What should you pay to host a party? An economic analysis of hosting sports mega-events

Abstract

Governments all over the world put huge amounts of money into bidding for, and then hosting, sports events like Football's World Cup or the Olympic Games. They also give money to professional sports teams and other mega-events to encourage them to locate within a particular constituency. This article examines the statistical relationship between tourism and three Football World Cups and five Olympic Games, finding very little positive effect. Given this conclusion, the article looks at why governments continue to bid for these competitions. It presents evidence that shows that these sports contests make people happy, and argues that politicians capitalize on this feel-good factor; harnessing the hubris associated with these events for political gain. The article then contends that the best way to reduce the politics associated with bidding for mega-events is to allocate them via an auction, rather than the wasteful rent-seeking methods that are currently used.

The Olympic Games as a News Shock

“…Analyzing the Olympic Games from 1960 to 2012, Rose and Spiegel (2011) suggest a permanent export boost of 39% in Olympic host countries; however, Maennig and Richter (2012) demonstrate that these empirical findings suffer from selection bias. 1 Testing the effects of the Olympic Games in Seoul in 1988, Barcelona in 1992, Sydney in 2000, and Beijing in 2008 on tourism and foreign exchange earnings with an autoregressive integrated moving average (ARIMA) model, Mitchell and Steward (2015) exclusively find negative Olympic impacts for the host countries, with the exception of a positive level shift of tourist numbers for South Korea. 2…”

Major events as catalysts for tourism

“…Extra domestic expenditure (for example on infrastructure or by residents attending the events) will be compensated by less spending elsewhere in the economy, either simultaneously or later. Therefore, increased national expenditure (be it public or private) will generally not increase GDP (Mitchell and Stewart, 2015).…”

The Private Benefit of Public Funding: The FIFA World Cup, UEFA European Championship, and Attendance at Host Country League Soccer

“…While there are, potentially, nonpecuniary benefits such as the feel-good factor (see, e.g., Dolan et al, 2019), the public discourse has historically tended to emphasize the pecuniary benefits (see, e.g., Mitchell & Stewart, 2015). Hosting of these events typically involves a large public subsidy and a government guarantee to meet all cost overruns.…”