Big Event Financial Management - Essay Example

HOSPITALITY AND TOURISM MANAGEMENT by Event Management Essay Introduction In the recent past, major cities in the world have lobbied vigorously for the opportunity to host major global sporting events namely the FIFA football world cup, the Olympics, and other related global events. These events are traditionally referred to as "Mega Events," considering the scale of these sporting shows in terms of attendance and television viewership all over the world. There are numerous reasons why different major cities push to host these events. The most common and convincing reason being the desire to reap the financial and economic gains hypothetically associated with such events. Financial experts and researchers usually associate the mega events with huge amounts of income generated within the duration of the sporting events (Késenne 2005). Based on these economic and financial forecasts, many underdeveloped and developing nations are joining the lobbying fiasco for a chance to host the events, emphasizing on their right to get a share of the financial spoils and hopefully set in motion their infrastructural and economic development. Past experiences with cities that have played host to the FIFA football world cup event, for instance, South Africa and most recently Brazil reveal that a considerable amount of money must be directed towards the construction of excellent sports stadiums and other associated infrastructural facilities. Therefore, this raises the question of whether the financial benefit outweighs the associated cost of hosting such events. Does hosting the "Mega Events" present a perfect case of Fools Gold? (Barros, Ibrahı́mo and Szymanski 2002). Costs of Construction and Management of Mega Events With every FIFA football world cup event, host countries are required to have a minimum of eight highly accredited stadiums and two standby stadiums in case something happens to one or any of the eight reserved for the event. In the recently held FIFA world cup in Brazil, the nation was required to construct new additional stadiums to supplement the already existing fields. They additionally had to refurbish all the stadiums to conform to international standards. Brazil total approximated funding for the event averaged $3.5 billion (Zirin n.d.). Similarly, the Olympic Games have become an extremely costly venture to undertake, especially for the host cities because of the infrastructural improvements that have to be done. Some of the improvements that have to be undertaken include the road networks, communication networks and accommodation facilities within the host cities. Because of the amount of work and funds needed to be invested to successfully host the Olympic events, organizers for the event in the past selected developed nations such as England and Italy and the United States. Out of the possible twenty-seven Summer Olympic Games held since its inception, Mexico and Brazil are the only developing economies to have hosted the event outside Europe, the United States and developed nations of Asia. Cities such as Seoul and Barcelona used the event to overhaul their urban infrastructure completely. Such was the opportunity that organizers for the event in the two cities were looking out for, to create long lasting positive economic effects that would surely pay off the costs of laying out the infrastructure in the long run. Highly developed cities such as Atlanta in the case of the summer 1996 Olympic Games had to part with an approximated $587 million directed towards the management of the event. Sporting Mega Events Financial Gain Predictions Despite the high costs associated with managing these events, economic and financial experts highlight the importance of such events in monetary value. They predict huge economic gains from the increased spending on consumer goods by the visitors within the duration of the event. Individuals pushing for the hosting of the Atlanta games predicted a $5 billion direct economic injection into the American economy. They also cited a rise in employment opportunities for the locals who would be directly involved in the construction of infrastructure and the management of the event. Similarly, the Sydney Olympic Committee announced an expected $6 billion economic investment, with approximately 150,000 added job opportunities for the individuals (Feddersen & Maennig n.d.). Analysts predicted a $5 billion injection into the US economy for hosting 1994 World Cup and a whopping $25 billion for Japan for jointly hosting the 2002 world cup (Horne 2004). The academic reasoning behind the economic injection of the income into respective Gross Domestic Products for host countries is that these expenses on the infrastructural developments should be regarded as long-term investments. The long-term investments are in turn expected to deliver good financial and economic returns, in the long run. However, this school of thought has come under heavy criticism because it is alleged that pioneers for such research studies have a special interest associated with hosting the events, for instance, standing to gain directly from the provision of certain public financial support that the reports may persuade or validate. Errors Associated with Economic Impact Studies The studies used to support the push for funding mega events derive the financial impact of hosting the events from two perspectives. They argue from the overall consumption theory and the infrastructural improvement of the sporting and supporting facilities. Consumption figures are summed up to evaluate the overall economic effect on the economy (Li & McCabe 2012). However, the method is criticized for a number of fundamental flaws in measurement. Economic theorists argue that direct spending may be calculated using a gross evaluator and not a net measure. Many consumers have comparatively fixed holiday and leisure spending budgets, therefore, spending on tickets for watching the games substitutes for other related spending in the local economy such as concert halls and theatres. It is therefore regarded that the net effect of such spending on the local economy is equal zero (Billings & Holladay n.d.). It is advised that when carrying such surveys in the future, researchers confirm the place of residence in order to confirm the individuals who originate from the local area. Evaluating the Non-attending Locals Even though making amendments for the issues highlighted above may be significant for the individuals responsible for the event, the studies continuously ignore the effects of the mega events on the local residents who do not go to the events but live within the environs of the events venue. Because of the price increases of goods and services associated with such events, locals may change their spending cycles to avoid or accommodate the inflation (Grieve and Sherry 2012). Lack of putting into account, such information may pose another challenge