Tomorrow (Wednesday) we will know whether South Africa will host the 2023 Rugby World Cup. Here are my thoughts on hosting mega-events:
One of my aspirations when I was in high school was to bring the Olympic Games to Cape Town. Imagine a brand new athletics stadium and athlete village at Ysterplaat. Athlone Stadium could play host to sevens rugby, while the breathtaking Cape Town Stadium would host all football games. Newlands Rugby Stadium could be converted into a 20 000-seater indoor gymnastics stadium, Bellville velodrome would play host to cycling, Hartleyvale could host hockey, Camps Bay beach volleyball, Muizenberg surfing, the Waterfront sailing, and Langa could get a brand new boxing venue and swimming pool that could serve the community long after the Olympics is gone. And what better venue to launch the new Olympic code of T20 cricket than Newlands cricket stadium?
The sports stadia would, of course, be just one element of a much bigger infrastructure drive. The largest innovation will be in transportation: a new, world-class international airport, built on the N7 to Malmesbury, would allow Cape Town to lift international arrivals from 2 to 10 million. A new CapeRocket mass rapid rail network would connect the new airport with the city and neighbouring towns of Paarl, Stellenbosch, Somerset West and Simon’s Town, perhaps even Worcester through the Huguenot Tunnel. If a train could take you from Worcester to Cape Town City Center in less than an hour, imagine what that would do to the daily commute – and property prices in rural areas! (That is radical economic transformation, I can hear Cape politicians say.) And an Uber-like app for all city transport, including taxis, now electric, would allow spectators to seemingly move between the different transport modes.
In moments of weakness, these dreams return. But then reality kicks in, informed by several years of research on the impact of mega-events. The picture is not a positive one. In short, the Olympic Games is an expensive undertaking which rarely delivers on the promises of spectacular economic growth. Robert Baade and Victor Matheson, two experts in the field, summarises it best: ‘In most cases the Olympics are a money-losing proposition for host cities; they result in positive net benefits only under very specific and unusual circumstances.’ There are exceptions, of course. Los Angeles in 1984 was a financial success for two reasons: it built very few new stadia, and the costs that were incurred were mostly funded by the private sector. Barcelona in 1992, too, is considered a success, uplifting a city to global tourism status to the extent that Catalonians are now trying to curb tourism.
But these are the exceptions that prove the rule. Most cities that host the Summer Olympic Games continue paying for the event long after the closing ceremony. Montreal hosted the 1976 Olympic Games; Canadians finally repaid all of the debt in 2006, 30 years later. Many even argue that Greece’s economic woes of the last decade was a direct consequence of its 2004 Olympic Games expenditure. Most Olympic venues, built specifically for the event, are, at best, used for occasional events, much like the Cape Town stadium that was built for the 2010 World Cup. At worst, these venues fall into disrepair, and become a huge fiscal burden on the local government. Consider, as example, Rio’s Olympic venues only one year after the event!
Ex post studies of mega-events confirm the visual evidence. In a paper I co-wrote with Maria Santana-Gallego in 2011, we found that mega-events like the Olympic Games and Soccer World Cup boost a host country’s tourism by about 7%. This varies depending on whether the event was held during the off-season (like the 2010 World Cup in South Africa, and unlike the Olympics in Athens), the type of event (the Olympics is held within one city, the Soccer World Cup in several cities) and even who participates in the event.
Even if tourism increases substantially, as it did for South Africa before, during and after the 2010 World Cup, these advantages can easily be undone. In a back-of-the-envelope calculation, I have shown that all the tourism benefits South Africa derived from hosting the FIFA World Cup were undone by our ridiculous visa rules in 2015, a classic case of the negative unintended consequences of good intentions without sound analysis.
Despite the evidence against mega-events, cities and countries still line up to bid for them. It seems like an irrational thing to do, but there are very rational reasons cities and countries do so. These reasons are mostly political. The politician who hosts the event, will often not be the one who pays for it. There is an immense feel-good factor associated with hosting mega-events; having watched 8 games of the 2010 World Cup around South Africa, I know these emotions very well. And voters often vote for politicians not based on calculated policy statements, but on how they make them feel. A second reason is that cities can use a mega-event to get a larger share of the national budget.
South Africa wants to host the 2023 Rugby World Cup. There are reasons for and against doing this. On the positive side, no new large infrastructure will be required. The event will also be held during the tourism ‘off-season’, meaning that rugby supporters would likely not displace other tourists. Its bid document projects an economic impact of R27 billion, with R5.7 billion to low-income households. A total of 39 000 temporary and permanent jobs is expected to be created. Sounds like a no-brainer.
But it’s not that simple; there are few things in life that are certain, but that these numbers are inflated is one of them. Cabinet has already approved a guarantee of R2.7 billion which was required World Rugby. The event will require public resources in an era when budgets are already under considerable stress. On the tourist side, South Africa have strong existing links with rugby-playing countries; tourism is therefore unlikely to see much of an increase before and after the event. And the feel-good factor of a tournament the size of the Rugby World Cup is limited if your team don’t win the finals; as a thought experiment, would 1995 have had such treasured memories were it not for Joel Stransky’s final drop goal?
Despite my childhood dreams, we were fortunate to escape the 2004 Cape Town Olympic bid, and even more fortunate to escape Durban’s Commonwealth Games disaster of 2022. Hosting mega-events are expensive parties, with inflated benefits and underestimated costs. (I should add: this is not only true for South Africa, but for Ireland and France, our competitors for the 2023 bid, as well.)
My heart wants us to win the bid; my head says it’s probably not the worst thing if we don’t. Let’s see what happens tomorrow!
*An edited version of this first appeared in Finweek magazine of 19 October 2017.