Economics of Sports Mega-Events PDF

The Economics of Sports 6TH EDITION Michael E. Leeds, Peter Von Allman, and Victor A. Matheson CHAPTER 8 Economics of...

The Economics of Sports 6TH EDITION Michael E. Leeds, Peter Von Allman, and Victor A. Matheson CHAPTER 8 Economics of Sports Mega- Events 1 8.1 A Brief History of Mega-Events Mega-events are characterized by several factors that differentiate them from other sporting contents. 1. They occur irregularly or infrequently. 2. They command a high level of public interest and media attention, especially at the national or international level. 3. They attract participants or spectators from outside the local region. Size is not the sole factor determining whether a sporting contest qualifies as a mega-event. The annual Honolulu Marathon attracts about 30,000 total runners, roughly half of whom travel to Hawaii from Japan. Since the Honolulu Marathon occurs only once a year and attracts a large out-of-town contingent, the marathon is considered a mega-event while a typical NFL game is not, even though it is larger. Some mega-events change locations regularly based on the awarding of the event by a selection committee. Summer and Winter Olympic Games and World Cups in various sports, such as football, rugby, and cricket, and the Champions League Final, as well as American events, such as the Super Bowl, All-Star games in the major sports, the US Open golf tournament, and NCAA championships in basketball and football. 2 8.1 A Brief History of Mega-Events Other mega-events, such as the World Series, Stanley Cup, and NBA Finals change locations based on the teams participating. Still other mega-events always take place in the same location but do so only annually. Grand Slam tennis tournaments, College Bowl games, such as the Rose Bowl in Pasadena, major marathons in locations such as Boston, New York, and Chicago, auto races such as the Daytona 500 or Monaco Grand Prix, and horse races like the Kentucky Derby. The Original Mega-Event: The Ancient Olympics The Olympic Games were one of four sets of Greek athletic contests, the other three being the Pythian, Nemean, and Isthmian Games. The Olympics were first held in 776 B.C. (the earliest recorded date in history) and continued every four years for over a millennium to honor the Greek god Zeus. 3 8.1 A Brief History of Mega-Events The Modern Olympic Games The first modern Olympic Games, held in Athens in 1896, were a small affair, encompassing only 14 nations and fewer than 250 athletes. Winners at the time were given silver medals and runners-up were awarded copper The event was considered a huge success. The main events attracted the largest crowds ever to watch a modern sporting event to that date. In 2024 in Paris, over 10,000 athletes representing 204 countries, participated in 329 individual events in 32 different sports. On a somewhat smaller scale, the Winter Olympics have been held since 1924. In 2022, Beijing, China, welcomed nearly 3,000 athletes from 91 countries to compete in 109 events, 15 disciplines in 7 sports. 4 8.1 A Brief History of Mega-Events The Modern Olympic Games, continued. At first, only amateurs could participate. Jim Thorpe, one of the greatest athletes in U.S. history, was stripped of the gold medals he won in the decathlon and pentathlon 1912 when it was discovered that he had earned money playing semi-professional baseball in the years before his appearance at the Olympics. By 1984 it was clear that, due to the rise of highly organized professional leagues across the globe, many of the best athletes in the world were no longer amateurs in any sense of the word. Fans wanted to watch talent rather than valuing amateurism. Increasingly difficult to distinguish between amateurs and professionals. The skaters on the Russian national hockey team, who were famously beaten by a rag- tag team of American collegiate skaters in the 1980 Winter Olympics in the “Miracle on Ice,” were officially employed as soldiers of the Red Army so as not to jeopardize their amateur status even though they were paid to train full-time, year-round as hockey players. Today, the participation of recognized professionals is both taken as given and touted as one of the attractions of the Olympics. 5 8.1 A Brief History of Mega-Events Location The International Olympic Committee (IOC) selects the host city through an extensive, costly, and occasionally corrupt bidding process roughly 6 years before the event. Historically, the IOC awarded to the Games exclusively to large cities in the world’s richest countries. Between 1896 and 1952, every Summer and Winter Games was held in either Western Europe or the U.S. Beginning with Melbourne, Australia in 1956, the Olympics spread its footprint to new parts of the globe, but the IOC still favored bids from communities in rich, industrialized nations. In 1968, Mexico City became first city in the developing world to host the Games, and Eastern European countries won bids for the first time for the Summer Games in 1980 (Moscow) and Winter Games in 1984 (Sarajevo, Yugoslavia). Beijing hosted the 2008 Summer Games and the Winter Olympics in 2022. In 2016, Rio de Janeiro became the first South American Olympic host. Prior to 2000, 20 percent of the bids submitted for the Summer Games came from outside of Western Europe, Japan, Australia, Canada, and the U.S., but since 2000, over half of all bids have come from this group. 