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The paper analyses hosting mega-events beyond the borders of sport events. The paper clearly defines the terminology of mega-mega events. It is imperative for hosting country to understand true cost-benefit analysis of hosting international mega-event. For that reason the paper describes the importance of the impact of mega-events on host countries and the current international methodologies that used to evaluate or monetize the impact of such mega-events. The paper also outlines hot debate topic among almost all scholars as to whether it is worth to host mega-events or not, by explaining arguments for and arguments against hosting mega-events by introducing winner’s curse in hosting mega-events.
Furthermore, the paper explores how hosting mega-events by developing and developed countries differ from each other from economic impact perspective. In the second part of the paper, the author describes economic and political implications of mega-events on Azerbaijan. Paper argues that, it could be useful for Azerbaijan to continue to host comparable small scale mega-events as they require relatively small-sized investments on infrastructure which Azerbaijan already established during last years though hosting numbers of mega-events.
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Also, it is advisable for Azerbaijan to invest more on general infrastructure than specialized infrastructure. It will boost long-term impact of mega-events and increase total economic impact.
Sport is huge industry with its health and social aspects. Sport is good for health, it is preasurable and amusing. But it is not enough to massively spread around the world. Sport is also a socializing instrument and the rapid spread of mass communication instruments.
For that reason, sport became an interesting to the parties besides from sportsmen and clubs.
Countries might see the sports as an ideological, social and political propaganda instrument. In addition to this, they are aspiring for various national and international sports events in or-der to obtain financial income and to revive the tourism by promoting their countries (Yildiz, 2010:7). Nowadays, sport events can be a fueling factor for economic and urban development. There are different definition of mega-events in different literatures. For example, Richie and Brent (1984) describe such events as “major one-time or recurring events of limited duration, developed primarily to enhance awareness, appeal and profitability of a tourism destination”.
Bidder countries consider mega-events as a investment. Governments spend hundred millions of dollar investment to host a mega-event by assuming to get even more return on investment. Government consider the amount spend for hosting mega-events as investment, not expenditure. As they spend huge amount of money, it is very crucial for governments to understand true impact or return on the money invested to host mega-events. The major approach considered to evaluate Economic Impact is Input-Output approach. Input-Output approach divided into direct, indirect and long-term impacts.
The direct impact is the change in sales in the industries directly providing goods and services to the event guests and participants (e.g., hotels, restaurants, transportation, etc.). The calculation of the direct impact was based on the behaviour of key stakeholder groups: spectators, participants, and event organizers. These individuals used hotels, restaurants, and transportation, purchased goods and services from other suppliers, as well as did sightseeing around the city. While the indirect economic impact calculation was based on the degree to which the behaviour of key stakeholders affected the surrounding economic environment.
Direct Impact=Expenditure by Participants and Spectators×Local Economic Multipliers
The indirect impact was calculated based on an input-output (I-O) model (a mathematical model that describes the flow of money between industries within an economy, and based on which Type I multipliers can be calculated. These multipliers provide information about the change in sales for industries down the value chain, caused by a USD 1.00 change in demand in a specific industry).
An input-output table for Azerbaijan was taken from the Eora MRIO database*. Based on this table, we calculated Type I multipliers using the following formulas:
X=(I-A)(-1),
where (I-A)(-1) – the Leontief inverse matrix,
I – the nxn identity matrix (n=25 industries),
I – the nxn transformed matrix (n=25 industries),
X – the nxn matrix of industry output (n=25 industries)
2. Xj =∑iⁿxij,
where i – the supplying industry, j – the receiving industry, Xj – Type I multipliers.
The indirect impact was calculated based on the following formula:
Indirect impact = Direct impact * Type I multiplier – Direct Impact
For example, city X attracts an additional 1,000 delegates, each spending USD 30 per day, for a total of USD 30,000 in new spending per day. If the delegates stay six days, the city will accumulate USD 180,000 in new sales. This USD 180,000 would be distributed among the hotel, restaurant, social, transport, and retail trade sectors in proportion to how individual delegates spend their USD 30. These industries then buy goods and services from other local businesses, which creates an indirect impact.
The induced impact can be calculated as the change in economic activity in the region resulting from employees spending income earned through the direct or indirect impact of spending by Formula 1 Grand Prix™ guests or organizers. For example, hotel employees spend their income on housing, food, education, and other goods and services. However, because the Formula 1 Grand Prix™ is a short-term event, restaurants, hotels, and shops are unlikely to hire additional employees or pay them additional money for work related to the Formula 1 Grand Prix™. Therefore, we have not included this type of impact in our study.
The long-term impact was considered separately and was not included in the calculation of economic impact, because it would be inappropriate to attribute expenditures on improving transport infrastructure and similar objectives solely to hosting the Formula 1 Grand Prix™. The construction of such facilities is aimed at meeting broader objectives for improving the quality of transport services for city residents. Moreover, the benefits from such construction projects are felt over a much longer period than those derived from Formula 1 Grand Prix™-related operational expenditures.
There are mixed view in the academic literature about the net outcome of hosting mega events. Some scholars argue that it worth to host mega events because they are economically, socially and politically benefical, while others believe that real and opportunity costs of hosting mega events outweight its benefits and those benefits are only short-term, temporary benefits such as increase in employment, trade and tourism.
First of all, hosting huge mega-events is prestige for home country. Hosting mega-events strategically important, because is highlights global image of the country, attracts huge investments and leads to improvement in labor market by creation of new jobs (may be temporary or permanent). Among these, the economic value that could potentially accrue to the city or country is the most commonly used rationale for gathering public backing for these events (Tien et al, 2011).
