Friday, 3 August 2012

Want to loot legally? Host the Olympics or World Cup

Be it the Soccer World Cup, the Summer Olympics, Winter Olympics or Rugby World Cup, governments and sporting committees of the host nation always sell the same tired bundle of "benefits" of these events to their citizens.  They first talk about the increase in business brought about by the fleeting surge in tourism for that week or two.  Then they talk about the "long-term" enhanced image a country/city will enjoy by getting the opportunity to showcase their best side to billions around the world.

This is not to detract from the athletes and sportspeople who prepare so fastidiously for these events, but it's time people stepped back and see what these events have become.  The purpose of finding the world's best athletes is now overshadowed by government officials and select businesses lining their pockets.

The numbers never add up

London initially budgeted £2.4 billion for the 2012 Olympics.  Several increases later the final figure hovers around £9.3 billion.  Blowing the budget is intentional though: governments don't want to shock the public too much with an obscenely large figure, so they start off low then incrementally increase the budgeted spend each year, such that each increase elicits some moans but doesn't provide quite enough fuel to ignite protest.

With very, very few exceptions like Atlanta 1996, every Olympic event has run over budget.  South Africa didn't break even on the 2010 FIFA Soccer World Cup, yet its government saw this as a way to alleviate the country's 24.9% unemployment rate.  The revenue from ticket sales, sale of broadcasting rights and sponsorship deals are nowhere near enough to absorb the mammoth costs of these events.  Besides, the governing bodies like FIFA and the International Olympic Committee first take their cut as a sort of franchise fee and the host then gets what remains.  Host countries almost always make a loss.

The benefits cannot be measured

There's the simplified belief that hosting a major event will provide such good exposure for the host that it will kickstart a virtuous cycle of steady tourism and business.  How this is measured or verified is unclear.  But nevermind the questionable long term benefits: the bonanza enjoyed by local businesses is so short lived that it will provide business owners with some extra pocket money for Christmas at best.  Not even a high school Economics student will believe that a two week event can stimulate an economy for any tenable period of time.

In fact Londoners are showing little to no interest in the 2012 Olympics, as it isn't providing the stimulus they had hoped for.  With many London residents staying at home to avoid the commotion and with traffic from visitors much lower than expected, many local businesses are actually experiencing a quiet period during the even the immediate benefits, much less the long term ones, are not apparent.

It's near impossible to quantify the benefits of any sporting event, yet despite the unquantifiable nature of these pros, governments are happy to throw billions at ensuring these events are bigger and better than before, as the egocentric race to outdo other host nations never ends.

The country does not score, the local companies, sponsors and corrupt politicians do

Call me a pessimist, but here's my conspiracy theory on the Olympics, the Soccer World Cup and most major sporting events in modern society: they have become little more than an elaborate show designed to divert taxpayer money to the pockets of politicians and their well connected private sector colleagues.  This elaborate facade is so well orchestrated that the taxpayer is for the most part perfectly OK with it.  Or as Shikha Dalmia put it: ""The Olympics are a giant exercise in sports socialism—or crony capitalism, if you prefer—where the profits are privatized and the costs socialized."

The real money is made in preparing the facilities and infrastructure - the construction companies score the most from these events, especially when new stadiums need to be built.  Dig a little and you're likely to find event officials and politicians with their fingers in the pie through virtue of holding non-executive directorships and indirect shareholdings in such companies. And we won't get into the bribes that are involved in the tendering process.

Most of the facilities become white elephants

Beijing's iconic $500 million Bird's Nest built for the 2008 Olympics has hosted 12 events last year.  In the winter it serves as an ice rink.  Athens, Sydney and Seoul - previous Olympic hosts - all have white elephants for which city management to this day struggle to find uses for.  After the 2010 Soccer World Cup, the city of Durban wants to host Rugby matches at its beautiful Moses Mabhida Stadium because utilization is so low.  To throw that much money to build stadiums from scratch for an event that won't last more than a month is insanity.  Even more insane is the notion that those stadiums will even experience a utilization rate of 30% once the event is over.

Perception is fickle and temporary

South Africa was and still is eager to show the world it is a world class destination.  Hosting the Soccer World Cup was meant to be a strong statement to the rest of the world that South Africa is a global player.  The expectation that hosting a world cup of any sort or the Olympics (an idea Durban was also flirting with) will change perceptions ignores a key trait of the modern human brain:  people have short memories and attention spans.  Two days after some major event concludes, there's Wimbledon, the UEFA Champions League, the Superbowl, the Australian Open, the Tour de France, the New York Marathon....meaning the event you spent billions on hosting will be forgotten within a week at most.

In any case, when you're watching a bunch of guys playing on a grassy pitch or some swimmers in the 100m breaststroke final, are you taking in the beauty of the country they're competing in or are you just watching the contest and interested in seeing who wins?  You're looking at a field of grass, a track or a swimming pool on your television, you're not admiring the beauty of the host nation. 

Why you should take note

Let's use relatively modest numbers in a simplistic example.  If the event costs $10 billion and your country has 10 million taxpayers, then that's a $1,000 cost per person.  How many hours or days do you work to earn that?  Your government won't raise tax rates: that's too crass.  Instead they increase toll road fees, sin taxes and even clamp down on minor offenses to collect more fines.  Then don't forget the cost of maintaining those new stadiums and facilities.  For an event that's barely a month long, citizens will subsidize the costs for years.

Repetitive events make more sense

Events that recur each year like the Indy 500 and Wimbledon make more sense as you don't keep re-investing money for infrastructure and because they happen annually, there is more incentive to make them profitable.  With once-off events everybody splits when the party is over and nobody really cares what happens afterward because they've all made their cut.  So is the solution not to have the Olympics or Soccer World Cup?  Of course not.  The solution is you shouldn't bid to host them unless you already have most of the infrastructure in place and you can prove with reasonable certainty that the net cash inflow will be positive. That's not unreasonable, that's responsible governance.

Subscribe by Email