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The urgency and scale of hosting can provide a needed boost to public investment and transform a country’s image, infrastructure and business conditions beyond the games. BY ROBERT A. BOLAND Do megasports events contribute to economic development? Yes Following the 2014 World Cup? Read more coverage here. In the next two years, Brazil will host the three largest mega sports events in the world: the 2014 FIFA World Cup this summer, and then the Summer Olympics and Paralympics in Rio in 2016. Other nations in the Americas and across the globe will be watching to see if Brazil’s hosting duties lead to broad-based, lasting growth, or are merely an expensive distraction. While history provides examples of both scenarios, hosting such megaevents can provide lasting and transformative value, including to developing nations. Megaevents can accelerate the process of planning for and executing much-needed public investment, while the host countries or cities can rebrand themselves as safe for investment and trade, and as a destination for tourism. For democratic governments, the construction blitz around megaevents can cut through political deadlock, representing the best available chance to quickly bring about focused and necessary change. The ability to develop infrastructure that can improve the quality of life, health and economic strength of the host nation is key. Hosts with plans focusing on self-improvement, investment and the enlargement of existing assets tend to fare better than countries that simply build competition venues. For a vast country like Brazil, the planned improvement in airports and highways can be a long-lasting legacy of the upcoming events. The scheduled $9 billion investment in reducing crowding and increasing passenger and freight capacity in Rio de Janeiro and Belo Horizonte can better connect these cities to global markets. Mega sports events also provide an opportunity to quickly change global perceptions of the host. For lesser-known destinations, hosting such an event can draw between 500,000 and 3,000,000 visitors from all over the world, including decision makers from some of the most significant brands and business entities on the planet. For more visited places, the attention of the world, manifested both in personal visits and through thousands of hours of broadcast and digital coverage, can help recast the image of the host as modern and globally relevant. For South Africa, hosting the 2010 World Cup—the first in Africa—meant demonstrating that the post-apartheid nation was safe to visit, and showcasing its growing economy. More recently in Sochi, Russian oil and mineral wealth was harnessed to transform the country’s southern region into a global sports and recreation destination. The jury is still out on the ultimate success of President Vladimir Putin’s Sochi strategy, but the positive feedback on the newly constructed Olympic venues—connected to Sochi by high-speed rail built for the games—will definitely improve the region’s image. The exposure also links the host city and country’s markets, suppliers and customers with potential international trading partners and investors. This is especially true of Brazil, where thousands of global decision makers will have a personal exposure to its growing economy that they might not have had otherwise. That is one reason why megaevents have resulted in an increase in the number of publicly traded companies in the host nation—sometimes a significant one—outperforming global markets that year. Another plus: the extraordinary number of contracts host nation businesses are suddenly competitive for after the event. To reap the benefits of these events, developing countries would do well to learn from successful models of the past. Barcelona, the host of the 1992 Summer Olympic Games, is probably the first great success story of building through hosting. Prior to becoming host, the Mediterranean coastal city was shaking off decades of oppression and economic underdevelopment under fascist rule. In preparing for the Games, Barcelona spent comparatively little on its facilities and much more on improving the city and its port, expanding the transportation system, creating new attractive housing, and showcasing its culture. Removing an iron border of factories and rail yards, Barcelona created miles of beach and waterfront promenades. Repurposing existing facilities, the planners framed athletic events with images of the city’s rich history of the arts. After two weeks of hosting an extraordinary fiesta during the Summer Games, Las Ramblas had become synonymous with the great avenues of the world. Los Angeles, which perhaps single-handedly rescued the Olympic movement as the only bidder for the 1984 Summer Games, used a similar approach. The city turned an unprecedented $232 million surplus through shrewdly controlling costs and integrating private sponsorship of events and venues. The lesson for all nations, whether developing or developed, is that stadiums, pools and bicycle tracks matter for sports fans—but airports, transportation, conference facilities, and beautification matter far more to residents and future visitors. The real test, though, is whether host nations can sustain the momentum after the crowds have gone home. After the Summer Games, Barcelona continued the process of improvement and reinvestment, making it one of the world’s top tourist destinations over the succeeding two decades. A new airport, cruise and freight ship terminals, and a fast rail connection to Paris have all followed. It is now preparing a bid for the 2022 Winter Olympics that would connect it with winter sports venues in the Pyrenees and cement Barcelona as the preferred port of entry to southern and central France and northern Italy. This, more than anything, separates Barcelona from Athens, widely acknowledged as an Olympic failure: the will and ability to continue building on the momentum created by hosting a megaevent. Whether Brazil 2014 or Rio 2016 can realize a lasting legacy from its turn on the global sports stage remains to be seen. But the transformative economic and social impact that well-planned and executed sports events can have on a city, a country and a people should not be understated. Following the 2014 World Cup? Read more coverage here. Back to top Too often, especially in emerging economies, the exorbitant investment necessary to prepare for these events goes to projects with little long-term economic value. BY VICTOR A. MATHESON Do megasports events contribute to economic development? No Following