Introduction
As part of my newfound hatred of professional football after last night (Lions Fan), I decided to throw a special project together, which hopefully can be a positive channeling of my anger and frustration. I took it upon myself to collect and categorize the recent literature (last 5 years) on 3 sports subjects of note.
- First I look at some of the research surrounding sports stadium subsidies
- Next I look at mega-events (Olympics/World Cup/Super Bowl)
- Finally, I look at college athletes and compensation concerns legalistically and economically.
Hope you enjoy!
Sports Stadium Subsidies
St. Louis Fed; Wolla (2017)
The Economics of Subsidizing Sports Stadiums
Proponents say that subsidizing sports stadiums is justified because of the economic impact it will have on the community. First, sports stadiums are huge construction projects. In fact, they are often compared to the medieval cathedral in their attempt to dominate the skyline and inspire civic pride. And, like the cathedrals of old, they are expensive, massive building projects that require years of intensive labor. Proponents of a new stadium often laud the project's ability to generate new construction jobs. For example, the proposed stadium for the Los Angeles Rams in Inglewood, California, was predicted to cost $3 billion and add 22,000 construction jobs to the economy of Los Angeles, California.
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In spite of all of these economic arguments, economists generally oppose subsidizing professional sports stadiums. When surveyed, 86 percent of economists agreed that "local and state governments in the U.S. should eliminate subsidies to professional sports franchises." Perhaps economists just do not like sports? Actually, many economists love professional sports—including former Federal Reserve Chair Ben Bernanke, an ardent Washington Nationals fan. Rather, it is the provision of taxpayer money in the form of subsidies that economists generally oppose. In a 2017 poll, 83 percent of the economists surveyed agreed that "Providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated." In their book, Sports, Jobs, and Taxes, Roger Noll and Andrew Zimbalist present a comprehensive review of stadium investments. In all cases, they find a new sports facility to have extremely small (or negative) effects on overall economic activity and employment. Furthermore, they were unable to find any facilities that had a reasonable return on investment. Sports economist Michael Leeds suggests that professional sports have very little economic impact, noting that a baseball team (with 81 regular-season home games per year) "has about the same impact on a community as a midsize department store." His research suggests that if every professional sports team in Chicago (including the Cubs, White Sox, Bears, Bulls, and Blackhawks) were to suddenly disappear, the economic impact on Chicago would be a fraction of 1 percent.
Brookings; Gayer, Drukker, and Gold (2016)
Tax-Exempt Municipal Bonds and the Financing of Professional Sports Stadiums
The evidence for large spillover gains from stadiums to the local economy is weak. Academic studies consistently find no discernible positive relationship between sports facility construction and local economic development, income growth, or job creation (Baim, 1994; Rosentraub et al., 1994; Baade, 1996; Zimmerman, 1996; Noll and Zimbalist, 1997; Coates and Humphreys, 1999, 2008; Siegfried and Zimbalist, 2000; Josza, 2003). Indeed, after 20 years of academic research on the topic, "Articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy" (Coates and Humphreys, 2008, p. 302). And as Siegfried and Zimbalist (2000, p. 103) put it, "Few fields of empirical economic research offer virtual unanimity of findings … that there is no statistically significant positive correlation between sports facility construction and economic development."
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In order to compute the net loss in federal tax revenues, suppose that the borrower issues $100 in bonds at the interest rate of 11.25 percent to the investor who faces an income tax rate of 25 percent. Since the interest rate on the taxable bond is 15 percent, the borrower saves $3.75 from the tax exemption and the federal government loses $3.75 in tax revenue. But now assume the borrower issues $100 in bonds at the interest of 11.25 percent to the investor who faces an income tax rate of 35 percent. The borrower still saves $3.75 from the tax exemption, but the federal government loses $5.25 in tax revenues. Thus, $1.50 of the tax break is not translated into a gain for the borrower, and is instead a windfall gain to the taxpayer in the higher tax bracket, reflecting an efficiency loss of the tax exemption. While all holders of tax-exempt debt benefit, tax exemption provides a larger benefit to high-income taxpayers (Galper et al., 2013).
