How sound are event-based investments?

Wednesday, 10 November 2010 23:35 - - {{hitsCtrl.values.hits}}

Sri Lanka, just a few months after being star-struck by the International India Film Academy (IIFA) Awards, is now preparing for a much larger extravaganza – for Hambantota to be the host city for the 2018 Commonwealth Games. Ambitious as these plans are, they have already started taking shape with the President appointing the Central Bank Governor Ajith Nivard Cabraal as the chairman of the organisational committee tasked with putting together the bid for the games. True, the task is eight years ahead, but Sri Lanka has to prepare itself – especially if the last games in India are anything to go by – for an arduous task is ahead.

Controversy over the expenditure of IIFA has hardly died down and many were the astounded critiques when a fraction of the amount leaked out to through media. The exact cost and how it was sourced will in all probability never be revealed to the public, who to a large extent paid for it. The last minute rush to spruce up the city and haphazard construction that has since disintegrated for want of care raises questions as to what long-lasting benefits IIFA brought to Sri Lanka.

While on the positive side tourism could be a direct benefactor of these events, in the next eight years the industry is tagged to grow at an exponential rate without the need for the Commonwealth Games to prop it up. If tourism maintains the same momentum, then by the time the Commonwealth Games reach Sri Lanka – if at all – it will be more as a prestige point than actually bringing money into the country.

Even the Olympic Games that are heavily contested for have caused more headaches and revenue losses for most of their hosts than brought returns. Cities which host the Olympic Games must commit to significant investments in sports venues and other infrastructure. It is commonly assumed that the scale of such an event and the scale of the preparation for it will create large and lasting economic benefits to the host city. Economic impact studies confirm these expectations by forecasting economic benefits in the billions of dollars.

Unfortunately, these studies are filled with misapplications of economic theory that virtually guarantee their projections will be large. Expert studies have consistently found no evidence of positive economic impacts from mega-sporting events even remotely approaching the estimates in economic impact studies. When taking the Beijing Olympics, for example, it was found that the potential for long term economic benefits from the Beijing Games will depend critically on how well Olympics-related investments in venues and infrastructure can be incorporated into the overall economy in the years following the Games.

This is a point that Sri Lanka would do well to listen to, especially considering that the Cricket World Cup is just around the corner and three new stadiums are being built to host the dozen matches. Two stadiums are being built in Pallekele and Hambantota while the third, the existing Premadasa Stadium, is being rebuilt from scratch. These are all massively expensive ventures that have to give more returns to the economy than just providing fleeting cheering opportunities if their construction is to be justified.

So it is time for all stakeholders to beware of glittering extravaganzas and look beyond the glare to a sustainable future supported by these event-based investments.