the 2014 Olympics and the 2018 World Cup. The only countries that were in contention to host the 2022 Winter Olympics were Kazakhstan and China, with the bid eventually going to the latter. This is because of two primary reasons. First, authoritarian regimes are more likely to want to sport-wash their reputations than developed nations. Second, and partially, consequently, the sports governing bodies are more likely to be able to throw their weight around with those nations.

In 2014, FIFA demanded that Brazil overturn its ban on drinking in stadiums, in preparation for the upcoming World Cup which was sponsored by Budweiser. A year before, the then-FIFA secretary general stated that “less democracy is sometimes better for organising a World Cup”. He continued by saying that in countries like Russia, authoritarian leaders like Vladimir Putin can take independent decisions, whereas in democracies like Germany, the process is far more cumbersome. Norway for its part dropped out of contention to host the 2020 Winter Olympics due to the excessive demands made by the Olympic Committee.

All of that being said, there are few alternatives that most would find acceptable. According to Zimbalist, one solution is to host logistically challenging tournaments like the Olympics and Commonwealth Games in one permanent location. For the World Cup, he recommends that the bids only go to countries which already have a legacy of domestic competition like the UK and France. For those nations, the costs of hosting a tournament would be much lower as the capacity already exists. With the current state of matters however, he is not optimistic. The hosting of sporting tournaments should be decided based on athletics and economics, he says, “instead, more often than not, it is based on politics.”

Further Reading

James McBride, The Economics of Hosting the Olympics, Council on Foreign Relations, 2018

Robert A. Baade and Victor A. Matheson, Going for Gold, American Economic Association 

Saaransh Mishra, Extortionate costs and the role of international sporting bodies, Observer Research Foundation, 2021

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