Major Sporting Events in Emerging Economies and the Triumph of Nation Branding

Over the past 20 years, the bidding process for major sporting events shows an increasing presence of emerging economies. In turn, this has led to countries such as China, Russia and South Africa hosting these events. The benefits accruing from hosting these tournaments is often questionable, with numerous academic studies[i] showing there is almost always a significant net economic cost. Nevertheless, the tendency for emerging economies to host major sports events is set to continue. The logic for this is three-fold.

First, sporting organizations’ links with multinational corporations who stand to gain from increased access to large newly-prosperous markets, means they will generally be favourable to bids from emerging economies. For example, McDonalds used the 1976 Montreal Olympics as a platform to meet Soviet Union bureaucrats to discuss their entry to Russia[ii]. Although it took 14 years to happen, McDonalds gained a foothold in a market of close to 150 million people. Russia now contributes $2.5 billion a year to McDonalds revenue – about 9% of the total[iii].

Second – and closely connected to the first reason - the hunger to acquire new audiences will always drive large sporting organizations to new territories - 47% of the IOC’s revenue is generated through broadcasting and 45% of its revenue is generated through sponsorship.[iv] Similarly, the World Cup in South Africa in 2010 generated $2.4 billion through the sale of television rights and $1 billion via marketing rights for FIFA.[v] When one considers the size of television audiences in emerging economies and the potential of appealing to their growing spending power (see graph below), it’s not difficult to see the reasoning behind a shift towards these markets.

Source: McKinsey, Note 1: Consuming Class defines expenditure >$10 per day.

Third and finally, in addition to these push factors, there is a large pull factor to be considered: hosting a major sporting event allows the leaders of emerging economies to provide some intangible benefits to the electorate. A University of Utrecht paper[vi], suggests some of the intangible benefits which make rational politicians (their words, not mine) want to attract major sporting events are “nation branding, feelings of happiness and pride and the improvement of social cohesion among residents.” Nation branding deserves particular emphasis here.

Nation Branding

Emerging economies by definition have some catching up to do and hosting a major sporting event allows them to suggest on some level – and with some justification - that the country has “arrived” on the international scene. The language of opening ceremonies is littered with phrases like, “Welcome to the centre of the universe!”[vii] (Winter Olympics, Sochi, 2014), “This is the African World Cup,”[viii] (World Cup, South Africa, 2010) and “India’s big moment is finally here. India is ready.”[ix] (Commonwealth Games, India, 2014). It seems that nation branding is very much part of the host mentality.

Nation branding can be sneered at, but it has to be considered an important factor for emerging economies. A report into a survey of Chinese and US students[x] noted that 65% of the participants said they would be less likely to purchase a product because it was made in China. It states that, “products made in China have a stigma attached to them.” The survey results would probably be repeated across a range of emerging economies. If well-staged, the event positions a country and all that it offers in the best possible light.

Improving the Process

Despite its benefits, nation branding can still seem a little fuzzy when the economic costs of hosting major sporting events are so large (and seem to spiral with every passing tournament). The Sochi Winter Olympics cost an estimated $51 billion[xi] while the World Cup in Brazil will total out at more than $11 billion[xii]. Will we ever learn to run events affordably? The 1896 Olympic Games were held in Athens. They ran 1,000% over budget and Greece was bankrupt at the time[xiii] so the signs aren’t overly positive!

However, there are some early indications that despite ominous echoes from the past, some lessons are being learned. This year´s World Cup in Brazil 2014 might transpire to be a turning point for major sporting events. A FIFA delegate has said that, “the positive to be taken out of Brazil is that we have learnt from it and will do things differently next time.”[xiv] Likewise, the fallout will almost certainly make sponsors think about whether they want the publicity of being associated with these events.

Closing Remarks

Major sporting events such as the Olympics and the World Cup will inevitably continue to be held by emerging economies. In the past 10 years alone, cities such as Harbin in China, Almaty in Kazakhstan and Havana in Cuba have bid to host one of the Olympic tournaments. It could well be that what cities as diverse as these have in common more than anything else is the need for a better use of public funds than those required for a major sporting tournament.

However, major sporting events in emerging economies can provide the host nation with much-needed nation branding. In countries where citizens are more accustomed to seeing any mention of their nation in the international press preceded with the words, “developing market” or “emerging economy,” a prefix such as “Olympics games host” has the potential to give the country as a whole a boost. If the economics of hosting major sporting events are revised (and the hope is that they will be), there’s no reason to suggest emerging economies cannot host them successfully.

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[i] See in particular http://ideas.repec.org/p/hcx/wpaper/0404.html Also: Maenning, W., and Zimbalist, A., (2012). The International Handbook on the Economics of Major Sporting Events, Edward Elgar Publishing. ISBN: 9780857930262

[ii] http://www.telegraph.co.uk/sponsored/rbth/business/8426082/Bringing-McDonalds-Coca-Cola-and-now-Cirque-du-Soleil-to-Russia.html

[iii] http://www.nytimes.com/2014/03/08/business/international/western-businesses-in-russia-are-watchful-and-wary.html?_r=0

[iv] http://www.olympic.org/ioc-financing-revenue-sources-distribution?tab=sources

[v] http://www.fifa.com/aboutfifa/finances/income.html

[vi] Available at: http://www.uu.nl/SiteCollectionDocuments/REBO/REBO_USE/REBO_USE_OZZ/DP%202013/13-08.pdf

[vii] http://www.nbcolympics.com/news/evolving-russia-dreams-big-2014-winter-olympics-opening-ceremony

[viii] http://www.goal.com/en/news/1863/world-cup-2010/2010/06/11/1971308/world-cup-2010-fifa-president-sepp-blatter-south-africa

[ix] http://www.washingtonpost.com/wp-dyn/content/article/2010/10/03/AR2010100303490.html

[x] https://knowledge.wharton.upenn.edu/article/thanks-but-no-thanks-to-made-in-china-2/

[xi] http://www.theguardian.com/sport/blog/2013/oct/09/sochi-2014-olympics-money-corruption

[xii] http://www.cnbc.com/id/101750395#.

[xiii] Jennings, Will (2012). Olympic Risks. Palgrave and Macmillan. ISBN: 9780230300064

[xiv] http://www.reuters.com/article/2014/06/13/us-brazil-worldcup-megaevents-analysis-idUSKBN0EO0CJ20140613