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The first row of Table 5 reproduces the last row of Table 4, reporting the total subsidy and revenue losses across all the stadiums using average yields for 20-year municipal bonds rated Aa by Moody's Investors Service compared to average yields for seasoned corporate bonds rated Aa by Moody's. We find that for these 45 stadiums, the total discounted value of the federal tax subsidy is $3.2 billion (using a 3 percent discount rate) or $2.6 billion (using a 5 percent discount rate). Given the inefficiency of the tax exemption, the lost revenue to the federal government exceeds the subsidy amounts, resulting in an estimated revenue loss of $3.7 billion (using a 3 percent discount rate) or $3.0 billion (using a 5 percent discount rate). The other rows of Table 5 compute estimates using alternative measures of bond yields for the municipal bonds and the comparable taxable bonds. The findings are fairly robust with respect to the indexes used.
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Proponents of government subsidies for sports stadiums typically justify them on the grounds that stadiums provide spillover gains to the local economy. The evidence for these spillover gains is weak. Academic studies consistently find no discernible positive relationship between sports facility construction and local economic development, income growth, or job creation. Even if one believes, contrary to the empirical evidence, that the spillover benefits to the local economy justify subsidies, there still remains no economic justification for federal subsidies for sports stadiums.
Journal of Policy Analysis and Management; Matheson (2018)
Is there a Case for Subsidizing Sports Stadiums?
The case in favor of subsidizing large sports facilities is much harder to make than the one against. The peer-reviewed literature typically finds little or no evidence that the construction of new professional sports facilities results in significant in-creases in any type of measurable economic activity including personal income,wages, employment, tax revenues, or tourist spending (Coates & Humphreys, 2008).In addition, the privately funded consulting reports that frequently accompany stadium proposals, and which invariably tout large economic benefits from subsidized stadiums and arenas, have been shown to suffer from significant theoretical flaws that make their conclusions suspect at best, and simply false at worst (Crompton,1995). In fact, some academic economists suggest, only partially in jest, that if one wants to know what the true economic impact of a stadium project will be, simply take whatever number the consultants project and then move the decimal point one place to the left.
However, in specific circumstances, it may be possible to justify some level of public subsidies for the construction of sports venues. This should not be interpreted to mean that the optimal level of public spending is the roughly two-thirds of average stadium construction costs that taxpayers paid for during the period from 1990 through 2008 or even the roughly one-third of stadium construction costs that taxpayers paid for on average since the Great Recession in 2008. Rather, the only claim being made here is that the optimal level of funding may be higher than zero percent.
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Stadiums and arenas can also serve as an anchor for local economic development.While the old construction model of a stadium as a "walled fortress surrounded by a moat of parking lots" clearly led to few neighborhood spillovers, modern arena construction has been much more successful at integrating stadiums into local,and recently more often than not, downtown neighborhoods (Baade, Matheson,& Nikolova, 2007). While the data clearly show that stadiums and arenas do not typically lead to citywide increases in economic activity, there is strong evidence of localized impacts. Tu (2005), Feng and Humphreys (2012, 2018), and Propheter(2018) all find significant increases in real estate prices near stadiums, and many stadium projects such as PetCo Stadium in San Diego (Rosentraub, 2014), Rogers Place in Edmonton (Staples, 2015), and Barclays Arena in Brooklyn, have seen significant commercial and residential real estate development in the area of the stadium following facility construction. Indeed, some stadium deals may be better thought of as real estate developments with a stadium thrown in as opposed to the other way around [...]
