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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 the question of whether it is possible to accurately assess the costs and benefits of major events. This issue is also relevant to Brisbane’s plans for the 2032 Olympics.

Comparing the costs and benefits of events like the Commonwealth and Olympic Games is often complex. Economic studies conducted before the events are used to justify their hosting, but post-event studies are rare. In the case of the 2000 Sydney Olympics, a study by consulting firm KPMG estimated benefits of over $7 billion.

The Sydney Olympics’ Cost

A decade after the Sydney Olympics, an economic model developed by the Centre of Policy Studies was used to examine the event’s impact. The study found that the Olympics resulted in a reduction of Australia’s real private and public consumption by approximately $3.7 billion over nine years. This suggests that the intangible benefits often associated with hosting major events came at a significant cost.

Calculating the Value of Mega Events

To accurately assess the economic effects of an event, an economic model equipped for the task is necessary. Input-output models, commonly used in previous studies, have limitations and often generate unrealistically large benefits. A better approach is to use a computable general equilibrium (CGE) model, which considers supply constraints and price-responsive behavior.

It is crucial to properly simulate the effects of an event and include all costs, such as diverting public services from their usual uses. Predicted legacies, such as increased tourism, are often included in pre-event studies but are rarely supported by post-event research. For example, the Sydney Olympics did not produce a boost in post-event international tourism.

The Net Cost of the Sydney Olympics

The net direct cost of the Sydney Olympics, when adjusted to 2023 prices, was $4.5 billion. However, the post-event modeling showed that the Olympics caused a reduction of approximately $3.7 billion in Australia’s real private and public consumption over nine years. The demand stimulus from the event only offset about a fifth of the net direct cost.

While hosting the Olympics had a negative impact on real consumption in New South Wales (NSW), it does not automatically mean it was not value for money. The intangible benefits, such as national pride and inspiration, should also be considered.

Intangible Benefits and Costs

The loss in real consumption due to the Sydney Olympics equated to about $1,440 per NSW household at today’s prices. This significant figure reflects the intangible benefits not accounted for in ticket prices and other organizing committee sales. However, there are no estimates for the value of these intangible benefits.

A UK study on the 2012 Olympics found that Britons would have been willing to pay almost £2 billion for the net intangible benefits. Converting this to 2023 Australian dollars, it amounts to approximately A$230 per UK household. It is possible that NSW households were willing to pay a similar amount for intangible benefits from hosting a Summer Olympics.

However, it is challenging to envision NSW households being willing to pay enough to cover the real consumption cost of $1,440 per person.

Lessons for Future Mega Events

Several lessons can be drawn from the economics of hosting mega events:

• Events that require little government support, generate foreign interest, and have significant intangible benefits have the best chance of representing value for money.
• Wide-appeal events can generate enough revenue to cover operating costs, but they often rely on substantial government support for infrastructure.
• Using existing venues provides a post-event legacy and reduces the need for ongoing government support.

Bidders for mega events should conduct rigorous analyses of the event’s expected net value before submitting their bids. Independent expert CGE studies should be undertaken, considering both tangible and intangible benefits. All costs should be transparent, without hiding behind claims of “commercial-in-confidence.”

While intangible benefits can contribute to the overall value of hosting mega events, their existence does not guarantee that the events will be financially viable. The evidence suggests that intangible benefits are unlikely to fully offset the costs.

This article is republished from The Conversation. It was written by John Madden, Victoria University.

SDGs, Targets, and Indicators

1. 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.

2. 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.

3. 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

1. Which SDGs are addressed or connected to the issues highlighted in the article?

   The issues highlighted in the article are connected to SDG 8 (Decent Work and Economic Growth), SDG 11 (Sustainable Cities and Communities), and SDG 12 (Responsible Consumption and Production).

2. What specific targets under those SDGs can be identified based on the article’s content?

   • Under SDG 8, the specific target is 8.9: By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products.
   • Under SDG 11, the specific target is 11.4: Strengthen efforts to protect and safeguard the world’s cultural and natural heritage.
   • Under SDG 12, the specific target is 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

   • For SDG 8, the indicator mentioned in the article is 8.9.1: Tourism direct GDP as a proportion of total GDP and in growth rate.
   • For SDG 11, the indicator mentioned in the article is 11.4.1: Total expenditure (public and private) per capita spent on the preservation, protection, and conservation of all cultural and natural heritage.
   • For SDG 12, the indicator mentioned in the article is 12.2.1: Material footprint, material footprint per capita, and material footprint per GDP.

Table: SDGs, Targets, and Indicators

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Source: au.sports.yahoo.com

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