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Efficiency of tax Government investments in major sporting events - February/March 2016

Proposition: "Government investments in major sporting events usually generate net benefits for the city or region where the investment is made."

Overview of this month's poll results by Dr Liam Lenten

Despite frequent claims of sport being such an intricate part of Australia's social fabric and culture, there's not a lot of love for this month's Forum poll proposition.

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Poll responses

Responses chart

Chart responses weighted


Responses (25)


 

Peter Abelson

Uncertain (neither agree nor disagree)

10

Benefit depends primarily on negotiation over economic rent (profit) which belongs to the event promoter. This is so sensitive that the Australian (Victorian) Grand Prix Corporation would lose the right to run the GP if it revealed to any third party its payment to the F1 Corporation.


 

Garry Barrett

Disagree

10


 

Harry Bloch

No opinion

5


 

David Butler

Uncertain (neither agree nor disagree)

7

I'm not familiar with the evidence other than hosting the summer Olympics. Some cities probably had net benefits, Barcelona, Sydney, even London, but others did not. So probably a mixed bag.


 

Lisa Cameron

Uncertain (neither agree nor disagree)

8

It is hard to generalise on this one. A lot depends on the nature of the event and it is very difficult to know, even for a specific event what the net benefits are. The costs are relatively easy to calculate but the benefits are more difficult - in terms of the expenditures by the tourists who are attracted to the event, by locals who attend and also possibly unrelated expenditure driven by increases in confidence that can accompany such events. In my view, the arguments for and against hosting such events should not be purely economic. I would place relatively little weight on the economic arguments given the nebulous nature of any estimate of the net benefits.


 

Deborah Cobb-Clark2

Uncertain (neither agree nor disagree)

8


 

Lin Crase

Uncertain (neither agree nor disagree)

8

It's not always clear who are the winners and losers as much of the detail is suppressed. In any case this represents a redistribution of any benefits rather than 'new' benefits per se. In addition, the market failure that justifies government intervention in this domain is generally missing from the debate.


 

Kevin Davis

Uncertain (neither agree nor disagree)

9

It depends - a single event creates capacity constraint issues and while some temporary employment, owners of accommodation etc who get higher rents are not necessarily locals. The Centre for South Australian Economic Studies did a multifaceted review of the Grand Prix when it was in Adelaide and could not find evidence of net benefits (most significant effect was the "hoon effect" - more speeding violations. There is rarely adequate transparent cost-benefit analysis showing real government subsidy and non-market costs to locals. However, a portfolio of continuing major events may provide benefit via generating consistent increased tourist flow etc generating sustained employment and increased capacity opportunities.


 

Brian Dollery

Agree

7

As a general proposition this seems valid, but it is easy to find historical examples to the contrary, such as hugely expensive Football World Cup tournaments, the Olympic Games, and the like, which require immense infrastructure investment.


 

Uwe Dulleck

Uncertain (neither agree nor disagree)

9


 

Saul Eslake

Disagree

7

Governments rarely make publicly available the basis for their assertions that investments in major sporting benefits generate net benefits, which makes it very difficult to believe that they do.


 

Gigi Foster

Uncertain (neither agree nor disagree)

7

Major sporting events stimulate consumer spending on merchandise and other event-related goods, generate some local employment and occasionally some new infrastructure, and also strengthen patriotic or at least region-specific sentiment. However, government funding for such events crowds out spending on other goods and services that provide benefits to a wider swathe of society, and/or whose benefits last for a longer time (e.g., basic infrastructure, education, health). Hence, the "net" effect on the city or region is difficult to be sure of in the abstract.


 

john freebairn

Disagree

5

Most of the benefits and costs of major sport events are private with relatively small external spillovers. Government investment requires transfer of scarce funds and resources from alternative valued uses.


 

Stephen King

Strongly disagree

10

Major sporting events that are 'sold' around the world (Olympic games, Grand Prix races, Soccer world cups) are very unlikely to generate net economic benefits for the economy. Why? Suppose there were such gains. Then competition to host the event would mean that the gains are transferred to the sporting body that holds the rights to the event - either as explicit fees such as for the Grand Prix or as illegal fees (payments to certain FIFA officials come to mind). So at best competition for such events would lead to no (or very small) net gains. However, politicians, from Roman emperors to today, get electoral benefit out of the events. So they are likely to use public funds to bid more than the economic gains to get hold of these events. So basic economics tells us that when politicians bid for sporting events then the economy is likely to be losing.