associated with measuring the economic impact using the consumption method. Issues Related to Overcrowding Many "Mega-Branded" events are held in admired tourist regions (Herstein & Berger 2013). Events such as the FIFA world cup and the Olympics may have negative effects or externalities caused by congestion. Such externalities may discourage regular tourists from visiting the tourist areas in the duration of the event. Regular tourists may also be discouraged from visiting because of the limited hotel space for accommodation. Lack of privacy during the duration of the event is an additional disincentive for regular tourists. For instance, during the 2002 FIFA world cup in South Korea, it was approximated that the total number of foreign visitors at the time of the world cup was significantly close to the number of foreign visitors at the same time in the previous year. It was also estimated that the visitors avoided the world cup hassles, causing a significant decrease in hotel bookings within that period (Misener & Mason 2006). French and Disher (1997) analyzed that resorts and hotels situated close to the Olympic village in Atlanta recorded significantly less than average sales in the course of the games. The same situation was reported for those establishments situated approximately a few kilometres from the venue of the games. This was a clear case of the "crowding out" effect of the regular clients by the visitors. Construction: More Liability than Asset The economic gain evaluation associated with the effects of mega sporting events is also faulted by analysts in regard to the effects of increased construction. Coates and Humphrey (1999) argue that there exists no relationship between sports stadiums construction and economic growth. Nonetheless, many individuals consider increased constructions of the stadiums an economic benefit rather than a cost. Even though new infrastructure may significantly increase economic activity within a region, it is of paramount importance to consider the opportunity costs of such "mega projects." Spending on these projects would signify a reduction in the provision of other social amenities and public goods by the government. The government may not have enough to fully fund the constructions, and, therefore, may be forced to outsource funds, increasing the overall government debt significantly. To recover these costs, the government may also decide to increase taxation rates for the local community (Gibson et al. 2005). White Elephants and the Legacy of the Constructions The usage of the venues after completion of the events is extremely vital, more so for the venues constructed from the foundation for purposes of the event. Developing countries are faced with enormous risks of finding ways of utilizing the venues after the conclusion of the events. The venues may turn into white elephants, for lack of utilization because sports is a luxury good, and the demand for the same in developing countries is not sufficient to fully utilize the facilities (Alm, Solberg, Storm & Jakobsen 2014). The Nigerian government was forced to part with approximately $350 million to construct a new state of the art venue for the 2003 all Africa games, however, the nation remains devastated by rampant cases of insecurity, pathetic roads, and recurrent power blackouts. Furthermore, there is little that one can do with empty soccer stadia. South Korea experienced this after the 2002 world cup, when only five of their ten stadiums were put to good use after the world cup event. Even so, the 60,000 and above capacity stadiums received only a fraction of that number, averaging less than 5,000 in league matches. Conclusion It is evident that the mega-events such as the Olympics and the FIFA world cup are liable to not-so-accurate economic effect studies. These analyzes are prone to overstating the economic benefits of such events and hugely understating the costs and aftermath effects after the events are concluded (Whitson & Horne 2006). Opportunity costs associated with preparations of such events are a major problem; unfortunately, this has not hindered nations from actively lobbying for hosting rights. Even though there are some benefits that come because of such events, the hidden costs later on cause a lot of economic damage to such countries. It is of paramount importance to integrate development with the hosts country local economy and it must have a clear legacy path after completion of such events. Bibliography Alm, J., Solberg, H., Storm, R., & Jakobsen, T. (2014). Hosting major sports events: the challenge of taming white elephants. Leisure Studies, 1-19. doi:10.1080/02614367.2014.994550 Barros, C., Ibrahı́mo, M. and Szymanski, S. (2002). Transatlantic sport. Cheltenham, UK: E. Elgar. Billings, S., & Holladay, J. Should Cities Go for the Gold? The Long-Term Impacts of Hosting the Olympics. SSRN Journal. doi:10.2139/ssrn.1679126 Coates, D. and Humphreys, B. (1999). The growth effects of sport franchises, stadia, and arenas. journal of Policy Analysis and Management, 18(4), pp.601-624. Feddersen, A., & Maennig, W. Mega-Events and Sectoral Employment: The Case of the 1996 Olympic Games. SSRN Journal. doi:10.2139/ssrn.1868805 French, S. and Disher, M. (1997). Atlanta and the Olympics: A One-Year Retrospective. Journal of the American Planning Association, 63(3), pp.379-392. Gibson, H., McIntyre, S., MacKay, S. and Riddington, G. (2005). The Economic Impact of Sports, Sporting Events, and Sports Tourism in the U.K. The DREAM™ Model. European Sport Management Quarterly, 5(3), pp.321-332. Grieve, J. and Sherry, E. (2012). Community benefits of major sport facilities: The Darebin International Sports Centre. Sport Management Review, 15(2), pp.218-229. Herstein, R., & Berger, R. (2013). Hosting the Olympics: a citys make-or-break impression. Journal Of Business Strategy, 34(5), 54-59. doi:10.1108/jbs-12-2012-0074 Horne, J. (2004). The global game of football: The 2002 World Cup and regional development in Japan. Third World Quarterly, 25(7), 1233-1244. doi:10.1080/014365904200281249 Késenne, S. (2005). Do We Need an Economic Impact Study or a Cost-Benefit Analysis of a Sports Event?. European Sport Management Quarterly, 5(2), pp.133-142. Li, S., & McCabe, S. (2012). Measuring the Socio-Economic Legacies of Mega-events: Concepts, Propositions and Indicators. International Journal Of Tourism Research, 15(4), 388-402. doi:10.1002/jtr.1885 Misener, L., & Mason, D. (2006). Developing Local Citizenship through Sporting Events: Balancing Community Involvement and Tourism Development. Current Issues In Tourism, 9(4), 384-398. doi:10.2167/cit263.0 Whitson, D., & Horne, J. (2006). Part 2 The Glocal Politics of Sports Mega-Events: Underestimated costs and overestimated benefits? Comparing the outcomes of sports mega-events in Canada and Japan. The Sociological Review, 54, 71-89. doi:10.1111/j.1467-954x.2006.00654.x Zirin, D. Brazils dance with the devil. Read More