the 2014 World Cup? Read more coverage here. The World Cup, the Olympics and other mega sports events give cities and countries the opportunity to be in the world’s spotlight for several weeks. And the competition among cities to host these events can be as fierce as the competition among the athletes themselves. Bids that had traditionally gone to wealthier countries have recently become a prize to be won by prospective hosts in the developing world. South Africa became the first African host of the World Cup in 2010; and this summer, Brazil is hosting the first South American World Cup in 36 years. On the surface, this may appear to be leveling the playing field, allowing developing countries to finally share in the riches that these events bring to their hosts. A closer look, however, shows that hosting duty is an enormously expensive and risky undertaking that rarely makes economic sense. The expenses involved in organizing, administering and securing the games are high. Security costs alone for the 2004 Athens Olympics topped $1.6 billion, a figure six times that spent by Sydney just four years earlier, before the events of 9/11. Infrastructure spending, however, increasingly accounts for even larger bills. Some tournaments, notably the 1984 Los Angeles Olympics and the 1994 World Cup in the United States, minimized construction expenditures and not coincidentally earned hefty profits by relying on existing facilities. But the bids that now win approval from FIFA and the International Olympic Committee are increasingly those that impress the selection committees with spectacular new architectural monuments like Beijing’s Bird’s Nest or Johannesburg’s Soccer City. For developing countries, that makes large sports events an even riskier proposition. Developing countries rarely have the sports or tourism infrastructure in place to meet even the minimum requirements of organizing sports bodies. While the U.S. bid to host the 2022 World Cup identified 70 stadiums across the country that met FIFA’s stringent requirements, Qatar’s competing bid identified only one existing stadium that was World Cup-ready. Of course, since FIFA is not responsible for building costs, it happily chose Qatar over the U.S., paving the way for a tournament that may wind up with total expenditures exceeding $200 billion. Other recent events have had similarly eye-popping price tags. Sochi’s Winter Olympics cost at least $51 billion, more than all the previous Winter Games combined. Beijing spent $45 billion hosting the Summer Games, and Brazil’s total budget for the World Cup and 2016 Olympics is nearly $30 billion, even before the anticipated cost overruns. Such megaevents result in a huge influx of sports fans during the event itself, but the net short-run economic impacts are surprisingly small. First, many spectators at these events are local residents who are spending money to watch sports rather than spending elsewhere in the local economy. Thus, these events don’t always generate new economic activity, but instead simply rearrange existing spending within the economy. Second, the influx of sports fans often displaces other tourists. Both London and Beijing reported that the number of international visitors to their cities actually fell during the month of their Olympic Games. Similarly, the 2002 Salt Lake City Winter Games resulted in increased skier visits to Colorado, but a nearly 10 percent reduction in the numbers heading to Utah, as skiers avoided the crowds and congestion associated with the Olympics. Third, money spent at a major sporting event may not stick in the local economy. For example, while hotels may be full and room prices high during an event, the wages of desk clerks and room cleaners rarely rise in proportion—leading to high profits funneled back to corporate headquarters but perhaps not so much in the way of local increases in income. For these reasons, economists not connected with the event organizations can rarely identify large short-run gains associated with megaevents. Any economic justification for such massive spending, therefore, relies on the long-term legacy. Unfortunately for host cities, the overwhelming evidence is that the long-run economic impact of investment in sports stadiums and arenas is negligible. The specialized venues required by the Olympics have little use once the games are gone, and even large multi-purpose facilities are often white elephants. Beijing’s magnificent Bird’s Nest sits largely unused just six years after the Olympics, and the 10 new and refurbished stadiums built for the World Cup in South Africa—at a cost of over $2 billion and with an average capacity of over 51,500 seats—are now used in a domestic soccer league that averages fewer than 7,000 fans per game. Investments in general infrastructure such as highways and transportation facilities can result in long-term economic growth, but they are often designed to accommodate the kind of high traffic volume that is rarely repeated after the last medals are handed out. And while the urgency of a megevent may allow governments to generate domestic political support for much-needed infrastructure investments, the tight time frames of the events also frequently result in rushed construction, cost overruns, and non-competitive bidding. In addition, infrastructure projects undertaken in preparation for megaevents can result in widespread dislocation of local residents. More than 1.5 million people in Beijing may have been displaced due to the 2008 Summer Olympics. Countries also count on using megaevents as an advertising tool. In the case of a hidden gem like Barcelona, this strategy was highly effective: the city became one of the top tourist destinations in Europe following the 1992 Summer Olympics. Barcelona, however, seems to be the exception rather than the rule. Certainly, the reputations of Munich and Atlanta were tarnished by the terrorist incidents that occurred at their games, and the Sochi Olympics only cemented the impression of an autocratic Russia rife with corruption and security concerns. International sporting competitions can certainly bring out the best in all people. When South African President Nelson Mandela presented the Rugby World Cup trophy to South Africa captain Francois Pienaar in 1995, it was a dramatic symbol of his country’s emergence from decades of apartheid and racial oppression to rejoin the world community. However, host cities should acknowledge these events for what they are—an opportunity to celebrate the pinnacle of human athletic achievement, not a path to long- or short-run economic growth.