The European Football Championship is in full swing. Germany beat Scotland 5:1 in the opening game. But for the host country, it is not just about sports. The Euro 2024 and the upcoming Summer Olympics in Paris belong to the category of mega-events where billions are at stake – and therefore politics is always on the pitch. All the more reason to take a look at the five economic principles.
1. Lack of knowledge regarding costs. The contracts for mega-events are often granted after complex bidding processes. On the one side is an international sports federation, on the other are the potential venues. For the latter, the whole process is usually a one-off affair, which is why there is an information asymmetry: host cities have less knowledge about framework conditions of such a sporting event in comparison to international sports federations.
This lack of knowledge is one of the reasons why the venues regularly underestimate the costs and end up with large deficits. For example, the costs for the London Olympics 2012 were estimated at £2.4 billion when the bid was submitted in 2005, but two years later this figure had already risen to £9.3 billion. This problem is difficult to defuse. It would be best to concentrate on recurring major events as venues so that institutional knowledge can be developed – examples of this are the Ski World Cup in Adelboden or the WEF in Davos.
2. Advantages and disadvantages are difficult to grasp.The problem of a lack of knowledge when bidding for a mega-event is exacerbated by the fact that the advantages are usually unclear. The arguments highlighted by proponents of major events are generally difficult to quantify from an economic perspective. These are positive externalities such as a boost to the image of the host country or the strengthening of national cohesion. For example, some people still remember the 2006 World Cup in Germany as a “summer fairytale”, and the 1939 National exhibition is regarded as the culmination of the spiritual national defense proclaimed.
From an economic point of view, mega-events are not always encouraged. (Symbolbild Adobe Stock)
In addition to such elusive effects, there are also tangible effects. Major events are usually positive for the local hotel, catering and construction industries. However, there are also negative external effects. In Zurich, for example, the staging of the World Cycling Championships this fall is the subject of heated debate – “Noise, crowds and stench” was the headline of an article in the NZZ. For local residents and businesses, major events mean restrictions. A balance needs to be struck between the various interests, which brings us to the next principle.
3. Taxpayers have no lobby. As with industrial policy or subsidies for tourism, the same applies to mega-events: winners of a government measure represent a smaller group than all taxpayers. This allows them to organize themselves better, which leads to asymmetry in the political process. The result is inefficiently high public spending. Direct democratic institutions are a protective mechanism against such distortions. Very expensive projects are not popular with the electorate – as shown by the votes in 2013, 2017 and 2018 in Valais and Graubünden regarding the organization of Olympic Games.
4. One-off events are expensive. Speaking of costs: one-off events that require new infrastructure are very expensive. The most impressive examples are the Olympic Games. In Athens, the 2004 Olympic Games probably cost more than twice the budgeted 4.5 billion euros and contributed to Greece’s debt crisis. When such a one-off event is held, existing infrastructure should therefore be used wherever possible. From an economic point of view, it is even better to hold an event several times and with the same infrastructure in order to exploit economies of scale over time.
5. Consider alternatives. Anyone who has considered all the previous principles should ask themselves one last question: Couldn’t public money for a mega-event be put to better use elsewhere? The principle of opportunity costs is particularly important in times of tight public finances. The resources for the Euro and Summer Olympics could also have been used for national defense, tax cuts or education. This is all the more true given that various studies attest to the negative cost-benefit ratio of mega-events for the economy as a whole. Ultimately, it is obvious that “bread and games” may be a political principle, but it is certainly not an economic one.
This article was published in the “NZZ am Sonntag” on June 16, 2024.
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