The economic impact of hosting large sporting events

Hosting large sporting events like Euro 2024 and the Olympic Games is often seen as a prestigious opportunity for nations and cities around the world. They carry global recognition and are believed to have a significant contribution to the economy, with an impact extending beyond immediate costs and revenues.

However, data from previous Olympics suggest a potentially different reality, raising questions about the actual value of hosting such mega-events.

In recent decades, the Games have been burdened by significant budget overruns, leaving host countries with long-term debt and underused infrastructure. Research by Oxford University shows that the last three Summer Games before Paris cost $51 billion, not including additional infrastructure costs that often exceed the Games' expenses. They exceeded budgets by a staggering 185%.

In response to the soaring costs of an event intended to foster global peace through athletic achievement, the International Olympic Committee aims to shift focus from extravagance to a more cost-effective model. This change is driven by a decreasing number of cities willing to host an event known for its lavish spending.

Cost vs reward

The direct costs of hosting large sporting events are often staggering, requiring cities to invest in infrastructure, security, and logistics to accommodate thousands of athletes, officials, and visitors. Even the bidding process is costly, sometimes prohibitively so. As an example, Tokyo spent $150 million on its failed 2016 bid and half as much on its successful 2020 bid. Toronto, unable to justify the $60 million cost, decided against bidding for the 2024 Games.

The cost of infrastructure developments, including stadium construction, venue building, and transportation upgrades, typically runs into the billions of dollars. For instance, the budget for the 2024 Paris Olympics is estimated to exceed $8 billion.

On the other hand, it is often argued that the rewards, both tangible and intangible, can be equally significant. While these expenditures may seem daunting, they are often justified by the anticipated long-term benefits, such as increased tourism due to the influx of international visitors, global visibility, and the positive impact on local businesses.

However, experience demonstrates that mega-events often fail to deliver the expected economic benefits. They usually tend to generate more short-term costs than revenues, while long-term gains in tourism and investment rarely materialise.

While Barcelona's 1992 Olympics is frequently cited as a success, this outcome was driven by unique circumstances that are difficult for other cities to replicate. Most other host cities since have experienced negative to modestly positive outcomes, with positive results being the exception rather than the rule.

Key costs

Hosting large sporting events has been coming with increasingly staggering price tags. The 2014 Sochi Winter Games exceeded $50 billion, the 2016 Rio Summer Games reached $20 billion, and the 2022 Beijing Winter Games reportedly hit the $39 billion mark. Two major areas that contribute significantly to these costs are transportation and construction.

Transportation

One of the most significant costs associated with hosting large sporting events is the investment in transportation infrastructure. This includes expanding and modernising airports, roads, and public transportation systems to accommodate the anticipated surge in visitors and ensure smooth movement throughout the event. For example, the London 2012 Olympics saw an investment of over $7 billion in transportation improvements, including constructing new rail lines and expanding existing networks.

Construction

Another significant expense is the construction of sports venues and related facilities. These structures must meet international standards, often requiring substantial investment in state-of-the-art technology and design. Often, entire neighbourhoods are revitalised or built from scratch to host these events.

Economic opportunities

Despite the high upfront costs, hosting large sporting events can offer compelling economic opportunities across various sectors, including tourism, hospitality, and infrastructure development.

Tourism and hospitality

A major advantage of hosting large sporting events is the significant boost to tourism and related industries, which can have a substantial impact on the hospitality sector. The 2016 Rio Olympics, for instance, attracted over 500,000 international visitors and contributed approximately $1.2 billion in tourism revenue. Overall, the games led to a 4.8% increase in foreign tourists to Brazil and a 6.2% rise in tourism revenue during one of the worst global recessions in recent history.

Additionally, exposure from such events can support sustained tourism growth, benefiting local economies long after the event ends.

Infrastructure

The infrastructure improvements associated with these events can also deliver long-term economic benefits. New transportation systems, sports venues, and urban development can revitalise neglected areas and attract new businesses.

Long-term economic impact

Still, the debate continues over the long-term economic impact of hosting large sporting events. While some argue that the costs outweigh the benefits, others believe the long-term gains in infrastructure, tourism, and global reputation justify the investment.

Key to this outcome is how effectively the host city or country leverages the momentum from the event to attract future opportunities. Large-scale sporting events should be considered as part of a long-term policy for promoting a territory to tourists rather than a standalone solution. For example, large sporting events should be viewed as a component of a broader, long-term strategy for enhancing tourism rather than as a standalone solution.

Building on this momentum

Strong collaboration between governments and businesses, along with strategic planning and sustainable investments, is vital to fully unlocking the economic potential of hosting major sporting events.

HLB Global is well-positioned to help clients navigate the economic complexities of mega-events and seize the opportunities they create. With expertise in international development, hospitality, and infrastructure, HLB Global helps clients to capitalise on these events for long-term economic success.