Second, there may be real public policy or urban planning reasons to value one area in a city over another. It is commonly argued that vibrant and active downtown areas produce "unique and valuable intangible benefits for their cities" (Johnson et al., 2012). An economically healthy downtown provides a local identity, promotes the city's image, enhances civic pride, and serves as a melting pot for differen traces, ethnicities, and socio-economic classes (Rosentraub, 2008). If viable central business districts are more valuable to a metropolitan area's image and economic prospects than other locations in the area, it may make sense to spend public money to locate a stadium and its accompanying economic impact into a downtown location in order to boost that area even if income in the greater metropolitan region is unchanged.
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Even under the most optimistic estimates, professional sports teams play a small role in the large, diverse economies in which they reside, and it is easy for the impact of sports to get lost in the natural variations of the local economy. Many studies of the impact of professional sports facilities that find no statistically significant impact of sports on tangible economic variables are under powered. This is particularly true of many of the older studies that relied on metropolitan area wide annual data (Coates& Humphreys, 1999). Even if a new stadium were to inject tens or hundreds of millions of dollars into the economy, given the fact most major league cities sport gross domestic products well in excess of $100 billion, searching for such a "small"figure is akin to looking for the proverbial needle in a haystack.
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It remains true that stadiums are typically poor public investments. Research in peer-reviewed journals finds little evidence that professional sporting franchises or events generate tangible new economic benefits for their cities. It would be exceedingly rare to find a sports facility project that would justify a public subsidy that would cover most of or all of the construction cost. However, the (absolutely true)claim that sports generate minimal economic benefits is not the same as claiming that sporting events, facilities, and franchises provide zero in net economic benefits for their host communities. And the same peer-reviewed literature that finds little evidence of tangible economic benefits in the form of increased income, wages, employment, and tax revenues also consistently finds positive public good benefits as measured by both contingent valuation and hedonic pricing methods.
Furthermore, even if stadiums do not increase net economic activity or citywide societal welfare at all, the evidence is fairly clear that they can generate significant neighborhood effects, and policymakers may have good reason to make a conscious decision to prefer one area over another. Therefore, it may be possible to justify some level of public subsidies for the construction of sports venues. It is again crucial to reiterate that this should not be interpreted to mean that the optimal level of public spending is anywhere near what taxpayers in North America (and many places in the rest of the world) have paid for stadiums and arenas over the past several decades. Simply, one can make a reasonable economic argument that the optimal level of sports facility funding may be higher than zero percent
Mega Events
Economic Affairs; Groothuis & Rotthoff (2016)
The Economic Impact and Civic Pride of Sports Teams and Mega-Events: Do the Public and Professionals Agree?
u/blurryk note: my quotes primarily address the non-stadium aspects of this paper, but it includes these as well.
Although there has been little or no evidence of an economic impact of having a sports team in a community, there is an argument that mega-events such as the Super Bowls, Olympics, and World Cups, have a positive impact on the economy of the megaevent host. It is argued that mega-events are expected to increase tourism, both current and future, as well as overall spending in the area. These events, however, may not have a positive impact if there is a crowding out effect where people who are not interested in the event avoid the area because of the large event. Crowding out might also occur if other non-sports sectors of the economy shut-down or are overcrowded because the event (Preuss 2011).
Coates and Matheson (2011) find, from a panel of American cities from 1993- 2005, that mega-events generally exhibit little impact on rental prices on a given city as a whole. In addition, when an impact is found it is just as likely to reduce rental prices as increase them. Allmers and Maennig (2009) analyze the Federation Internationale de Football Association (FIFA) World Cup in France (1998), in Germany (2006), and in South Africa (2010). They find that the World Cups held in France and Germany have no evidence of creating positive impacts on tourism, employment, and income. They do speculate, however, that the potential benefits of the South Africa World Cup may have a different impact given the developing aspects of the country. These results are consistent with Baade and Matheson (2004), who did not find any positive economic effects for the World Cup held in the United States in 1994. Hagn and Maennig (2008a, 2008b) analyze the 1974 and 2006 World Cup in Germany, also detecting no positive economic impacts.
