Issue 4, 2012. August-September

   

BIG SPORTS, BIG EVENTS, BIG PROFITS?

Sports are big business, and, so the logic goes, sporting events attract big business: countries and cities across the globe - not to mention businesses - invest billions in sporting events and merchandise. Georgia itself is hosting the 2015 Youth Games, as well as the 2015 UEFA Super Cup, and Tbilisi is bidding, together with Baku, for the 2020 European Championships. But are the sporting events worth the cost?


Build it and They'll Come

Sports and business, business and sport. The allure of sponsorship dollars, ticket sales, and event tourism is enough to drive cities to bare the brute of the cost of hosting large sporting events.

The London 2012 Summer Games, for instance, is estimated to have cost the United Kingdom £8.4 billion, or roughly $13 billion, according to research done by the University of Oxford.

The cost - which includes security, infrastructure, and ceremonies - along with construction and technology upgrades - is par for the course for a city and country hosting the world's largest sporting event. Different cities have managed the cost of the Olympics with varying degrees of success: Montreal ran up a $2.8 billion debt that took the city three decades to pay off. Seoul, on the other hand, turned a cool $300 million profit.

Cities celebrate large sporting events as an opportunity for economic growth - for the events' ability to create a 'legacy' for a region that will translate into investment, jobs, and prosperity, according to sports economist Andrew Zimbalist.

In 2015, Tbilisi will host two large sporting events - the Youth Games and the UEFA Super Cup. Both events require millions of dollars in investment in infrastructure, such as expanding the airport, as well as constructing hotel rooms, and bigger sporting venues.

While the total cost for both events was not available, Zviad Archuadze, the official in charge of municipal economic development programs, said the city is already talking with investors about picking up a large portion of the price tag.

"In the end, it is all about the long term benefits for promotion and future tourism," said Archuadze.

"In the long term prospective, of course it will create income for the city," he said. "We must prepare the city for big events."

Revaz Arveladze, general secretary for the Georgian Football Association, said the UEFA Super Cup will cost the association an estimated 5 million euro, or $6 million. That does not include the additional cost of other upgrades necessary to host the event - like expanding Tbilisi airport or insuring that there are 2500 luxury hotel rooms (as well as other accommodation) for the 20 thousand anticipated fans that will descend on the city for the event.

The event, however, is about more than just money and investment for Georgia, noted Arveladze.

"On the side of organization, it is for us, for our employees, for the businessmen, it is also the challenge; for us it is a challenge to host these things," he said.

"Of course, for the city and the country it is an economic issue also because a lot of people are coming ... of course they will stay for more than one day...for the city, for the country, for the small restaurants, small businesses, small hotels, and large hotels - of course it is a business."

And, pure economics aside, hosting large events is a chance for Georgia to show the world what it is capable of, according to sport event organizers like Giorgi Khachidze, the project coordinator for the Tbilisi 2015 European Youth Olympic festival.

"[It is an opportunity] to say that we as a whole country are trying to proceed to the next level, not only in sports," he said.

Tourism and Jobs, Jobs and Tourism

While there is a growing body of research that questions the connection between sports and direct economic benefit, economists appear more confident that large events bolster city economies indirectly.


Zimbalist, a Robert A. Woods Professor of Economics at Smith College in the United States, noted that the benefits are far from straightforward, and differ greatly depending on the host city.

In a 2010 article, "Is It Worth It? Hosting the Olympic Games and other mega sporting events is an honor many countries aspire to—but why?" Zimbalist argued that, while direct benefits - like new infrastructure, ticket sales, and the flurry of economic activity by attendees - is tangible, the indirect benefits could be more important.

"The indirect economic benefits generated by mega sporting events are potentially more important than the direct benefits, but are more difficult to quantify," he wrote.

"Many Olympic host metropolitan areas and regions view the Olympics as a way to raise their profile on the world stage. In this sense, the intense media coverage before and during the Olympic Games or other big events is a form of advertising, possibly attracting tourists who would not have otherwise considered the city or region, and who may generate significant, broad, and long-lasting economic benefits. "

In reality, however, Zimbalist cautioned, it is hard to correlate the direct impact that sports coverage - even Olympic coverage - has on later tourism figures.

Neil Prothero, a Western Europe Economic Intelligence Unit (EIU) analyst, agrees.

"I think it is quite difficult to actually ascertain exactly how much benefit, if any, comes from a big event such as this [Olympics] until quite some time afterwards," he told Investor.ge during a telephone interview from London.

"I think there are probably two main areas in terms of benefits. One is in the run up to the big event on the construction side...if you are having to build quite large new developments, new buildings...obviously that will provide a construction boost and through that, in the employment market as well for a sort of temporary period."

Other economists have also noted that job opportunities increase around large events like the Olympics, although it is difficult to pinpoint the direct impact because it depends on a variety of issues, including how venues are used after the event, and how many other economic development programs proceeded and followed it. Zimbalist noted that cities that are less developed - for example Tbilisi as opposed to London - can receive more of a boost from large events.

"The impact of hosting major sporting events varies according to the level of development in the host city and country," he said. "With proper planning, hosting a large event can serve as a catalyst for the construction of modern transportation, communications, and sports infrastructure, which generally benefits less developed areas more."

In Tbilisi, the 2015 Youth Games have already inspired one large investment: in July, China's Xinjiang Hualing Industry and Trade (Group) announced plans to invest $150 million to build an "Olympic Village" in Tbilisi for the athletes competing in the games.

Reportedly, 3000 people will be employed during construction.