Sports Economics - Report Example

THE COSTS AND BENEFITS OF AUSTRALIAS 2009 BID TO HOST THE 2018 AND 2022 FIFA WORLD CUPS by for Executive Summary Sport has become one of the major global industries. Football being the most popular sport in the world, as expected one of the biggest income generating sports in the world. Bidding for hosting for both the 2018 and 2022 FIFA World Cups began in February 2009, to be concluded by the March 2009 and winning bids will be announced by December 2010. However, considering the persistence of the impact of the recent Global Financial Crisis and preexisting macroeconomic conditions among bidding countries there is opinion that funds would be better used for the benefit of the public. Thus there is a need to ensure that the risk is not only justified and that responsibility channels, risk management and response measures are adequate to mitigate possible negative impact to critical public institutions like education, social services or any other worse-case scenarios Introduction Sport has become one of the major global industries. It is a multi-billion dollar industry, generating income not only from the actual sport activities but also from merchandising, promoting and marketing events, personalities and even competition and rivalry. Football being the most popular sport in the world, as expected one of the biggest income generating sports in the world. Hosting sports events is one of the means of capitalizing the popularity of sports: revenues are generated from tickets, sale of merchandise, tourism and sponsorships among others (Goff, 2009). Bidding for hosting began in January 2009 and to date, the 2018 and 2022 FIFA (Fédération Internationale de Football Association) World Cup have become among the most contested World Cups1 (Associated Press – Chicago, 2009). The objective of this study is to develop a brief cost benefit assessment of hosting the 2018 FIFA World Cup to the Australia economy from online opinions or discussions from the announcement of the country’s bid in latter part of 2008 (Rudd, 2008). Background FIFA announce the end of the continental rotation policy in October 2007 and beginning by the 2018 World Cup, will decided through hosting bids by FIFA-member countries. FIFA is expected to utilize evaluation systems similar to that of the International Olympic Committee and will be announcing its decision by December 2010. Submission of bids ended February of 2009, the final list of bidders in addition to included South Korea, Qatar, Belgium and bidding together with the Netherlands and Luxembourg, England, Indonesia, Japan, Portugal bidding together with Spain, Russia and the United States2. In March 2009 however, South Korea and Qatar indicated that they would only be vying for the 2018 Cup. One of the major reasons given for the modification of the host selection process is to ensure that the infrastructure and logistic requirements to host the event can are to be provided are the best (FIFA Communications Division, 2007). Expectations are high for the event: the 2006 FIFA World Cup generated 2 million tourists, 3.35 million spectators in total with 26 billion people watching its broadcast worldwide (Rudd, 2008). The main proponents of Australia’s bid are the FFA (Football Federation of Australia), Commonwealth and State and Territory Governments (Rudd, 2008). The Australian Federal is expected to spend an approximated $46.5 Million just for bidding on hosting the events (Lenten, 2009). Minister for Sport and Recreation says that the Northern Territories (NT) government has already signified its support of the efforts of the FFA and the Federal Government, citing the development of Larrakia Park which will become of the major venues (Hampton, 2008). Other venues that are to be utilized for the event include Melbourne’s’ MCG and Telstra Dome, Brisbane’s Suncorp Stadium, the ANZ Stadium and the Sydney Football Stadium. If Australia is to win its bid, PricewaterhouseCoopers believes that the event will increase GDP by $5.3 billion and will create an estimated 74,000 jobs. Motivation for Hosting In the course of the year, particularly in the previous quarter, opinions and discussions regarding Australia’s bid for hosting the World Cup in 2018, have gained momentum not only within soccer enthusiasts in the country but also from government as well as the public, evident in the growth of online forums and debates, the interest during the year (Hampton, 2008; Rudd, 2008; Bring the 2018 FIFA World Cup to Australia, 2009; Southcott, 2009). Though the economic value of hosting the event can be readily seen, it is also evident that significant investment has to be spent first before this can realized. Thus, considering the persistence of the impact of the recent Global Financial Crisis and preexisting macroeconomic conditions among bidding countries there is opinion that funds would be better used for the benefit of the public. The concern has been raised even in Australia though it has