Theme 2 011211

Theme 2, Week 9 The economic impact of major sporting events: 

EC340 Topics in Applied Economics (a) Department of Economics University of Warwick Dr. Chris Doyle 1 December 2011 Theme 2, Week 9 The economic impact of major sporting events

Reading: 

Reading The Economics of Football 2nd Edition, CUP, 2011 Stephen Dobson, University of Hull John Goddard, University of Wales, Bangor

Structure of lecture: 

Structure of lecture Major sporting events Impact of sport De Nooij et al (2010) Problem with ex ante claims Economic impact studies of Olympics Stock market analysis Conclusion

Major Sporting Events: 

Major Sporting Events

Major Sporting Events: 

Major Sporting Events To determine winners and champions a sporting contest has natural monopoly characteristic Organisation tends to establish a single championship title (in a given class) Duplication of events is from an organisers viewpoint counter-productive (less profitable – examples in the recent past where sports have suffered due to competing federations are darts and boxing (four recognised federations)) – in other words competition across organisations is generally disliked by consumers Major events are organised to exploit the potential rents from natural monopoly According to Maennig W. and Du Plessis S. (2007 ) “World Cup 2010: South African Economic Perspectives And Policy Challenges Informed By The Experience Of Germany 2006”, Contemporary Economic Policy 25(4), 578-590: FIFA grossed $2.4bn in media and marketing rights and $0.2bn in VIP sales for 2006 WC in Germany FIFA expenses at $704m giving net gain of $1.9bn German football federation earned $80m mainly from ticket sales, but the public sector paid $120m in security and 40% of the $1.9bn stadia infrastructure upgrade was funded by the tax payer

Impact of Sport: 

Impact of Sport Sports estimated to make up 3% of GDP in OECD countries Gratton , C. & I.P. Henry (2001). Sport in the city: the role of sport in economic and social regeneration . London : Routledge. Scale of US sports industry was estimated at $152 billion in 1995 and ranked the 11th largest industry in the country Meek, A. (1997 ) “An Estimate of the Size and Supported Economic Activity of the Sports Industry in the United States” Sport Marketing Quarterly , 6, 15-22.

Impact: De Nooij et al (2010): 

Impact: De Nooij et al (2010) A social-cost benefit analysis of bidding for the World Cup in the Netherlands “Ex post analyses of major sporting events show that the benefits for the organizing countries are often greatly over-estimated in advance… Matheson (2006) even concludes that ex ante estimates of the benefits of major sporting events are “routinely” exaggerated by factors of up to ten.” “A major portion of the proceeds (e.g., tickets, broadcasting rights, marketing) goes to the organizing sports federation, while most of the costs are borne by the organizing country” “Nonetheless , there is fierce competition between candidate countries for the right to organize tournaments like the Olympic Games and the World Cup” “We demonstrate this paradox through a social cost-benefit analysis of holding the 2018 World Cup in the Netherlands and Belgium. The results show that national pride and pleasure come at a price” “Whether hosting the World Cup actually improves welfare is the research question of this paper. We study this for the Netherlands, which want to host the World Cup jointly with Belgium in 2018 or 2022 .” [ The bid failed ]

De Nooij et al (2010): 

De Nooij et al (2010) Much evidence to suggest events cost financially more than they generate in financial returns What if national pride, ‘feel good factor’, is affected? How is this measured and might it compensate for financial cost of events and hence legitimise bidding and hosting events? A social-cost benefit analysis of bidding for the World Cup in the Netherlands

Six effects not fully taken account of in many ex ante claims: 

Six effects not fully taken account of in many ex ante claims Substitution effects Expenditures related to the tournament are considered extra expenditures, while expenditures that are not related to the event decline Time-switching People who attend an event would have visited anyway , but at another time Crowding-out Some regular tourists will avoid cities in which there are already (or are expected to be) many event-related visitors Leakage Many expenditures on or during events do not remain in the local economy but are transferred to the international sports federation or similar entities Benefits of investments after the event Externalities Examples: traffic congestion (delays), construction-related inconvenience, vandalism, environmental pollution, disruptions of the residents’ life, feel good factor, etc.

Omitting effects example: Chadwick et al (2011): 

Omitting effects example: Chadwick et al (2011)

De Nooij et al (2010) : 

De Nooij et al (2010 ) Performed a social cost-benefit analysis aimed at charting all of the effects that would influence the welfare of the Netherlands Effects are defined as the difference between the situation in the counterfactual (no event) and that in one of the project alternatives

Economic Impact of Olympics: PwC (2004): 

Economic Impact of Olympics: PwC (2004)

Nishio et al (2009): Event Analysis: 

Nishio et al (2009): Event Analysis

Nishio et al (2009): Event Analysis: 

Nishio et al (2009): Event Analysis

Nishio et al (2009): Event Analysis: 

Nishio et al (2009): Event Analysis The announcement has a significant impact on the stock returns for host/winning cities of Athens and Seoul at the 5% level. Additionally, the results show that the selection announcement has a significant negative impact on Athens when it lost its bid to Atlanta to host the 1996 Olympic Games. The results provide some support to the argument that mega sports events like the Olympic Games have significant economic impact on small economies like South Korea (in the 1980s) and Greece but not large economies like the USA, France or Japan.

Conclusion: 

Conclusion Economic impact of major sporting events difficult to quantify at a ‘national’ level Effects likely to be more visible in smaller economies Methods used based on input-output models and related CGE models Quantifying externalities such as feel good factor (happiness) difficult Many ex ante studies are biased or omit important effects Limited number of ex post studies typically show returns are less favourable than predicted by ex ante studies More research is needed to address questions Example, more sophisticated econometric modelling of stock market effects may be useful