6 8.1 A Brief History of Mega-Events FIFA and the World Cup The world’s other major international mega-sporting event is the FIFA World Cup. Football’s first governing body, the English Football Association formed in 1863, and the first international football match was played between Scotland and England in 1872, but it took over 50 years for an international organization to bring together various national football organizations. In 1904, officials representing seven European football associations met in Paris to form FIFA (Belgium, Denmark, France, Germany, the Netherlands, Spain, Sweden, Switzerland). The first official match under the auspices of the group was played later that year. The addition of England, Scotland, Wales, and Northern Ireland the next year cemented FIFA as the dominant body worldwide. The Olympics held international football competitions starting in 1900, with FIFA taking the lead role beginning in 1908, but FIFA always argued for the inclusion of professional players in international tournaments. In response to football’s growing prominence in the Olympics as well as ongoing disagreements about amateurism, in 1930, FIFA inaugurated the World Cup, to be held every four years opposite the Summer Olympics. 7 8.2 The Short-Run Benefits of Hosting Mega-Events Why would a country or city want to host a mega-event? Expected revenue from the event and from tourists Consultants produce economic impact studies claiming huge benefits for the host economy. The overwhelming consensus among these economists is that sporting events have little to no significant short-run economic impact on local economies. One-time events generate revenue streams that are very similar to those generated by teams: ticket sales, media rights, venue-related revenues, and sponsorships. In most cases, the sanctioning body (IOC, FIFA, NFL, etc.) controls these revenues. Every penny of the $5 million the NFL earns from every 30-second Super Bowl commercial, as well as all of the ticket revenue, parking fees, and concessions money, goes straight into the NFL’s pockets and not to the host city. For the 2015-2018 Olympics cycle that included the Rio and PyeongChang games, the IOC earned about $4.1 billion in television rights and sponsorships, roughly half of which was shared with the local organizers. The host cities kept ticket revenue, domestic sponsorships, and licensing money. But as shown in the table on the next slide, this is not sufficient revenue to cover the costs of hosting. 8 8.2 The Short-Run Benefits of Hosting Mega-Events Since much of the direct revenue that hosting a mega-event generates does not stay in the host city, the primary economic benefits from such events are the indirect expenditures by tourists who come to watch the games. Impact can stretch well beyond the end of the event Most likely if the event leaves a legacy of infrastructure, or if it generates buzz about the host city that attracts future tourists. 9 8.2 The Short-Run Benefits of Hosting Mega-Events Problems with Ex Ante Economic Impact Studies Unrealistic projections of the number of visitors or their potential spending lead to bad estimates. Denver tourism officials predicted that 100,000 visitors would come to town for the 2005 NBA All-Star Game. But the game was taking place at the 18,007 seat Pepsi Center, and downtown Denver had fewer than 9,000 total hotel rooms. A $30 million windfall for the Denver economy was predicted, but the reality was far less than that. The 2014 Super Bowl, held just outside New York City, had a predicted economic impact of well over half a billion dollars. Every hotel room in town was expected to sell-out rapidly, despite the fact that the New York/New Jersey area is home to 115,000 hotel rooms, and MetLife Stadium holds fewer than 83,000 fans. Some officials projected that 400,000 visitors would come to New York for the game, a number that seems highly optimistic. Just four days before the big game, two-thirds of Manhattan hotels had rooms available, and prices had fallen over 30 percent from their peak. 10 8.2 The Short-Run Benefits of Hosting Mega-Events Problems with Ex Ante Economic Impact Studies Even when one takes care to make reasonable assumptions, at least three prime factors might lead a typical ex ante economic impact study to overestimate the true economic impact of a sporting event: 1. The substitution effect 2. Crowding out 3. Leakages 11 8.2 The Short-Run Benefits of Hosting Mega-Events Substitution Effect The substitution effect occurs when a sporting event attracts spending that otherwise would have been spent elsewhere in the local economy. Since most fans at a typical game are local, most spectator sports just reallocate where spending occurs in the economy rather than generating new economic activity. Mega-events are characterized by the extent to which they attract fans from outside the region, and thus have smaller substitution effects. Only 5% of tickets to the Super Bowl are allocated to the host team, while 70 percent are allocated to the other 31 teams in the league, with the remaining 25 percent divided up by the NFL itself to important corporate sponsors and VIPs from across the country. But spending by out-of-town visitors at a sporting event might not cause a net increase in economic activity, because tourists who plan to visit the city later may just come earlier for the mega-event (time-switching, or intertemporal substitution). 