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Are major sporting events economically viable for host nation?
Many developing nations and developed nations often feel neglected when they are denied the chance to host international sporting events. Many of these nations assume that economic viability of hosting a sports event is a guarantee. However, research has shown that economic viability does not totally depend on getting the chance to host a sports event.
Andreff, W & Szyma%u0144ski, S 2006, Handbook of economics of sport, Edward Edgar Publishing.
Andreff & Szyma%u0144ski (2006) insist that sports economics have expanded and that the economic significance of sports in the past 30 years has been substantial. More and more countries want to participate in sporting events and this rising demand has led into a corresponding demand for sports broadcast among media houses. However, sports are more significant in Western Europe compared to other parts of the world and so are the economic impacts.
Sporting good also have much input to the economy since the global market for sports goods is estimated to be worth over 150 million sterling pounds with footwear taking the biggest share among the sporting goods. In terms of services delivered, it is estimated that global spending on services delivered during sporting events is worth over 18billion US dollars a year. The universal market for television rights is estimated to be worth over 50 billion sterling pounds per annum. Due to these aforementioned reasons, sporting activities are so much tied to economic development of the host country and the world at large.
At the level of the hosting nation, the sports industry is increasingly becoming vital. Europe during the 1970s showed a 0.5 percent ratio of overall sport expenditure to the total gross domestic product; this ratio increased over decades from 0.5% to 1.5% in the 1990s and it is currently close to 2% in many European countries. In the United States of America, professional sport facilities that came up between 1999 and the year 2003 are of an estimated worth of over 9 billion dollars. However, statistics show that developed nations fetch more when they host a sporting event compared to developing nations. It is estimated that in the European Union alone, sports employ over 2 million people; the UK leads with 222000 employees followed by France in which close to 100000 people are employed in the sports industry. Broadcasting right fees also show that developed nations are way ahead; Germany recorded over $841 million in broadcasting fees in 1998.
Donward, P, Dawson, A D 2009, The economics of sports: theory, policy and evidence, Butterworth-Heinemann.
Downward, Dawson & Dejonghe (2009) state that the link between economic and sports is truly subtle. However, the highest returns acquired from sports events are related to the magnitude of prizes imposed during a sporting event. Proceeds of a sporting event are tied to the quality of services dispensed by the sports event organizers. Therefore, having a single prize is the best option for the organizers of an event so as to better sports performance and the fiscal impacts of that sporting event. However, this is not the case in many sporting events; a range of prizes are offered because many event organizers attach more value to competition against other hosting partners and the fans rather than the fiscal impacts. However, multiple prizes are sometimes justified in cases where tournaments are unpredictable; participants would hardly agree to participate well in an event that they doubt their chances of winning; more prizes could mean more attendants and hence greater fiscal effects.
Apart from average prize paid, abilities of players participating in the sporting events also affect the economic validity of major sporting events. However, economic success of a sporting event is highly dependent on the effort spent. Therefore, cities and governments that are well prepared to host events in term of monetary effort are likely to reap better returns; for poor countries, hosting a sports event is a big burden. In Olympics for example, it is evident that preparedness causes monopoly; only cities which have a capacity to deliver are allowed to host Olympic events; there is a special committee that looks into the capacities of contending cities. In prepared cities, it is evident that hosting is connected to coverage of infrastructural expenses.
Gratton, C &Taylor, P 2000, Economics of sports and creation, Taylor & Francis.
According to Gratton and Taylor (2000), economic viability of sports can be measured in terms of the flow f services and goods within the country hosting a sporting event; this model includes issues such as money payments, wages, labor and sporting goods. The higher the expenditure in a sporting event the higher the returns to the hosting nation; developed nations invest more in sport and for this reason reap more because they are able to hold more participants. The culture of a country also matters a lot; for example, Britain spends more on gambling compared to Netherlands.
Economic viability of a sporting event is only applicable if these three areas are satisfactorily fulfilled: voluntary sector, economic activity, sports tourism and sports events. For years, sporting events have been of no fiscal value because when assessing the economic importance, many assumptions are put in place. Normally, income and expenditure are looked into but other aspects such as unpaid labor service are neglected yet they are very important in assessing the economic importance of that particular sporting event. In sports events, the larger number of people involved is spectators who are not involved in activities of the greatest economic importance which are accommodation, food and drink expenses.
