Assessing major sporting events in emerging economies: the impact of the 2014 World Cup and 2016 Summer Olympics in Brazil

Barclay states that “the economic benefits of hosting mega-sporting events are often exaggerated. Ex-ante impact studies typically overestimate the gains and underestimate the costs involved. It is therefore difficult to explain in economic terms the intense competition among cities to hold such events” (2009: 62). It is commonly believed that hosting a big sporting event is beneficial in many ways to the host country as it generates jobs, tourism, investment opportunities and international prestige. For emerging economies, this would be a welcome boost to their respective international positions. Recent events in Brazil however, have shown that protesters get to the street. Unequal use of funding since it has been known that the country will be hosting both the 2014 World Cup and the 2016 Olympic Games, is their biggest complaint.

The effects of mega-events on host countries

So what are the reasons countries insist so much on hosting mega sporting events? The selection of host countries for mega-events is a highly political one. Aside from the perceived economic consequences, important factors in the decision are the expected reinforcement of the countries image in the international political arena, and it is also a political tool: hosting a big event can legitimize certain projects that improve neighborhoods, that would otherwise not have been approved or even explained (Barclay 2009: 65). Most of the speculation on the benefits of mega-events is however focused on economic consequences, and thus also the main item discussed in research on the topic.

Criticism on boosters’ predictions

The criticism on the predictions of the boost for the economy is centered in the idea that estimates are highly exaggerated, because of various factors that are not taken into account. First, the expected increase in spending could be ‘gross’ instead of ‘net’, because research done by boosters looks at expenses of persons that visit the events, but not at the decreased expenses by those that don’t, in order to avoid the busy area of the events’ venues (Baade 2004b: 345-346).

Second, the aforementioned factor affects “the ‘multiplier’, the notion that direct spending increases induce additional rounds of spending due to increased incomes that occur as a result of additional spending”. If mistakes are made in estimates of direct spending, numbers on indirect spending after receiving higher incomes, are also incorrect. Besides, leakage of these incomes can occur, if jobs are occupied by persons from elsewhere and when revenue of international hotels is repatriated (Baade 2004b: 346).

Third, the economy suffers consequences in other areas, because government spending is relocated in order to be able to invest in the organization of the mega-events (Siegfried 2000).

With a model that takes all the factors mentioned in these articles into account, different impact numbers are obtained. In the case of the US FIFA World Cup that Baade and Matheson studied in “The quest for the cup”, the cities involved on average experienced a reduction in income of $ 712 million in comparison to predictions made by boosters (2004b: 348). Many of the factors involved in these calculations are speculative and need room for doubt, but if mega-events were to be beneficial to host countries, the positive impact should be at least statistically significant, which it was not. The boosters, who are the organizers or sponsors of these events, are the ones that benefit economically, but not the cities.

Mega-events in developing countries

Effects for developing countries are of a specific nature, because some of the effects – both positive and negative – are specific to their economies. Some of the effects are specifically negative, as they increase the gap between costs and benefits compared to those in developed economies. The cost for infrastructure is higher as more needs to be developed. The relative costs for the construction of this infrastructure is higher (the construction of one stadium in Nigeria cost the same as the annual budget for health or education) while on top of that, after the event is over, it is used less.

The amount of tourists visiting the events is lower, because local citizens cannot afford tickets, while foreigners are often reluctant to visit due to (perceived) crime rates (Baade 2004a: 1091-3). The boosting of city areas in order to accommodate tourists from wealthier countries drives up prices and rent, and even leads to direct evictions, so that the people that were supposed to benefit from the event are forced to move. Estimates are that the Olympics for example, have displaced 2 million persons in the period between 1990 and 2010 (cohre.org). The question remains then, if the publicity countries receive when hosting a big event, is more important than the socioeconomic negative impact.