Mega-events, if successful, can potentially lead to “long-term positive consequences in terms of tourism, industrial relocation, and inward investment” (Roche, 1994). Long-term impact can be newly constructed event facilities and infrastructure, improved international reputation, increased tourism, urban revival, as well as inreased employment rate, enhanced public welfare as well as local business opportunities. For example, Athene Olympics resulted a loss and huge debt burden for the city, however subway system was increased by 174 % and 90 km bus and tram was was build within the city and a 67 km highway which is serving to 250 thousand cars was built due to the olympics.
Mega events also impact financial markets of the host country. Observations shows that host country’s currency tends to appreciate during the mega event times. Hot money flows enters to the country and the country increases its FX reserves.
Not only FX market, but also stock markets are positively effected by hosting mega events. ). In a study by Veraros et al (2004), it was found that there was a significantly positive effect on the Athens, Greece stock exchange in general as well as infrastructure-related industries in particular upon the announcement of Athens’ successful bid to host the 2004 Games. In a similar study, Dick and Wang (2008) found a significant and positive announcement effect of hosting the Summer Games, with a cumulative abnormal return of about 2% over the course of a few days. Research results shows that small economies have greater abnormal return due to hosting mega-events.
Bidding a mega-event is an auction-like procedure and sometimes it can turn out to trigger a winner's curse. The winner's curse concept is the unexpected low returns on investments for organizers that engaged in competitive bidding with very high a price. This concept first used in oil and gas sector and later used for all the different auction-like bidding events.
In the sports economy, a winner's curse may occur in different ways. One of the frequent occurrence of winner’s curse occurs for bidding for hosting a mega-sporting event which nearly always comes out with cost overruns for the winner (Andreff, 2012).
Mega events create additional demand in the economy. Thousands of visitors spend several days in the country. Effects of visitors total spending in the host city create additional demand for the economy. This additional demand may “crowd out” prices in the economy and lead to price increase in the economy which may harm to residents.
Cost of hosting mega-events is extremely high. As an example, 1948 London Games cost around 30 million USD in today’s dollars. Moreover, 2008 Beijing Games and Sochi Winter Games cost roughly around 40 billion USD and 50 billion USD, respectively. Requirement of mega-event orginizing bodies boost this investment. For example, FIFA, organizing body of World Cup, requires every host country to have minimum ten modern stadiums with quite high seating capacities (around forty thousand to sixty thousand). This requirement forced South Korea to spend 2 billion USD for constructing ten new stadiums with determined standards. Also, Japan allocated 4 billion USD for building ten stadiums. The main point here is that developed countries to some extent has already established infrastructure. The financial burden lies on developing host countries, where almost all the required infrastructure must be constructed which is huge and risky investment.
Another critic that frequently cited by scholars is exaggerated multipliers used to evaluate economic impact of mega-event. This exaggerated multiplier overstate true economic impact of the mega-event. Matheson (2002) states that beyond theoretical reasons to the contrary, ex-ante estimates of economic benefits far exceed the ex-post observed economic developments of host communities following mega-events. Moreover, the funding being devoted to subsidizing an event is very likely to be misallocated (Dwyer et al, 2005). In most cases critics argue that it is not a good idea to use scarce tax revenues to the event from which the return is not guaranteed. In some cases, when the games are over, the host cities left with massive debt and little lasting economic benefit.
Like benefits of mega-events, some costs of hosting mega-events are non-quantifiable. Scholars state that in addition to required infrastructure, hosting mega events require additional public transportation, public safety and sanitation. Non-quantifiable costs include traffic jams, vandalism, disruption of residents’ lifestyle and environmental degradation. For example, there are great concerns in many communities regarding hosting F1 Grand Prix. People consider that F1 Grand Prix pollute the environment. In addition, mega-events could serve to exacerbate social problems and deepen existing divides among residents (Ruthheiser, 2000).
All the nations, both developing and developed, in the world, is highly amtious to host a mega-event such as World Cup or Olympics with the expectation of receiving great monetary and non-monetary returns. However, past track of experience has clearly demonstrated that in some cases hosting countries falled short of expectation of hosting mega-events.
Analysis show that experience of hosting mega-event is different between industrialized, developed and developing countires and success story of hosting the mega event depends on the economic development stage of hosting country. Some scholars thinks that real return of hosting mega-events is not high for developing nations because opportunity-cost of establishing modern infrastructure for one-time temporary event is very high, and the resources can be allocated to more efficient ways. One of the obvious example is Brasil which hosted soccer World Cup during the summer of 2014 and the Olympics during the summer of 2016.
Actually, Brasil was one of the best places to be selected for host country due to its social and economic potential, natural beauty and growing importance. However, Brasil could not turn this excellent opportunity to real return. Brasil made a huge investments in several years to built up modern infrastructure. However, misappropriation, misuse of the funds and physical structures, fraud and waste before, during and after the events resulted huge costs for Brasil. The investments on dormitories, training facilities, stadiums and other structures just wasted never being used again after the events are over. Brasil, as a result, lost billions of dollars to host those mega events. However, there are also many success stories of the countries that hosted maga events and not only generated .
The analysis underscores the complex calculus involved in deciding to host mega-events. While the potential for significant economic and social benefits exists, the risks and costs cannot be overlooked. For Azerbaijan, a strategic approach focusing on smaller scale events and infrastructural investments may offer a path to maximizing the benefits of mega-events.
Evaluating the Economic and Social Impacts of Hosting Mega-Events. (2024, Feb 17). Retrieved from https://studymoose.com/document/evaluating-the-economic-and-social-impacts-of-hosting-mega-events
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