Parks, J B, Quarterman, J & Thibault, J 2007, Contemporary sport management, Human Kinetics.
Parks, Quarterman & Thibault (2007) says that when local government and private developers try to raise money to build a stadium or host a sporting event, they always justify their projects by mentioning the future economic benefits that arise. But as history has proven over years especially in professional sporting events, over 70 percent of the spectators usually come from the hosting city and therefore according to the definition of a sports tourist, only 30 percent of the spectators benefit the economy in form of sports tourism. Therefore, the real picture of sports may not be a tourist attraction since people surveyed and economic estimates generated are usually inclusive of the locals who should not factor.
Sporting events are also associated with a displacement effect that involves avoidance of the hosting city and region by tourists who are the most valuable in pushing the economy forward during such an event. This implies that in case of a sporting event, neighboring countries may benefit even better than the hosting city or nation. Parks, Quarterman & Thibault (2007) confirm that regular tourism became weaker in Victoria in Columbia after it hosted Commonwealth Games in the year 1994. A similar finding indicates that the Olympic Games in Athens, Greece were injurious to the economy since tourism declined significantly for the three years that proceeded.
Toohey, K & Veal, AJ 2007, The Olympic games: a social science perspective, CABI.
According to Toohey and Veal (2007), staging a sporting event can be a big boost to the economy of the region or town that holds that event. Sporting events can generate considerable expenditures in both public and private dockets of the hosting nation and this has a positive effect on the economy. However, it is rather unfortunate sometimes because rather than the economy being impacted on positively, in some cases, significant fiscal costs may be experienced; these expenses are more often than not overlooked due to the pomp that overwhelms the sporting event. Toohey and Veal (2007) agree that many are the times that hosting countries have been left suffering after a sporting event due to large debts and non optimal use of infrastructure. Many hosting nations have in the past engaged in magnificent spending of public funds and this has had a negative impact on the economy of these particular nations; these occasions have always raised eyebrows since there is much doubt about how appropriate these funds are spent. In such occurrences, many fiscal questions come up with an analysis of the cost and expenditure showing little or no economic importance of the sporting event. Even with the full backing by the commercial sector, many at times governments have to borrow money from other nations to come up with adequate resources to host a sporting event.
Zimbalist, A 2001, The economics of sport, Volume 2, Edward Elgar Publishing.
According to Zimbalist (2001), sports have in the past had outstanding economic impact on hosting nations. In 1998 for example, out of the $8 trillion economy in the United States of America, the sports industry accounted for at least $17 billion of the total US economy. Though it was a small figure compared to the US gross domestic product, it was indeed a great achievement in the sports industry. However, recently things have changed and most economists who are experienced in the field of sports no longer view sports as a viable business to hosting countries and more so the hosting towns. The author stresses that according to economists, sporting event have turned into cartels which are disconnect profit oriented producers who team together so as to monopolize the whole idea of hosting a sporting event. For this reason, every sporting event limits the expected economic output and hence the numbers of permits are reduced as well. The repercussions behind this are: elevation of prices and return on investment above competition standards. This limiting practices have seen the number of economically viable cities that could wish to host a sporting event outnumber the number of teams or sporting events at stake. As a result, cities have always found themselves in situations whereby they compete in an unhealthy way by offering attractive subsidies so as to help retain the teams or event that they usually host. This pattern is bad as it leaves out the small nations or cities as their bigger counterparts continue enjoying the comfort of hosting multiple sporting events.
According to Zimbalist (2001), cultural significance of sporting events dominates over the economic significance of such events. In this regard, the television, radios, internet and other forms of media make these sporting events a central part of the society; sporting personalities get their fame and fortune from the culture impacted by these media houses. The meager economic viability is attributed to the fact that money is spent during the sports events is money that could be spent in other entertainment places in the hosting city. Much spending is also done outside the bracket of the hosting country or city and lastly, public subsidies for facility building and maintenance create a negative budgetary impact; this elevates the taxes or compromises service delivery and hence drags down the economy.
Albeit sports events have obvious benefits related to income and expenditure realized in the city or region hosting a sporting event, economic viability transcends income and expenditure. Additional factors such as unpaid remuneration, unutilized resources and borrowed money are also inclusive in the net effect of a sporting event on the economy. Therefore, developing countries may not reap any economic benefits like the developed countries.