The High Cost of Winning

Originally published in Issue IV of the St Andrews Economist

By: James McNamara

Playing host to the world’s legends has always been the pinnacle of sporting pride for any nation. But aside from all the grandeur, how do these major events really impact a region’s economy? The short answer: it is virtually impossible to accurately measure return on investment, though there is no doubt the cost is high.

A cool $50 billion was lavished on Sochi 2014 by Vladimir Putin’s government, making it the most expensive Olympic winter games in history, and far above the initial predicted cost of $12 billion. While the total amount represents only 2% of Russia’s GDP, there’s no denying the risk in the investment. Of the $50 billion, $6.4 billion was spent on ‘sports related costs’ and $43.6 billion was spent on infrastructure improvements.  What are the benefits of such high price tags?

Short term spikes in tourism and direct revenues streams such as broadcasting from such events can be counted fairly easily. However, the long-run social-economic benefits are usually too abstract to attach a monetary value.  Furthermore, there are also doubts about the benefits from regional infrastructure investment in the long run. A substantial proportion of large sporting events’ cost is solely attributed to improving sports infrastructure that, in the future, yields minimal perks for the overall economy. 

In the case of Sochi, the Russian government claims that 400 new public buildings and infrastructural elements, such as utility systems, roads and residential buildings, will continue to bring benefit to Russians, particularly in the Sochi area, for many years to come. While Sochi may see a lasting boost in tourism and will undoubtedly benefit from the improved infrastructure, most economists, such as the rating agency Moody’s, predict that the Games will have at best a neutral effect on Russia overall.

Given these vagaries, it is no surprise that only advanced, developed economies are typically able to sustain this degree of financial burden – all but four Olympics of the last century were hosted by such places.  Examples of success do exist such as London 2012 though it was not without its price of nearly £9 billion, much of which was claimed by development of the Olympic stadium. However, London 2012 was efficiently carried out into an already prosperous, globally renowned, modern infrastructural hub. An initial economic projection by Lloyds TSB estimated a boost of £16 billion to the London economy over the next 20 years. The British government contends these benefits are already occurring, to the tune of a £9.9 billion boost in trade and investment since 2012.

In Scotland, excitement grows as we approach the Commonwealth games this summer, hosted in Glasgow. With a budget of just over £500m, this comparatively modest injection could be a prudent investment to stimulate sustained growth and development for the city.  The Scottish government projects the benefits from improvements in infrastructure and associated transport networks will total £1billion and create nearly 1,200 jobs across Scotland. Not to mention national pride for all of Scotland.

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