 

Geoffrey Kingston

Agree

2

I guess there is a decent chance that a sporting event will generate positive externalities for the host city, but more information is needed before this type of question can be answered with any confidence.


 

Michael KNOX

Uncertain (neither agree nor disagree)

6

The ability of locations to capture the benefits of major events  depends on the bargain they can do on reaping the considerable income available from television rights.If they are indeed receiving enough of television right income to balance the costs of the event then the a positive promotional effect of the event will put the total benefits over the line into the positive.


 

Rodney Maddock

Agree

8

There will almost always be local net benefits from higher levels of government spending. In most cases it is not clear that the subsidies would survive a wider analysis of costs and benefits. Activity will be deflected from other areas so there will be losers as well as winners; there are likely to be better alternative uses of the funds; and of course the government spending has to be financed so taxes need to be higher than otherwise.


 

Tony Makin

Uncertain (neither agree nor disagree)

7

I doubt this is true, but it's ultimately an empirical question which depends on whether all of the inter-temporal benefits of the government investment (consumption?) outweigh the intertemporal costs. Sizeable cross-country samples of past sporting events (eg domestic vs international) would need to be examined to reach a definitive answer.


 

Warwick McKibbin

Uncertain (neither agree nor disagree)

6

The question is ambiguous. Does the "gain to the city or region" include the cost to the taxpayers who don't live in the city or region? It could be that economic output of a city rises but the tax payers in other parts of the State pay higher taxes which leads to lower overall utility. It also depends very much on how the event is supported and how it is funded. It also depends on the nature of capital investments that might be made as part of the hosting. Are capital investments sustainable after the event or do they become white elephants like the Olympic stadiums in Greece?. Does "usually" mean the number of events that lead to gain or the total value of events that lead to gain?


 

Flavio Menezes

Disagree

8

The question is not particularly well-posed. If the central government fully funds a major event in a particular city or region, then presumably the net benefit will always be positive. Thus, instead, I will answer the question in terms of the net benefit for the funding jurisdiction. In this case, I am not aware of any empirical study that supports the notion that sponsoring major events generates substantial net benefits to the host. While some infrastructure (e.g., transport) may bring substantial long-term benefits, it is less clear what will be the impact of expensive but specialised infrastructure such as stadiums or other sports venues.


 

James Morley

Disagree

8


 

John Quiggin

Disagree

8

As with some previous questions, the question is poorly posed in a way that does not explicitly include all the relevant opportunity costs. A region will experience net benefits if governments subsidise economic activity of any kind, including sporting benefits, and the cost is borne by taxpayers outside the region. To answer the correctly posed form of the question, the total costs of government subsidies to sporting events will normally exceed the total benefits.


 

Rana Roy

Uncertain (neither agree nor disagree)

7

When posed at this level of generality – with no specification of time or place or definition of "major sporting event" in the question itself (as distinct from the e-mail invitation) – this question cannot be answered with much confidence either in the affirmative or in the negative. Hence, the only safe answer here is "neither agree nor disagree". But as a practitioner of cost-benefit analysis (CBA), let me make three observations on the subject. (1) In any given jurisdiction in the OECD world, even the most ambitious CBAs in the field (for example, the London Olympics) are often held to less exacting standards than is required in other fields of public investment (for example, London's CrossRail). (2) And yet, and once again staying within the OECD world only, available benefit-cost ratios (BCRs) for investments in sporting events are nowhere near as high as is often obtainable in several other fields of public investment, such as health, education, infrastructure and environmental protection. (3) It is difficult to judge the relative merits of public investments in Australia since both the standards and the level of standardisation of CBAs leave much to be desired.


 

Peter Sheehan

Uncertain (neither agree nor disagree)

8

It is not possible to answer this question for sporting events in general. In Melbourne, for example, the investment in the Tennis Centre has generated massive net benefits, but it is doubtful whether there have been net benefits from the investment in the Grand Prix. It is the characteristics of the individual investment, and the spillover benefits that it generates, that matter, not whether or not it is a sporting event.


 

Hugh Sibly

Strongly disagree

7

The claimed benefit of hosting major sporting events are increased tourism and improved infrastructure. It is difficult to believe the money spent on hosting major sporting events would be more effective than spending directly on tourism marketing and normal infrastructure expansion. Indeed infrastructure developed for the sporting event may not be well suited to the daily needs of the city/region. Further, recent cost-benefit analyses have indicated major sporting events have a negative social benefit.