The cost of hosting the world: is hosting a global sporting event worthwhile?

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For years, studies have shown that holding mega sporting events, such as the Olympic Games, often has severe negative economic effects on host cities, despite the temporary burst of tourism and global attention.

Competition between cities often leads to a gross misappropriation of financial resources, merely in an attempt to win the Olympic bid.

Once construction begins, governments fail to budget properly, and once the games are over, the cost of maintaining infrastructure outweighs its actual benefit to society.

This is perhaps nowhere better epitomised than in Greece after the 2004 where the Athens Olympic Park symbolises the misplaced extravagance, desolation, and despair.

The 2004 Athens cost nearly $11 billion by current exchange rates – double the initial budget. In addition, that figure does not include major infrastructure projects – such as the new airport and metro system rushed to completion at inflated costs.

The host city was also pressured, mainly the US and the UK, to spend $1.2 billion on security alone because of fears over terrorism.

Within days of the closing ceremony, Greece warned the euro area that its public debt and deficit figures would be worse than expected.

At the end of 2004, Greece’s deficit came in at 6.1% of gross domestic product, more than double the euro-zone limit, while debt itself reached 110.6% of gross domestic product, the highest in the European Union.

As late as 2012, Greece’s debt was 165.3% of gross domestic product.

Greece became the first country in the EU to be placed under fiscal monitoring by the European Commission in 2005.

When we think of the Olympics, we often assume that it provides a massive economic boom to the local economy, but in reality the effect is negligible. The budget for the London 2012 was $9 billion, which in comparison to annual growth in the UK economy is the equivalent of approximately 0.7% of Gross domestic product. When expensed over the developmental period of five years, this has minimal effect on the country’s economy.

Stadiums remain relatively poor investments in the long-term, as they remain heavily under-utilised. It took the city of Montreal over 30 years to pay back the $6 billion in overspending from the 1976 Montreal Olympics, with little left to show of their legacy.

The Helliniko Olympic Complex in Athens today sits amid overgrown weeds, virtually deserted.

According to an analysis in the Wall Street Journal, 21 of the 22 stadiums erected in Athens were unoccupied in 2010.

Whilst the alone did not bring about an economic collapse in Greece, it would be hard to argue that it did not play a significant role.

After a period of austerity to stabilize its finances and qualify for euro entry in 2001, the games were just one of the several areas in which the Greek government exercised unchecked public spending funded by unsustainable borrowing.

Looking ahead, the world’s 6th largest economy, Brazil, is set to host the next two largest sporting events, the FIFA World Cup in 2014 and the Summer in 2016.

Brazil’s plans involve accelerating its post-1994 economic boom to transform the country from an emerging market into a developed economy. This would in turn enable Brazil to afford the estimated $1 trillion in public works spending to expand and develop infrastructure and generate 3.6 million short and long-term jobs.

However, mass protests erupting in the summer of 2013 on the streets of Rio de Janeiro encapsulate everything wrong with hosting large sporting events in Brazil, from wide spread government corruption to astounding levels of income inequality.

Construction costs have ballooned: updated projections say that the costs for building twelve new stadiums  (as opposed to eight by FIFA regulations) will exceed $3 billion in public funds, up from previous estimates of $1 billion.  Moreover, many of the transportation and infrastructure projects that were supposed to benefit Brazilians have been either cancelled or severely delayed.

While Brazil may never regain its massive investment in hosting the 2014 World Cup and the 2016 Olympics, by focusing on infrastructure improvements that will serve the country’s long-term economic development, making use of existing facilities, and fully involving local communities, it could evade the severe financial and political burden that Athens is still dealing with today.

Photograph: Anuncio Brasil

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