Szymanski (2002) analyzes the world's twenty largest economies over a thirty year period and find that growth in countries involved in the World Cup is significantly lower. Ritchie and Smith (1991) find that the worldwide name recognition of Calgary, after hosting the 1988 Winter Olympic, was positive but short-lived. In addition, Tiegland (1999) research shows that 40% of the full-serviced hotels in town went bankrupt after the 1994 Winter Olympic Games in Lillehammer. Soberg and Preuss (2007) advise that hosting major sports events can boost tourism but the additional revenues might not cover the cost of investment by the host destination. Lastly, Preuss (2007) suggest that measuring the legacies of mega sport events on future tourism needs to account for how spending on sports venues may have crowded out spending on other tourist amenities.
Overall, the results of the economic impact studies suggest that sport teams and mega-events either have a small or no effect on the local economy. Politicians and team owners, however, still use the economic impact argument to justify public funds for sport arenas and events. In the next section, we discuss the civic goods benefits derived from sports teams and events.
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Walton, Longo, and Dawson (2008) use the contingent valuation technique to measure the benefits of hosting the Olympics in London. Their results suggest that there are positive intangible effects associated with the event and residents outside of London are willing to pay toward the Olympic funding. In addition, Atkinson et al. (2008) discover that respondents from the cities of London, Manchester, and Glasgow are willing to pay £22, £12, and £11 per year (for 10 years) respectively for the 2012 Olympics. They also show that the willingness-to-pay for intangible impacts is in the region of £2 billion.
Overall, the results of the intangible benefits literature on sports teams and events suggest that public goods do exist and there is a benefit to the community. Most studies, however, find that the benefits of the team, facility, or mega-event are significantly smaller than the public funds provided. Politicians and team owners, however, use the concept of civic pride to justify public funds for sport arenas and events at higher levels than indicated.
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One area that has been under studied is how this research informs public opinion. The research suggests that the public funds provided for sports teams, facilities, and events are greater than the benefits to the community. To analyze what people think, we developed questions for a national poll on sports: one survey on opinions about the Super Bowl and one about the Winter Olympics.
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We find that most people do not know where the Super Bowl was going to be held but they do know the location of the Winter Olympics (The Super Bowl was held in Metlife Stadium at the Meadowlands; New York Giants/Jets Stadium which is located in northern New Jersey and the Winter Olympics in Sochi, Russia). We find that people who very closely follow sports, only 41% could name this year's Super Bowl host while 96% could name the host of the Winter Olympics. Our results suggest that using a sporting event to put one city in the spotlight does not always occur unless it is a mega event such as the Olympics. When it comes to the Super Bowl, we find that people tend to be unaware or pay little attention to the city hosting the event. The Winter Olympics is such a major event that we find that nearly 70% of people who do not follow still know where the Winter Olympics were held.
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We do find, however, 61% of people surveyed believe that a professional sports team improves the image of a city, which is consistent with the results from the civic pride literature. The results are similar for the Winter Olympics, where 63% of respondents believe that hosting an Olympics improves the image of the host country. These results suggest that individuals do feel civic pride from having a sports team or hosting a mega-event.
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Our survey results of the general population in the United States shows that the majority of respondents conclude that local economic impact is not created by sports teams or mega events. The vast majority of the economics literature also concludes that local economic impact is not created by having a professional sports team or by hosting a major event. Our survey's results are consistent with the economic literature findings on the effects of mega-events such as the Super Bowl or the Winter Olympics creating an economic impact.
We find that both the general public and the researchers do not expected an economic impact from hosting the Super Bowl or Olympics are not beneficial to a local area. In addition, the majority of economic literature on civic pride concludes that sports teams and events do create intangible public good benefits, although less than a fully public subsidized event or area. Our survey also finds that people are of the same opinion that sports teams and events do create civic pride benefits. Our research suggests that the general public has become skeptical to the use of public funds to build sports stadiums or host mega events.
