Assessing the Costs and Benefits of Hosting Mega Events: Lessons from the Sydney Olympics
The decision by Victorian Premier Dan Andrews to withdraw from hosting the 2026 Commonwealth Games due to its estimated cost of A$6 billion to $7 billion, which was deemed not to represent value for money, raises questions about the feasibility of accurately determining the costs and benefits of major events. This issue also looms over Brisbane’s plans for the 2032 Olympics.
The Complexity of Evaluating Costs and Benefits
Comparing the costs and benefits of events like the Commonwealth and Olympic Games is far from straightforward, except in extreme cases like the 1976 Montreal Olympics, which was widely regarded as a financial disaster. Economic studies are often conducted prior to these events to build a case for hosting them. For instance, a study prepared for the New South Wales government by consulting firm KPMG before the 2000 Sydney Olympics pointed to benefits exceeding $7 billion. However, official studies after the events are rare.
Evaluating the Sydney Olympics’ Costs
A decade after the Sydney Olympics, an economic model developed by the Centre of Policy Studies and subsequent data were used by James Giesecke and John Madden to assess the changes brought about by the games. Their study found that the 2000 Olympics resulted in a reduction of Australia’s real private and public consumption by approximately $3.7 billion (adjusted to 2023 dollars) over the nine-year period when the Olympics impacted the economy. The study did not consider intangible benefits such as national pride and social cohesion, which undoubtedly existed but came at a significant price.
Using Economic Models to Calculate Value
To accurately evaluate the effects of an event on an economy, an economic model is necessary. Input-output models, commonly used in major event studies, have limitations such as assuming unlimited labor and capital at fixed prices, often leading to unrealistically large benefits. A better approach is to employ a computable general equilibrium (CGE) model, which takes into account supply constraints and price-responsive behavior. CGE models track deviations from what would have otherwise occurred and simulate the event’s effects on the economy.
Setting up a simulation correctly is crucial to capture the event’s economic impact. Previous studies have often failed to include all costs, such as diverting public services from their usual uses. Pre-event studies frequently predict legacies like a boost in tourism, but post-event studies rarely support these claims. For example, the study on the Sydney Olympics found no evidence of a post-event increase in international tourism.
The Net Cost and Intangible Benefits of the Sydney Olympics
The net direct cost of the Sydney Olympics, not funded by Olympics revenue, was $4.5 billion (adjusted to 2023 prices). However, the post-event modeling showed that the Olympics caused a reduction of about $3.7 billion (in 2023 dollars) in Australia’s real private and public consumption over the nine-year period. The demand stimulus from the event offset only about a fifth of the net direct cost. While hosting the Olympics led to a decrease in real consumption in New South Wales (NSW), it does not automatically imply that it was not value for money.
Weighing Intangible Benefits and Costs
The intangible benefits of hosting the Olympics, such as national pride and inspiring children, are difficult to quantify but undoubtedly significant. However, the loss in real consumption of $3.7 billion translates to approximately $1,440 per NSW household (at today’s prices). This substantial figure accounts for the intangible benefits not included in the prices of tickets, broadcasting rights, and other organizing committee sales. While a 2008 UK study estimated that Britons would have been willing to pay nearly £2 billion for the intangible benefits of hosting the 2012 Olympics, it is challenging to envision NSW households being willing to pay enough to match the real consumption cost of $1,440 per person.
Lessons for Future Mega Events
Several lessons emerge from the existing research on hosting mega events. For an event to represent value for money, it should require minimal government support, generate significant foreign interest, and yield substantial intangible benefits. Events with broad appeal can generate enough revenue to cover operating costs, but they still rely on substantial government support for infrastructure. Hosts with suitable existing venues have an advantage, as new venues often lack a post-event legacy and require ongoing government support. Bidders for these events should conduct rigorous analyses of the expected net value before submitting their bids, ideally using independent expert CGE studies. All costs should be transparent, without any shielded arrangements labeled as “commercial-in-confidence.”
While intangible benefits may exist, they do not guarantee that mega events will be financially viable. The available evidence suggests that they are unlikely to be. Therefore, careful evaluation and consideration of costs and benefits are essential when deciding whether to host such events.
SDGs, Targets, and Indicators
-
SDG 8: Decent Work and Economic Growth
- Target 8.9: By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products.
- Indicator 8.9.1: Tourism direct GDP as a proportion of total GDP and in growth rate.
-
SDG 11: Sustainable Cities and Communities
- Target 11.4: Strengthen efforts to protect and safeguard the world’s cultural and natural heritage.
- Indicator 11.4.1: Total expenditure (public and private) per capita spent on the preservation, protection, and conservation of all cultural and natural heritage.
-
SDG 12: Responsible Consumption and Production
- Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.
- Indicator 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP.
Analysis
-
SDG 8: Decent Work and Economic Growth
The article discusses the economic impact of hosting major events like the Olympics and Commonwealth Games. It raises questions about the costs and benefits associated with these events. SDG 8 aims to promote sustainable economic growth and job creation. The article highlights the need to assess the value for money and economic impact of hosting such events, which aligns with SDG 8.
-
SDG 11: Sustainable Cities and Communities
The article mentions the importance of considering the costs and benefits of hosting major events in terms of their impact on cities and communities. It emphasizes the need to properly estimate the value of intangible benefits, such as national and sporting pride, which are associated with hosting these events. SDG 11 focuses on creating sustainable cities and communities, including the protection and safeguarding of cultural heritage. The article’s discussion aligns with this goal by highlighting the need to assess the economic impact and intangible benefits of hosting major events on cities and communities.
-
SDG 12: Responsible Consumption and Production
The article touches upon the concept of responsible consumption and production in the context of hosting major events. It discusses the costs associated with diverting public services away from their usual uses and the need to properly account for all costs when assessing the value for money of these events. SDG 12 aims to achieve sustainable management and efficient use of natural resources. The article’s emphasis on considering all costs and resources involved in hosting major events aligns with this goal.
Table: SDGs, Targets, and Indicators
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 8: Decent Work and Economic Growth | Target 8.9: By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products. | Indicator 8.9.1: Tourism direct GDP as a proportion of total GDP and in growth rate. |
| SDG 11: Sustainable Cities and Communities | Target 11.4: Strengthen efforts to protect and safeguard the world’s cultural and natural heritage. | Indicator 11.4.1: Total expenditure (public and private) per capita spent on the preservation, protection, and conservation of all cultural and natural heritage. |
| SDG 12: Responsible Consumption and Production | Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources. | Indicator 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP. |
Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.
Source: architectureanddesign.com.au
Join us, as fellow seekers of change, on a transformative journey at https://sdgtalks.ai/welcome, where you can become a member and actively contribute to shaping a brighter future.
