Political football

In a three-day economic modelling exercise conducted in 2005 by South Africa’s National Treasury, three of the economists, one of them Australian using the Sydney Olympics experience, concluded that the best one could hope for is that the 2010 FIFA Football World Cup would not hurt the economy. The proviso was that cost control in infrastructure would be maintained and that needless new stadiums would not be constructed.

Since then costs have soared and, for political reasons and in Cape Town utter vanity, new stadiums are being constructed. Cape Town, offered a quarter-finals if the Newlands rugby stadium was used, and a semi-finals if a new stadium next to the Harbour Waterfront was constructed, opted for the latter. The stadium costs close to $400 million and the stadium seats 68,000, whereas the normal attendance at soccer matches is 5,000 people.

Australia, one might assume, is different. There are many sports stadiums, transport infrastructure is mostly adequate to the task, and there are plenty of hotel rooms. Nonetheless, in Adelaide there is debate regarding whether to construct a soccer stadium in order to be able to participate in a hoped for Australian World Cup. The stadium might make some sense if rugby were a favourite sport, as soccer and rugby require rectangular fields and the two sports could share the same field. However, Adelaide suffers from the preference for footy. Of course, the same applies to Melbourne. A soccer pitch at the MCG would be dwarfed by the size of the existing pitch and FIFA requires spectator proximity to the game.

Would $100 million spent on the construction of a new soccer stadium contribute more to the economy and the environment than extensions to a rail commuter system? How can one justify infrastructure expenses for mega-events?

The benefits are usually calculated using economic models, most commonly employment and income multipliers. This modelling leads to most favourable projections, especially when the clients are the organisers of the event. The projections seldom take account of displacement.

A million dollars spent in the construction of stadiums will give rise to jobs and increases in incomes, but will it give rise to more jobs and increases in income than alternative capital investments? Money spent by 50,000 soccer tourists will give rise to jobs and increases in income, but will it give rise to more jobs and increases in incomes than existing business visitors and tourists?

During the German 2006 FIFA Football World Cup hotel occupancy declined in Berlin and Munich, which is where most games were played. The usual business visitors and tourists were displaced. One of the few clear increases in consumption was beer, but even then attributing increased beer consumption to the World Cup rather than a hot, sunny summer is problematical.

These concerns for displacement may be overstated in the case of tourists. For example, during major events hotel prices in Melbourne increase. Exploiting tourists is a common phenomenon. In Berlin and Munich, with fewer hotel occupants, profits went up.

The concerns for displacement are not overstated in the case of capital investment. In a context of scarce resources and considerable needs, very specific trade-offs are being made between transport infrastructure, cleaner energy, medical research infrastructure and so on, and stadiums; as well as government debt if public sector subsidies are involved. Further, implicitly, choices are being made about where in Australia capital investment should be located.

Then too, there is the potential for negative outcomes. When Japan and South Korea hosted the World Cup in 2002, not only did tourism decline in South Korea, later stadiums found not to be economically viable were imploded.

In a context where outcomes are so uncertain, does it make sense to invest in infrastructure for mega-events? Aware of the limited benefits and potential pitfalls of mega-events, academics increasingly write about the legacy of the event. They are concerned less with the event itself than the outcomes of the investment and the image created for the country and its cities.

It is arguable that the nature of the intended legacy is critical. Where the expenditure forms part of and expedites a country and city’s strategic plan, including transport systems, urban renewal and economic positioning, and where the expenditure is well-managed, a case can be made for the investment. Alternatively, when the World Cup, and the Olympics for that matter, are viewed as a ‘coming out’ party and central to a country and city’s international prestige, cost control is lax and arguably the image benefits are short-lived.