Harvard Working Papers; Barrios, Russell, & Andrews (2016)
Bringing Home the Gold? A Review of the Economic Impact of Hosting Mega-Events
There is perhaps no larger sports policy decision than the decision to host or bid to host a mega-event like the FIFA World Cup or the Summer Olympics. Hosts and bidders usually justify their decisions by touting their potential impact. Many organizers and promoters either fund or widely disseminate ex-ante studies that tend to highlight the positive effects of the event. For instance, the consultancy firm Ernst & Young produced a 2010 report prior to the 2014 World Cup in Brazil that painted an optimistic picture of the event's potential legacy. It estimated that an additional R$ 142.39 billion (4.91% of 2010 GDP) would flow through the Brazilian economy over the 2010-2014 period, generating 3.63 million jobs per year, R$ 63.48 billion (2.17% of 2010 GDP) of income for the population and additional tax collection of R$ 18.13 billion (0.62% of 2010 GDP) for the local, state and federal governments. Ernst & Young estimated that during the same period 2.98 million additional visitors would travel to Brazil, increasing the international tourist inflow up to 79%.
Such results, if true, would clearly attractive for governments considering a bid, but these expected impacts don't always materialize. Moreover, hosting mega-events requires significant investments - and the cost of these investments is rising. Zimbalist notes emerging economies like China, Brazil, and South Africa have increasingly perceived "mega-events as a sort of coming-out party signaling that [they are] now a modernized economy, ready to make [their] presence felt in world trade and politics" (Zimbalist 2015). Their intentions may be noble, but the intention of using mega-events as a "coming-out party" means developing countries hoping to host them need to make massive investments. They are confronted by significant obstacles in that they lack sufficient stadiums, accommodations, transportation systems, and other sports-related infrastructure. As a result, each of the mega-events hosted by emerging economies has been exorbitantly expensive. The 2014 World Cup cost Brazil between USD 15 billion and USD 20 billion, while Beijing reportedly spent USD 40 billion prior to the 2008 Summer Olympic (Zimbalist 2015). Additionally, as the debt-ridden 1976 Summer Olympics in Montreal demonstrates, expensive mega-events are not limited to emerging economies alone. Flyvbjerg and Stewart have even shown that every Olympics since 1960 has gone over budget (Flyvbjerg and Stewart 2012).
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An implicit assumption as to why these investments would lead to increased economic activity, is that the event would allow the host to access resources that otherwise wouldn't be available. The rationale is that supranational organizations and certain private stakeholders would've simply chosen not to invest in the region in the absence of the event, or would have done so at a much smaller scale. Moreover, it is argued that political gridlock would've prevented available public resources to be effectively deployed in these infrastructure investments.
The argument for increased economic activity also holds that infrastructure investments would presumably serve as an engine of growth for the local economy as the required construction activities demand direct and indirect inputs from other local industries, effectively creating a multiplicative effect throughout the economy. Furthermore, in the short run, these investments themselves would create additional employment in the local economy as these endeavors may require sizable labor. In turn, these new jobs might translate into new spending in the region, which would also generate a multiplicative effect throughout the economy.
Meanwhile, during the event itself, the assumption is that attendees, both locals and foreign tourists, will spend on tickets, merchandise and memorabilia related to the event. Similarly, it is expected that they also consume food and beverages in the arena. Lastly, it is assumed that the festive mood around the event would influence locals and visitors that are not necessarily attending the event, thereby increasing spending in other social and leisure activities more loosely associated to the event. Once again, this increased economic activity could presumably lead to new jobs and new spending in the region. Lastly, it is presumed that at least portion of the new jobs created due to the event are maintained over time, allowing for the increased level of economic activity to persist long after the event has occurred.
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In general, the assumption that "new" external resources become available when hosting an event appears to be rather limited since any "new" external resources are routinely dwarfed by complementary public investments. Furthermore, these public investments are generally financed through additional debt commitments, not necessarily through existing "politically clogged" resources. This likely implies tax hikes or budget cuts down the road. Therefore, it appears that mega-events will only be beneficial if the purported net benefits surpass those of alternative publicly financed projects. The main exception to this finding might stem from a distributional argument in which host cities stand to benefit from cross-subsidization by national or regional governments.
