Economic effects

of mega-events

Informal Meeting of Directors-General

Responsible for Sport
Bonn, 1 - 2 February 2007

Johannes Gutenberg
Universitt, Mainz
1/20

Prof. Dr Holger Preuss

Institute of Sport Sciences
Department of Social Sciences, Media and Sport
Johannes Gutenberg University, Mainz

Contents
1. Economic importance of sport and events
2. Theories on hype and communication
3. The event strategy - Advantages and problems
4. The three phases of the event strategy
-

The bidding phase

= transparency through a sport satellite account

The preparation phase

= strategic planning with a view to sustainability

1. Importance
2. Theory
3. Event strategy
4. Phases
- Bidding
- Preparation
- Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
2/20

The event phase

= impact assessment using the sport satellite account

5. Recommendations

Economic importance of sport

1. In economic terms, the value of recreational and professional sport
is estimated to range between one and three per cent of the GDP of
EU Member States. Sport generates many jobs.
=> A pan-European sport satellite account is necessary to determine
and compare the economic importance and impact of sport in EU countries.

2. Sport is a cross-sectional business closely tied to other

industries.
=> Thanks to these close ties, the expanding effects of public funding of sport
1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
3/20

are stronger than the contracting effects of less public spending (at least in
Germany).

3. Sport also serves as entertainment; mega-events such as Olympic

Games (Barcelona, Athens, Lillehammer, Turin), football World Cups (Italy,
Germany) or EUROs (England, Belgium,Netherlands, Portugal) can have
particularly strong short-term effects on the national economy.

Hype and communication theory

mega-event

generates

(rare asset)

(OC, government )
Johannes Gutenberg
Universitt, Mainz
4/20

in
st

on

si
nte
re

ts
or

sender

event
message

sh
ow

p
re

win-win situation

the media
1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations

attention

recipient

Communication theory
event

sender
(OC, government )

Sender can use the

media hype to
spread messages
- about the event
1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
5/20

- other messages

message

recipient

Opportunity

Athens 2004

Messages about
positive economic
effects of the event,
about the country in
general and its
achievements.

34.6 billion global

viewing hours

Risk
- Events also transmit
negative messages
- The media cannot be
controlled.

Turin 2006
10.6 billion global
viewing hours

Economic effects of mega-events

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
6/20

signalling

transitory
economic
activity

long-term
legacy

- new/existing location factors

- general public relations
- consumption by tourists
- investments
- consumption by the OC and 3rd parties
- long-term economic activity by
changing location factors

= Event strategy

Event strategy
Aim = long-term increase in economic activity

signalling

transitory
2
economic activity
1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
7/20

long-term
legacy

Problem: location factors and PR at

the location are public goods
Problem: many of those benefiting
from the event did not contribute
to its financing
Problem: location factors are
public goods

Problems may cause market failures, which can only be

remedied by state intervention. BUT this is where
dependency on hype effects begins.

Effects of hype: Bidding phase

Idea

all

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
8/20

USP

Bidding phase

Preparation phase

mandatory
measure

opportunity: measures are known and

can be planned so as to
foster the development of
the location

voluntary
measure

Event phase

opportunity: Individual shaping of

location factors, the legacy
and the signalling effect
risk:
winners curse

= What is the events overall economic impact? When does it turn

into a curse?

Effects of hype: Bidding phase

Idea

Bidding phase

advantages
hype

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
9/20

(global attention
creates common
goal)

Preparation phase

Event phase

- accelerated development of the

location
- often political consensus
- provision of additional funds

disadvantages
(caused by time pressure,
hype complexity and external
requirements)

- planning errors
- insufficient sustainability

= To what degree does an event actually fit into the overall development
of a location?

