IRRATIONAL BUDGETING: LITERATURE REVIEW

Posted by Kathryn Schwartz on January 12, 2014
Economy

Roche (2000) describes mega sporting events as large-scale cultural, including commercial and sporting events which have a dramatic character, mass popular appeal and international significance. They are typically organised by variable combination of national governmental and international non-governmental organisations.

Sola (1998) suggests numerous ways that mega-sporting events impact upon host communities, indicating that one or more of the following factors must be in place for a sporting event to evolve from being classified as a mere major event:
• Increased tourist volumes directly and indirectly relating to the event;
• Visitor expenditures boosting local trade;
• Additional publicity for the host city/nation leading to further knowledge of the culture of the nation by visitors and a positive image;
• Infrastructure improvements in place and surrounding area leading to further prosperity both during and following the event. Credit card

Dolles & Soderman (2008) suggest mega sporting events provide immediate access to a global market of viewers from which the host nation can project images and knowledge to people of all nations of its culture and society. Matheson and Baade (2004) who suggest that mega events offer hosts the chance to put the country/city on the map, providing significant international exposure, and discuss the possibility that events, can also be seen as political events that serve to showcase the economic, political, and cultural power or as a signal that a country has arrived as a major figure on the international scene.

This second sentence could be applied to numerous sporting events that have been recently formed, including the Beijing Olympics in 2008, the 2002 FIFA World Cup in Japan and South Korea and the new Formula One Grand Prix that have been developed in countries such as Bahrain, Malaysia, Singapore, Turkey and India, all of which have emerging economies and political presence, but very little prior status in the world of sport.

There have been many articles created to analyse the economic impacts of sporting events. These articles focused on variety of differing aspects of the events, including the overall effects, the impact that smaller events can have on an economy or the sporting and infrastructural legacy left by one-off and recurring events. Matheson & Baade (2000; 2002; 2004; 2006) have published multiple articles relating to various sporting events including the 2002 World Cup and the 2000 Olympics, whilst other major contributors include De Groote (2005) and Coates & Humphreys (1999).

Matheson and Baade have analysed the effects of relatively sporting small events as well as studying the impact of mega events. Baade & Matheson (2000) used taxable sales to study the Daytona 500 motor race from 1997-1999 by measuring the impacts on the Daytona Beach city economy, Volusia County and the state of Florida. An increase in taxable sales of US$41.77million was found and attributed to the race. This measure came about by comparing the taxable sales for Volusia County against other Floridian counties for each month during the period and identifying spikes in performance during February, the month the race is run. However, the conclusions were somewhat ambiguous, with Baade & Matheson (2000) claiming that taxable sales alone and economic impact are not synonymous; economic impact is significantly less than the increase in taxable sales. This is due to doubts regarding the multiplier used to measure the recirculation of direct spending during the race, with the study claiming that cities should be careful not to artificially increase this multiplier without good cause. Baade & Matheson (2002) focused upon the bidding process and promises made by the bid teams of successful Olympic hosts from the 1984 Summer Games in Los Angeles to the Winter Games in Salt Lake City in 2002. Conversely, Baade & Matheson (2004) direct attention upon the 1994 USA World Cup with the aim of drawing comparisons with the 2002 World Cup held in Japan and South Korea. Matheson & Baade (2004) investigates the effects of mega sporting events on developing nations and economies in particular reviewing South Korea’s co-hosting of the 2002 World Cup and looking forward to the potential impacts for the 2008 China Olympics and the 2010 South Africa World Cup. Within all of these researches a major conclusion is that predictions of great windfalls for the hosts largely fail to arise, with residents of the hosts being the main losers due to facing of higher taxes to fund new sporting infrastructure and disruption to their daily lives as tourists and visitors for the event take charge of the host cities.

Matheson (2006) compared ex-ante claims to ex-post results and provided some insights into the problems that are repeated through many ex-ante pieces. However, the critique is flawed in that the ex-ante articles criticised only use the input-output model. Dwyer et al (2005) study indicates that the theoretical dys-functionalities presented by the input-output method are somewhat negated by using the alternative approach. One method tested by Coates & Humphreys (1999) is to identify the impact of a sports franchise on the per capita income of local residents; however, results actually indicated negative correlation that reduced per capita income in areas hosting a sports team.

Baade et al (2006) suggest that recently built sports stadia have less economic impact on host regions due to the leeching nature of capitalism whereby the new stadiums are built to provide profits for multinational corporations who sponsor the building and take all of the revenues, leaving few positive impacts on the local area. The question of whether these local stadium effects can be used to summarize the impact made by arenas built especially for mega events is proposed by Sandy et al (2004) who determine that the huge expected influx of tourists for mega events may increase the economic impact compared to those smaller events that attract crowds composed mainly of local residents. This increases the amount of money spent in hotels and restaurants as tourists choose to stay and eat in the city rather than travelling home. Such impacts lead to the majority of money spent being that which would not normally have been spent in the community, thus indicating a positive economic effect on regions where mega events are held. This led to Sandy et al (2004) applying the term ideal event to the Olympics and Formula 1 because they attract free spenders from outside the area for a long stay.

Leeds & Von Allmen (2005) attempt to qualify a realistic expectation for impact of stadiums built especially for mega events, indicating doubt that the original costs can originally be recovered via the economic benefits felt during the hosting of the event. It is found that during the preparations for the 2002 World Cup US$667million was spent solely on a stadium in Saitama, Japan. This stadium was only used for two games during the group stages of the tournament, at a cost of US$333.5million each and also costs US$6million per year to maintain. The stadium is currently only used for a local football team that struggles to attract 20,000 spectators per game. Thus, the initial claims of US$31billion total economic benefits (Finer, 2002) that led to a net economic effect of US$280million for both Japan and South Korea (Chaudhary, 2003) has been gradually worn down in the years following the mega event, indicating that the long term effect of one off mega events may not be as great as promoters of the events suggest.

A similar effect is documented by Chaudhary (2003) for the Sydney Olympics whereby an expected loss of £1.2billion was found due to underused stadiums following the event. However, such figures are disputed by De Groote (2005) who identifies an economic impact of AU$42.7million relating solely to the hosting of the Games. This includes an influx of 1.7million tourists and 3.7billion worldwide television viewers. Additionally, it is noted that the Olympic Stadium has not suffered to the same extent as Saitama, being the home ground to ten sports teams, including the Wallabies rugby team and the Sydney Swans AFL team and attracting crowds of up to 78,944 spectators as at July 2008 for Rugby and Australian Rules Football matches.

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