relatively weathered recent fiscal crises and has had historically been very successful in hosting international sports events (Southcott, 2009). The arrival of spectators will also increase existing trade and commerce as well as motivate the establishment of new ones specific to the hosting of the events. In a similar manner, Boothby Federal Representative Andrew Southcott has indicated that the opposition would also support the bid, underscoring the benefits to infrastructure development, tourism and national employment (Southcott, 2009). As expected, many Australian fans have become active in the bid to host both cups but more prominently, the 2018 Cup (Bring the 2018 FIFA World Cup to Australia, 2009). Industry insiders have also given the opinion that the country’s bid has a good chance for winning because of the country’s success in hosting the football international events such as the Olympic Football Tournament, AFC Asian Cup and the FIFA U-20 World Cup as well as other sport events like the Summer Olympic, the Commonwealth Games and the Rugby World Championships (Australia has good chance to host FIFA World Cup, says Beckenbauer, 2009). Hampton (2009) and Rudd (2008) have pointed out that hosting the event will not only strengthen Australian presence in world football but the position of the country as international event destination. Analysis of Economic Value La Trobe University- based Finance professor Lenten (2009) however contends that the cost of the bidding alone, majority of it unrecoverable or sunk cost, would be borne not only by the football enthusiasts but all Australians. Moreover, since the revenue expected is dependent on the success of the bid, there is no assurance that any benefits are to be realized. Lenten also has expressed concerns the future economic events, often touted to result from the development of venue and other infrastructure, from hosting either World Cups are minimal as evidenced by Australia’s own experience from Sydney Olympics. Lastly, there is also concern about the danger of over bidding: “With major events, the bidder is essentially a purchaser trading with a monopolist (FIFA in this case), and is dealing with an all-or-nothing proposition that is, the winner has to host the entire event, even though hosting only part of it may be the optimal quantity.” (para. 8). Assuming that the Australia wins hosting either or both events and is able to utilize it as efficient economic stimuli, accommodations for the events participants, broadcasting coverage of the event and tourism is likely to provide sufficient revenue to justify cost. Evaluation however should not be limited to the cost of preparations and hosting for the event but should also consider if subsequent costs of maintaining the venues and other infrastructure developed for the event can continue to be revenue generators. Consumer spending is the main channel or revenue generation but the infrastructures can become public investments. As the cost of the bids is considered public spending, there is a need to ensure that the event would benefit the public as a whole. To be able to benefit the most from the construction or modification of venues, they have to be utilized in other events as well as other industries. This will ensure that cost-benefit ratio of investment for the hosting the World Cups are positively maximized. Conclusion Evaluating the economic value of any event depends not only on the benefits that can be derived directly from the event but also how they can improve the long-term viability and dynamism of the economy. Since a significant cost of the event is being financed by the national government to support the FFA in its bid for hosting the 2018 and 2022 World Cups, public good should be a solid consideration. Ultimately, considering the size of the cost of hosting the event, benefits have to be macroeconomic in scale. There is no denying that events are important economic stimuli not only for current domestic product performance but they should also attract trade and commerce, industrial development and collaborations, as well encouraging private sector to contribute to public investment. However, as this depends so much the success of bids and that so much resources has already been spent, concerns that have been raised should be considered seriously since critical public institutions like education and social services funding may suffer. In conclusion, bidding for the 2018 and 2022 World Cups illustrate economic risk taking on a national scale and has the potential of impacting Australia’s long-term economy. Thus there is a need to ensure that the risk is not only justified and that responsibility channels, risk management and response measures are adequate to mitigate worse-case scenarios. References LENTEN, L. (2009). Please Give Me Back My Two Dollars. The Australian Financial Review, 17 January [Online]. Available at http://www.latrobe.edu.au/news/articles/2009/opinion/please-give-me-back-my-two-dollars. Read More