Effects of hype: Event phase

Idea

Bidding phase

enables favourable
hype

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations

induces
hype

10/20

transitory
economic
activity
changes

hype
Johannes Gutenberg
Universitt, Mainz

signalling

location factors
(legacy)

Preparation phase

Event phase

+ location
+ general PR
- possible negative reports
+ visitors from abroad
+ strong consumption by the OC (security, etc.)
- redistribution & market shuffle
- may be undesirable in economic policy terms

+ new event structures:

infrastructure | emotion | know-how |
networks | image | culture

- may cause undesirable structural

changes

Digressions
Idea

Digression I

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSIONS
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
11/20

Digression II

Bidding phase

sport satellite
account
sustained
planning

Preparation phase

Event phase

as an aid to decision-making on
sport policy
to ensure responsible handling of tax
payers money and fair treatment of
EU Member States

Digression I: Sport satellite account

Estimating the macroeconomic effects of an event

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION I
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
12/20

signalling

intangible; hard to control;

difficult to attribute certain effects to
a specific event

transitory
economic
activity

tangible; easily attributable to the event

long-term
legacy

depends on external factors, hard

to estimate; difficult to attribute effects
to an event

Digression I: Sport satellite account

Estimating the macroeconomic effects of an event

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION I
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
13/20

transitory
economic
activity (TEA)

determine TEA using the sport satellite

account as an aid to political
decision-making on investments in sport

Escape the winners curse by making temporary

advantages of the event transparent
= with a sport satellite account, which can also be used for
a cost/benefit analysis!

Digression I: Sport satellite account

Satellite accounts are special data systems whose contents provide an
overall picture of sport based on national accounts, enabling
macroeconomic analyses.
=> In other words, sport satellite accounts are deeply structured
input/output tables containing sport-specific data.
Instructions for use:

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION I
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
14/20

1. Determine the primary impulse (through sport/investment/event)

2. Write the primary expenses into the sport-specific input/output table
(which takes account of intermediate input and output)
Result: Information (ex post) concerning:
- change in tax revenues
- change in the number of jobs
- change in the GDP
- benefiting branches
- direct and indirect (multiplier) effects

Digression I: Sport satellite account

Further applications include:
Information concerning the impact of
investment in sport facilities
increased public funding for sport,
alternative financing of sport,
tax deductions for sport clubs,
1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION I
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
15/20

state measures to preserve sport structures,

changed societal framework conditions,
(e.g. impact of demographic changes on public health or education)
changed organizational structures in the area of sport
(e.g. professionalization; shift from sport clubs to fitness centres)

Digression II: Long-term planning

Estimating the macroeconomic effects of an event

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION II
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
16/20

long-term
legacy

depends on external factors; hard to

forecast; difficult to attribute effects
to events

Digression II: Long-term planning

necessary infrastructure for the event

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION II
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
17/20

long-term
development of
the location

Digression II: Long-term planning

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION II
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
18/20

Area A

Area C

favourable
development of
location

event-related
development of
location

Area B
general
development of
location

Digression II: Long-term planning

Area B

Area C

general
development of
location

event-related
development of
location

Area A
favourable
development of
location

1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
DIGRESSION II
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
19/20

Aim:

Aim:

Aim:

maximize favourable
effects on
development

avoid hindering
planned development
(risk of redistribution
and debt overload)

maximize
temporary
infrastructure

Conclusions and recommendations

1

2
1. Importance
2. Theory
3. Event strategy
4. Phases
Bidding
Preparation
Event
5. Recommendations
Johannes Gutenberg
Universitt, Mainz
20/20

sport satellite
account

sustainability

location factors

- harmonize the definition of sport

- EU-wide guidelines for a sport satellite
account
=> trends are becoming visible earlier
=> justification for state sport funding
=> predictive instrument
- sustainability must be examined on a
case-by-case basis; EU Member States
should use a common approach to such
examination
=> fair intra-European competition
=> escape the winners curse
- Mega-events in Europe strengthen
location factors and send signals.
A public funding for mega-events is often
justified.
=> other EU Member States also benefit
from events in the EU