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Another assumption is that the investments associated to the event will generate a multiplicative effect across the economy (primarily through additional jobs creation), but there are reasons to believe that this effect may also be overstated. To start the economic multipliers used in most ex-ante analyses are calculated using complex input-output tables, that assume specific inter-industry relationships within regions and are based upon an economic area's normal production patterns. However, as Matheson (2009) argues during mega-events, these inter-industry relationships may not hold, rendering the multipliers highly inaccurate.
For instance, the organization of these events is a major endeavor that may require productive resources vastly superior to local supply. It is unlikely that existing capacity would be able to sustain previous construction activity while at the same time handling the additional work associated with specialized multi-billion dollar projects. Either existing resources would need to be re-prioritized from other construction (which at best entails a zero net impact on the economy) or, more likely, substantial part of the work would be outsourced from the local economy, implying an outflow of money away from the region.
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Baade and Matheson (2002) examine job creation associated to the 1984 and 1996 Olympics. They find that if all unexplained increases in employment were attributed to these events (a substantial assumption on its own right) then the 1984 Olympics led to 5,000 new jobs during the year of the event and the 1996 Olympics led to a cumulative increase of somewhere between 3,500 jobs and 42,000 jobs during the 1994-96 period. This latter estimate not only demonstrates a large degree of uncertainty but also shows that, even in the most optimistic scenario, the potential job creation is roughly half of the 77,000 originally predicted by the Atlanta Olympic Organizing Committee.
Similarly, Feddersen and Maennig (2010a) use highly localized data to find no positive effects from the 2006 World Cup in Germany on employment. This is consistent with a previous finding from Hagn and Maennig (2009) that the effect on unemployment in the twelve match venues of the 2006 World Cup isn't significantly different from zero2. Finally, Hagn and Maennig (2008) did not find evidence that the 1974 World Cup in Germany generated employment effects positively different from zero in the host cities in the short term or long term. These findings also hold for other major football events outside of Germany. For instance, Baumann, Engelhardt and Matheson (2012) found no statistically significant increase in employment in the cities that hosted the 1994 United States World Cup [...]
Hotchkiss, Moore and Zobay (2003) presented one of the few studies in which the expected impact was surpassed by the actual impact. The authors found that areas that hosted the 1996 Atlanta Olympics experienced a growth of 293,000 jobs, significantly higher than the previously mentioned 77,000 jobs. Nonetheless, when considering employment growth in Atlanta and the surrounding areas, this was just 0.2 percent higher than would have been expected for the 1991-96 period. Additionally, the authors did not found any significant effect on wages. Furthermore, Feddersen and Maennig (2009) attempted to confirm these findings and address some methodological concerns with their approach. The authors find that, after adjusting the specification to correct for potential distortions in the original model, the existence of a positive Olympic effect is no longer clear and could not be confirmed.
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Allmers and Maennig (2009) examined the effects on retail sales from the 1998 France World Cup and the 2006 Germany World Cup but failed to find any statistically significant impact. Along the same lines, Porter and Fletcher (2008) studied the 1996 Atlanta Summer Olympic Games and the 2002 Salt Lake City Winter Olympic games and found no significant impacts on taxable sales.
Similarly, Baade, Baumann and Matheson (2005) conducted a detailed regression analysis of taxable sales in the state of Florida in the United States between 1980 and 2005 to estimate the impact of large scale sporting events on economic activity.
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These studies agree that the impact of mega-events through retail sales is not statistically significant. However, these findings might seem counterintuitive given the level of activity that is usually perceived around these major sporting events, a perception that is taken as a fundamental assumption for ex-ante studies. Matheson (2006) argues that there are three theoretical limitations to these ex-ante assumptions: the substitution effect, crowding out and leakages. Of these, the substitution effect and crowding out limitations might be particularly useful to make sense of the counterintuitive results with respect to sales.
