By Robert S. Benchley
The 2014 World Cup put Brazil in the global media spotlight, with more than three billion viewers tuning in to watch the games. All that attention, however, came at an enormous financial cost to the country. The final bill for stadium construction, infrastructure improvements, and other related expenses is expected to total $14 billion—about triple what South Africa paid just four years ago—making it the most expensive World Cup yet.
Despite that record-setting investment, some of the work remained unfinished as the matches began. Now, with the TV cameras gone, it may never be completed. Furious over cost overruns and accusations of corruption, thousands of Brazilians rioted in the streets months before the first kick. They believed the money could have been better spent on hospitals, schools, and housing for the country’s thirty-six million poor.
Aldo Rebelo, Brazil’s minister of sport, claimed the World Cup would leave a “lasting legacy of economic growth.” Not everyone agrees with that view, including UT economists J. Scott Holladay and Georg Schaur from the Haslam College of Business. Both have analyzed the financial consequences of hosting sports mega-events such as the World Cup and the Olympic Games. Both found the events to range from disappointing to disastrous as economic investments.
Schaur, a trade expert who played soccer while growing up in Germany—“not very well, but with a lot of passion,” he quipped—suggests that the potential benefits are limited.
“It is difficult to give advice about what hosting nations or locations should do,” he said. “The best picture I can paint is that they may see a short-term increase in trade. But factors other than economics may be more important in determining whether you want to host a mega-event. A key consideration is how you will use the facilities and infrastructure you have built going into the future.”
The numbers for the Olympics are even more staggering. Although the actual total will probably never be known outside the Kremlin, the cost of the 2014 Winter Olympics in Sochi is rumored to have been in excess of $50 billion. That would make it the most expensive Olympics ever—costing about 25 percent more than the $40 billion spent on the much larger 2008 Summer Olympics in Beijing.
“Hosting the Olympic Games can be a great source of pride for a city, but it is unlikely to pay off financially,” says Holladay, who co-authored a 2010 study entitled “Should Cities Go for the Gold? The Long-Term Impacts of Hosting the Olympics.” His research compared the economic histories of cities selected as an Olympic host between 1950 and 2005 against nonwinning cities. For the most part, there wasn’t much difference in the eventual outcome.
“Host cities tend to grow quickly after the Olympics, but the games are awarded to fast-growing, well-organized cities,” Holladay said. “Other cities that bid and don’t win the games usually grow just as quickly. This suggests that hosting the games doesn’t have a big long-term impact on the local economy.”
Historically, Olympic cities have often faced financial adversity—starting with the first Olympiad of the modern era, hosted by Athens in 1896. Greece was already bankrupt, but the royal family of the time thought hosting the games would increase their popularity. The actual cost was nearly six times the amount budgeted. Thus began a tradition of economic overspending to achieve noneconomic gains.
Holladay notes a more recent boondoggle. The 1976 Montreal Winter Olympics lost $1 billion on a budget of $207 million. It took thirty years to pay off the debt, with the final total, counting interest, reaching $3 billion.
“Cities that need to invest in building venues seem to do worse,” he explained. “Montreal was such a financial disaster that the number of cities bidding to host fell off dramatically. By contrast, cities that have a lot of the venues already in place tend to do relatively well. Los Angeles did well financially (a profit of $250 million), and the number of bid cities crept back up after the 1984 games.”
Holladay also cites Atlanta, which hosted the 1996 Summer Olympics, as an example of a city that made smart investments—improving the airport, expanding Interstates 75 and 85, and upgrading its MARTA railway system.
“Those investments are still paying off because Atlanta residents are still using them,” Holladay said. “It’s the kind of investment strategy that benefits citizens more than sporting centers that will go unused after the games.”
Holladay suggests true hosting success comes down to having realistic expectations and realizing that the benefits, if any, will be long-term and relate to the city’s overall quality of life. “As long as everyone involved understands that, bidding for the Olympics can be a good idea,” he said.