By Thomas Peeters, Victor Matheson, and Stefan Szymanski
The World Cup, the Olympics and other mega sporting events give cities and countries the opportunity to be in the world’s spotlight for several weeks, and the competition among them 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 FIFA World Cup in 2010, and this summer, Brazil is hosting the first South American World Cup in 35 years. Russia recently completed its first Winter Olympics in Sochi and will return to the international stage in 2018 when the World Cup heads to Eastern Europe for the first time.
On the surface, this might appear to be a leveling of 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 these events is an enormously expensive and risky undertaking that is unlikely to pay off from a purely economic standpoint.
Because of the extensive infrastructure required to host the World Cup or the Summer or Winter Olympics, the cost of hosting these events can run into the tens of billions of dollars, especially for developing countries with limited sports and tourism infrastructure already in place. Cost estimates are often unreliable, but it is said that Brazil is spending a combined $30 billion to host the Olympics and World Cup, Beijing spent $40 billion on the 2008 summer games, and Russia set an all-time record with a $51 billion price tag on the Sochi games. Russia’s record is not likely to stand for long, however, as Qatar looks poised to spend upwards of $200 billion bringing the World Cup to the Middle East in 2022.
South Africa fan in Johannesburg during World Cup 2010
Why do countries throw their hat into the rings to host these events? Politicians typically claim that hosting will generate a financial windfall For example, the 2010 World Cup in South Africa, the focus of our paper, cost the country $3.9 billion including at least $1.3 billion in stadium construction costs. The consulting firm Grant Thornton initially predicted 483,000 international visitors would come to the country for the event and that it would generate “a gross economic impact of $12 billion to the country’s economy”. The firm later revised its figures downward, to 373,000 international visitors and lowered the estimated economic impact to $7.5 billion. Following the event, a FIFA report stated that “309,554 foreign tourists arrived in South Africa for the primary purpose of attending the 2010 FIFA World Cup.”
Our analysis of monthly tourist arrivals into South Africa during the months of the event, however, suggests that the tourist arrivals were even lower than this. The expected crowds and congestion associated with the tournament reduced the number of non-sports fans traveling to the country by over 100,000 leaving the net increase in tourists to the country during the World Cup at just 220,000 visitors. This figure is less than half that of Grant Thornton’s early projections and a full third below even the lowest visitor estimates provided after the tournament. We estimate that the cost to the nation per World Cup visitor lies in the range $4,700 to $13,000.
Our results provide a cautionary tale for cities and countries bidding for mega-events. The anticipated crowds may not materialize, and the economic gains from the sports fans who do come to watch the games need to be weighed against the economic losses associated from other potential travelers who avoid the region during the event.
Thomas Peeters is a PhD-fellow of the Flanders Research Foundation at the University of Antwerp. His main research interests are industrial organization and labor issues related to professional sports leagues. His work has been published in journals such as Economic Policy, the International Journal of Industrial Organization and the Journal of African Economies. Victor Matheson is a professor of economics at the College of the Holy Cross in Worcester, Massachusetts, USA. He is the author of numerous studies concerning the economic impact of major sporting events on host countries and is a member of the executive board of the North American Association of Sports Economists. Stefan Szymanski is the Stephen J. Galetti Professor of Sport Management at the University of Michigan. His research in the economics of sports includes work on the relationship between performance and spending in professional football leagues, the theory of contests applied to sports, the application of sports law to sports organizations, financing of professional leagues and insolvency, the costs and benefits of hosting major sporting events. They are the authors of the paper ‘Tourism and the 2010 World Cup: Lessons for developing countries’, which is published in the Journal of African Economies.
The Journal of African Economies is a vehicle to carry rigorous economic analysis, focused entirely on Africa, for Africans and anyone interested in the continent – be they consultants, policymakers, academics, traders, financiers, development agents or aid workers.
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Image credit: South Africa fan in Johannesburg during World Cup 2010. By Iscar Blanco [Public domain], via Wikimedia Commons
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By Adam Grossman
It is rare for a seventh round National Football League (NFL) draft pick to be at the center of the sports world. Then again, Michael Sam is not an average draft pick. Sam is trying to become the first openly gay player to compete for a NFL team.
While it is not clear that Sam will make the St. Louis Rams’ final roster, what is certain is the impact that Sam has already had without playing a down in the NFL. Sam’s story and the conversation it has sparked on sexuality in the NFL has been well documented. What has received less attention is the economic impact Sam could have in helping the NFL reach out to an often non-targeted customer demographic.
Organizations should more heavily seek out lesbian, gay, bisexual and transgender (LGBT) sports audiences as customers. Not only do LGBT demographics have estimated annual buying power of $790 billion, but they are often highly engaged sports fans who are looking to become more involved with leagues and teams. Yet, sports organizations rarely target LGBT audiences in effort to grow revenues. Even as leagues and teams increasingly target new demographics such as women, Latin, African American, and international audiences among other groups, LGBT fans often do not receive the same amount of attention.
Fans flock senior defensive end Michael Sam as he carries his souvenir (a rock from the rock ‘M’ at Memorial Stadium) after the win vs Texas A&M, 30 November 2013. Photo by Mark Schierbecker (Marcus Qwertyus). CC BY-SA 3.0 via Wikimedia Commons
Sam’s jersey sales are one example of why this could be a mistake. As Outsports’ Cyd Zeigler first reported, Sam’s jerseys sales were the second highest among the NFL’s most recent draft class. His jersey has outsold number one overall pick Jadeveon Clowney and number three pick Blake Bortles, the first quarterback taken in the draft. Only Cleveland Browns quarterback Johnny Manziel has more jersey sales than Sam.
Sam’s jersey success is similar to that of NBA Brooklyn Nets center Jason Collins. When he announced he was gay after completing his season playing for the Washington Wizards, Collins jersey became the highest selling jersey for the team. In addition, thousands of orders were placed for Collins jersey when he signed his first 10-day contract with the Nets.
We recognize that not every jersey sale for Sam and Collins was purchased by an LGBT audience member nor is it required to have an openly gay player to target these fans. Yet, Sam and Collins show there is an appetite for products marketed to and by LGBT audiences. For example, sports sponsors have already made significant efforts to pursue the LGBT demographic. During the 2014 Sochi Olympics, Chevrolet produced two commercials featuring gay couples. In addition, Nike has launched the Be True Campaign with products, advertising, and events specifically targeting LGBT demographics throughout the United States.
To the credit many sports organization across the world, there have been significant efforts to encourage equality and tolerance for LGBT athletes, fans, media, and sponsors. The NHL’s combined efforts with the You Can Play Project are a particularly notable example of how sports leagues are trying to take a leadership role in ending homophobia with internal and external audiences.
However, Sam and others demonstrate that sports organizations now have an opportunity to include LGBT audiences as their customers. By targeting LGBT fans, media, sponsors, and supporters now, sports organizations can grow their customer base and gain a competitive advantage.
Adam Grossman is the Founder and President of Block Six Analytics (B6A). He has worked with a number of sports organizations, including the Minnesota Timberwolves, Washington Capitals, and SMG @ Solider Field, to enhance their corporate sponsorship and enterprise marketing capabilities. He is the co-author of The Sports Strategist: Developing Leaders for a High-Performance Industry with Irving Rein and Ben Shields.
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