The substitution effect occurs when individuals in the local economy spend money on a mega-event rather than in other goods and services. It is likely that individuals have a limited budget determined prior to the event destined towards entertainment and leisure. When they spend on the mega-event, they re-allocate it from other activities. Even when some individuals reallocate from other parts of their budget towards mega-event consumption, it is unlikely that overall savings rate of the local economy will change as a by-product of the event. Hence, rather than a significant increase in taxable sales, what is likely to occur is a redistribution of existing local sales.
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Given the lack of substantial evidence to back-up the claim of impact on short-term direct or indirect revenues, it is unlikely that there would be evidence to substantiate sustained long-term impacts on this front. In fact, there are not many studies that tackle this question.
von Rekowsky (2013) reviewed this sparse literature on mega-events between 1990 and 2010 and found no meaningful lasting economic benefits as a by-product of hosting the event. The author posits that one potential explanation for this might be that mega-events investments do not tend to tackle the underlying binding constraints limiting growth; hence it is unlikely to significantly alter the long-term outlook of the host region.
Lastly, Billings and Holladay (2012) analyzed the long-term impact of hosting mega-events for all Summer Olympics between 1956 and 2004. The authors controlled for the selfselection of cities that host these types of events by using a difference-in-difference methodology leveraging other finalist cities as a control group. After this, they don't find any statistically significant long-term impact on measures of real GDP per capita. In this case, the authors argue that host cities likely lose any potential long-term benefits during the competitive bidding process as the investments required to win a bid and costs associated to carry out the preparation might be larger than the purported benefits. It should be noted that even though in the aggregate these investments and expenditures seem to do away with the potential benefits, some investments associated to the event might have potential positive impact (i.e.: improved transportation). Further research on this might be beneficial for policy purposes.
While there aren't many studies on the long-term impact of mega-events, the few that are available do not provide evidence that these events have a positive long-term effect on economic activity. Furthermore, these studies tend to argue that the investments and expenditures carried out in preparation of the event seem to outweigh the benefits and do not tackle structural constraints of the economy, hence tend to be on average unproductive investments.
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The literature signals that potential hosts should be very suspicious of deriving any benefits from hosting major sporting events. In practice, the verifiable positive impacts associated to mega-events fall way short of the lofty expectations that are generated in the early planning stages. In handful of cases where these positive impacts do appear, they tend to be conditional on other factors and are mostly temporary in nature.
As we outlined before, ex-ante expectations tend to be overly optimistic and, in many cases, structurally flawed. If taken at face value, they can lead policymakers to believe that the benefits of hosting a mega-event are orders of magnitude larger than they likely are in reality. From the previous review, we find that in a strict expense versus income calculation, the math doesn't add up for potential hosts. Non-operational costs and investments associated with hosting mega-events have been increasing exponentially in the past few decades. Now, public investment dwarfs both event revenues and resources that were theoretically previously inaccessible.
Ex-ante studies might claim that this limitation is not necessarily binding since, through a multiplicative effect, the mega-event investments positively influence the broader host economy. However, these multiplicative effects are routinely overestimated. The acrossthe-board increases in economic activity and employment generally predicted by these exante studies are not validated by ex-post evaluations.
There are, however, some positive benefits to be reaped with respect to tourism, but these are conditional on a number of factors (i.e.: peak season, type of event, participants in the event, etc.). Moreover, they are heavily concentrated in the few years before and after the event with little to no long-term effect. Furthermore, it is rather unlikely that these temporary improvements in awareness, perception and visitor growth justify the substantial investments associated with hosting a major sporting event. Lastly, it is worth questioning if hosting mega-events is a more effective mechanism to promote tourism than direct investment in the sector.
These types of caveats are similar to most, if not all, of the purported benefits of these types of events. There is generally little evidence to substantiate them. When there is an impact, it either falls way short of expectation, is small relative to the cost, or appears less effective than alternative policy options for addressing the same goal.
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