Posted by Kathryn Schwartz on January 16, 2014

Melbourne Commonwealth Games 2006

The 2006 Melbourne Commonwealth Games was anticipated to be the largest sporting and community event in Victoria’s history, and was expected to provide substantial economic benefits similar to those achieved in Manchester as a result of hosting the 2002 Games. The total expenditure associated with the 2006 Games in Victoria was around $2.9billion. In terms of the impact on the Victorian economy, using a CGE modelling approach, the 2006 Games was estimated to result in-
• An increase in Gross State Product (‘GSP’) of around $1.6 billion over a 20 year period, with around half of the impact occurring in the year of the Games; and
• Employment of around 13,600 jobs (in FTE terms).

Prior to being awarded the rights to host the 2006 Games, Victoria already maintained a considerable level of infrastructure necessary to host the Games. Accordingly, a significant proportion of the capital works associated with the 2006 Games related to augmenting and replacing existing infrastructure. Small business

The vast majority of venues for the 2006 Games Sports Program had already been built and have hosted major events. However, some of these facilities were identified as needing either an upgrade or redevelopment to host the events associated with the 2006 Games. Thus a total of $1.03billion was spent on upgrading and redeveloping those facilities deemed necessary (excluding the Games Village).

All the venues hosting events for the Sports Program were chosen in consultation with the Victorian Government and all relevant national and state sporting bodies. Many had the capability of hosting a number of different sports and this was incorporated into the schedule of events.

Table1 provides a comparison between actual gross expenditure (Post-Games figures) and estimated gross expenditure (Pre-Games figures). This includes both public (Government) and private expenditure.

The total operational and miscellaneous spend associated with the 2006 Games is outlined in Table 2.

Table 1: Spend Types Associated with 2006 Games (Nominal Dollars)
table1Irrational Budgeting and-1

Table 2: Operational and Miscellaneous Spend in Victoria Due to the 2006 Games (Nominal Dollars)
table2Irrational Budgeting and-3

Table 3: Estimated Business Expenditure in Victoria Due to 2006 Games ($M in Nominal Dollars)
table3Irrational Budgeting and-2

The CGE analysis involves the application of a simple model of the Monash MRF framework with specific consideration of impacts in the tourism and recreation sector by application of spending outcomes to the relevant sectors. The modelling involves application of the expenditures summarised above as a demand stimulus in Victoria, and also modelling for the net effects for Australia as a whole.

The timing of business expenditure associated with the 2006 Games is outlined in the Table 3. As for the other impacts, the majority of spending is expected to occur in the year of the event.
The modelling was undertaken for a typical year, and then distributed across the years based on proportionate spends. The model was shocked by an average increase in final demand for the relevant sectors for the various categories of estimated spend (construction activity, operations activity, expenditure by foreign tourists and expenditure by domestic tourists). These shocks produce a percentage affect on the Victorian economy, and then this is applied proportionally based on the actual spend per year. The modelling assumed that the construction and operating phase expenditures prior to the 2006 Games were funded via public sector borrowings (the public sector deficit implied by the expenditures is an output of the model). It was presumed that the accumulated deficit (net of ticket purchases and external funds viz. sponsorships) will be funded via an increase in taxes, and that this will be recouped over a 15 year period, with an applied public sector borrowing rate of 4% real. The results suggest that the Games had a significant impact on the Victorian economy for the four years leading up to the Games. In short, the positive impact of the Games on the Victorian economy is derived from two major effects:

• The external money input into the economy of Victoria through tourist visitation, through sponsorship and other export equivalents; and
• The bringing forward of the activity associated with the facilities investment required to undertake the Games.

Table 4: CGE Modelling Results for Net Economic Impact of 2006 Games on Victoria
table4Irrational Budgeting and-4

It should be noted that the employment figures represent full time equivalent measures. In the case of events such as the 2006 Games, and certainly in the period in which the event occurs, many of the employment opportunities will manifest as increase in overtime or in short term casual positions.

To indicate the implications of this, the following assumptions were used:

• The impacts associated with the construction and operating phases (in all but 2006) were permanent positions with similar averages to the economy as a whole; and
• The operating and visitor spend positions created in 2006 were primarily casual and short term.

It is assumed that 10% of the positions in operations and in the tourism expenditure sectors were permanent (full time or part time) while the balance were short term or casual, or overtime, with an assumed average of 10 week worth of work involved.

The implication of these assumptions was that it was estimated that in 2006 some 22,000 specific opportunities for employment were created in Victoria. For most of the other years the job impacts were full time. Over a twenty year period, the holding of the Commonwealth Games in Victoria was estimated to support 13,000 person years of employment in full time jobs and in 2006 created some 22,000 casual jobs.

The above mentioned conclusion is based upon the analysis of KPMG report (2006).

Delhi Commonwealth Games 2010

The XIX Commonwealth Games (CWG2010) was successfully hosted in Delhi from 3 to 14 October 2010. The right to host CWG2010 was awarded in November 2003 to Delhi on the basis of the bid of the National Olympic Committee of India (NOC) in May 2003, and the guarantee of Government of India (GoI), in conjunction with the Government of the National Capital Territory of Delhi (GNCTD) to bear the financial liabilities for hosting the Games, including underwriting any shortfall between revenues and expenditure.

The initial budget estimate for hosting and conducting CWG2010 projected in the bid document was ‘ 1200crore, as summarised below:

Table 5: Budget Estimates Indicated in the Bid of CWG2010
table5Irrational Budgeting and-5

The commitment of GoI, in conjunction with GNCTD to become parties to the Host City Contract (HCC) and undertaking to bear the financial liability for hosting of the Games was critical to the success of the bid for Delhi to host CWG2010. The competing bid from Hamilton, Canada did not involve deficit guarantees from the Canadian Federal and Provincial Governments, nor did they agree to be parties to the HCC.

At all points of time, it was consistently presented staging of the Games as revenue neutral, if not revenue surplus. However revenue neutrality was never supported by robust and appropriately validated revenue projections.

In fact, between March 2007-July 2008, the revenue projections skyrocketed from ‘900crore to ‘1780crore. In reality, the total committed revenues amounted to just ‘682.06crore, and the net revenue actually realised (after deducting revenue generation costs) was just ‘ 173.96crore.

Even while approving submission of the bid and providing financial liability and deficit guarantees, there was no clear and realistic assessment of the estimated cost of hosting the Games. The bid estimated an all inclusive cost of just ‘ 1200crore (after setting off operational expenses against estimated revenues from hosting the Games). By contrast, there was an increase of more than 15 folds and the overall budget estimate for CWG2010 for GoI and GNCTD (including MCD, NDMC and other agencies) as of October 2010 was ‘18,532crore; this excludes investments by other agencies (such as DMRC and AAI/ DIAL) on allied infrastructure.

Numerous upward revisions in the budget estimate from time to time, in particular, there were seven revisions from 2007-2010 at very short intervals, representing a three folds increase. This was the outcome of a piecemeal approach adopted for consideration/approval of individual cost elements and lack of planning in the initial stages, as well as the highly limited and unrealistic scope of the budget originally envisaged in the bid document. In addition to the increased scope of activities, the other major reason for increased costs/estimates was delays at multiple stages, resulting in bunching of activities towards Games time and increases in cost; this was compounded by several instances of lack of financial prudence and propriety across the range of implementing agencies.

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