How a city can benefit from organizing a major sports event

The first three stages of the Tour of Spain were held in the Netherlands this year. Total costs: almost 15 million euros. Will it be limited to those costs? And are the hotel and restaurant revenues the only benefits of the Vuelta for the Dutch start and finish locations? The benefits of organizing a major sporting event are often broader than the direct economic benefits. But the budgeted costs are also often higher. Charles Kalshoven, macroeconomist and senior strategist at APG, explains why.

Organizers of major sporting events often tell a narrative that paints a rosy picture of the economic benefits, Kalshoven knows. “But that can’t always be substantiated. If there are any benefits at all, they go to the hospitality sector, for example, and not to the municipality or government.” According to the economist, the fact that a sporting event does not always bring in money for the host city is no reason not to organize one. “It can also just be fun, and it´s okay for fun things to cost money sometimes.”

Barcelona

Kalshoven acknowledges that this is a tricky message in these times, “because many people are currently struggling to pay their energy bills, so should you be spending 15 million on the Vuelta?” Incidentally, one third of the expenditure is provided by private parties, so it costs the national and municipal governments “only” 10 million euros (for comparison, the total expenditure of the municipality of Utrecht this year is budgeted at over 1.5 billion). Nevertheless, partly due to the high costs of the energy crisis, Utrecht will not be organizing any more major sporting events for the time being, Mayor Dijksma announced in Trouw.

“If you look at it from a purely economic perspective, the organizers of major sporting events usually don’t end up in the black afterwards,” Kalshoven said. VAT and excise duty on the beer sold, for example, do not go to the municipality but to central government. But the benefits, he says, are also broader. “In Barcelona, for example, for the 1992 Olympics, they refurbished the whole neighborhood of Barceloneta and the beach and developed Port Olímpic as an entertainment area. So the Games were used there to kick-start urban development.” And there may be more such indirect benefits. “If, like Utrecht, you’ve hosted all three major cycling tours, you may be playing into the hands of conference organizers. And companies working in the sustainable mobility sector may see Utrecht as a suitable location. It may also generate more tourism. The aerial images of the Dom and the canals are a kind of ‘free’ advertising for the city. It is a way for a city to show its best-kept secrets to the world.”

Experience Economy

Costs incurred to organize a sporting event can also be seen as an investment in health or welfare policy. For example, Utrecht was recently named the most bicycle-friendly city in the world. “If people start cycling more often instead of taking the car or public transport, there will be fewer traffic jams. That saves society money. And perhaps in the longer term, healthcare costs as well, because a sporting event can encourage people to participate more in sport, thus keeping them healthier for longer,” Kalshoven says. “You shouldn’t exaggerate these indirect effects, but if you wait for scientific evidence of the economic benefits of a sporting event, you’ll never be able to organize anything.”

Kalshoven: “Organizing a sporting event also fits in with the trend that people prefer to spend money on immaterial rather than material things: so-called ‘de-cluttering’. If visitors spend 30 million euros during a sporting event, the question is: what else would they have done with that money? Perhaps they would have spent it anyway, in which case the economic effect is zero. But it is also possible that they would have spent it on, I don’t know, plastic toys from China. That’s not very sustainable and it also contributes very little to the Dutch economy.” Whereas the Vuelta is part of the experience economy, where people spend money on an experience rather than on stuff. “That’s more sustainable, because it requires fewer raw materials. People do have to get to Utrecht, of course, so there will definitely be some carbon emissions, but maybe many will come by train or bike.” The advertising caravan, which traditionally precedes the race, will at least have a sustainable character this Vuelta during the Dutch phases. The vehicles in this “Green Caravan” drive emission free and only hand out sustainable items to the public.

Olympic Games

Yet it seems that fewer and fewer cities are in favor of organizing a major sports event. This is particularly true of the Olympic Games, where there was only one candidate city for the 2024, 2028 and 2032 editions. Amsterdam toyed with the idea of standing as a candidate for 2028 for a while, but the government ultimately decided it was too expensive and withdrew its support for the plan in 2012. “Organizing an event like that does put a strain on collective resources,” Kalshoven continues. “There are the direct costs for the organization, but also indirect costs for the deployment of police, fire department and emergency services. What you see is that the economic benefits of the event itself are often negative. The profits end up somewhere else, for example with catering businesses.”

The fact that the budget is often out of control also does not contribute to the enthusiasm among the local population. Here, too, the Olympic Games are a good example. For instance, the costs of the so successful Games in Barcelona ended up 266 percent higher. In 1976, in Montreal, Canada, it was as much as 720 percent. What is the cause of this? “An important part is political. If you want to push through the organization of a tournament, you have to reduce the price tag. Large budgets would prevent surprises, but damage your chances. So, the organization pushes for low quotes from builders of stadiums and infrastructure, but the setbacks are being paid for dearly. The problem, of course, is also that the projects are always unique, because you never build the same stadium twice."  

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Whereas enthusiasm for hosting major sporting events seems to be waning in democratic countries, autocratic regimes are actually eager to welcome international tournaments. “There, the political benefits are often huge,” Kalshoven argues. “Russia, with the Sochi Winter Games, and China, where Beijing hosted both the Summer and Winter Games, were thrilled to be able to show the world that they were capable of hosting something like this. A good opening and closing ceremony is advertising to the outside world and also contributes to popular pride in the national regime. The political benefits outweigh the economic costs there. For Rutte it would be difficult to explain why there is money for the Olympics but not for, say, purchasing power measures. For Putin this is less of an issue. If he organizes such an event, he does not have to explain to his people why there is money for organizing the Winter Games but not for raising civil servants’ salaries.”