12 8.2 The Short-Run Benefits of Hosting Mega-Events Crowding Out The crowds and congestion associated with a sporting event may “crowd out” other economic activities. The Boston Marathon, the world’s premier distance running event, attracts over 25,000 runners from around the world as well as hundreds of thousands of spectators. Also makes the streets of downtown Boston nearly impassible every third Monday in April. Any economic benefits associated with out-of-town racers and spectators who buy goods and services relating to their running and watching the race need to be balanced with the economic costs of businesses that cannot service customers on that day due to the travel difficulties associated with shutting down 26.2 miles of major roads and every associated cross-street in the city. Sports fans may also occupy hotel rooms that otherwise would have been used by other tourists or business travelers. 13 8.2 The Short-Run Benefits of Hosting Mega-Events Crowding Out Just as in the case with the substitution effect, a good economic impact study subtracts out those who do not come from those who do. The UK’s Office for National Statistics reported that an impressive 590,000 overseas visitors came to the UK during July and August 2012 in connection with the London Olympics. However, there was an overall decline in the number of overseas visitors to the UK, from 6.57 million in July and August 2011 to 6.17 million a year later during the Olympics, a decline of 6 percent. The number of visitors to the UK for reasons other than the Olympics fell by nearly 1 million as compared to the previous year, far more than the increase due to the Olympics. This pattern has been seen over and over again in countries and cities hosting mega-events. Detailed academic studies of tourist arrivals also show clear evidence of regular tourists being crowded out by sports fans. Also true for smaller events, such as the Honolulu Marathon and the Pro Bowl. 14 8.2 The Short-Run Benefits of Hosting Mega-Events Leakages The use of a multiplier magnifies any errors made while estimating the direct economic impact of an event. Applying an unrealistically high multiplier exaggerates the economic impact of any study. The leakages associated with mega-events may be worse than those experienced during a recurring sporting event. The multipliers used in economic impact analyses are based on normal economic times, but during a mega-event, the economy is not normal. A city’s hotels might be charging two or three times the normal room rate, but those profits go to corporate headquarters, not the local economy. Mega-events may also require a city to import labor to meet the demands of the event, and those workers leave after the event, taking their wages with them. These leakages from the local economy reduce the multiplier and the economic effect of the mega-event. 15 8.2 The Short-Run Benefits of Hosting Mega-Events Event Analyses Several recent studies have analyzed the economic impact of mega-events using a technique called event analysis. Several studies have used this technique to test whether overall stock market indices rise in response to the announcement that the country will host the Olympics. Such a rise indicates that hosting the Olympics will be good for the economy. The studies find that the announcements of the 2000 Sydney Games and the 2020 Tokyo Games had no impact on the Australian or Nikkei exchanges, and the announcement of the 2008 Beijing Games had only a brief impact on the Shanghai exchange. Only the announcement of the 2004 Athens Games had a lasting positive impact on the Athens exchange. 16 8.2 The Short-Run Benefits of Hosting Mega-Events Ex Post Economic Studies The question of economic impact must be answered by using data to carefully analyze events after they occur, ex post studies. Economists look for changes in economic variables such as personal income, employment, taxable sales, tourist arrivals, or other data that might show whether economic activity increased during a mega-event. By and large, independent studies by researchers who are not associated with the events being studied have found much lower economic impact from a broad range of spectator sporting events. 17 8.3 The Long-Run Benefits of Hosting Mega-Events The most obvious potential legacy from a major event is also the one least likely to pay economic dividends, sports facilities. Especially true for the Olympics, since many Olympic events require highly specialized sports infrastructure that have little use beyond the Games. May burden cities with heavy on-going expenses to maintain little-used “white elephants.” Brazil built or refurbished 12 stadiums for the 2014 World Cup at a cost of $3.6 billion, but several of these stadiums were built in cities without teams that can hope to fill them. Brasilia, the home of the most expensive stadium built for the tournament, is using as a bus depot. Beijing’s iconic “Bird’s Nest” Stadium has rarely been used since 2008 and has been partially converted into apartments. Even when possible, converting facilities to new uses can be costly. The Stadium at Queen Elizabeth Olympic Park in London was designed to be converted after the Games into a football stadium for the EPL club West Ham United. However track and field stadiums and football stadiums have very different optimal seating configurations. The Olympic stadium was originally slated to cost $360 million, but cost overruns led to a final construction cost of over $550 million. Removing the track and preparing the facility to accommodate football matches cost an additional $350 million, of which West Ham United paid a mere $20 million. https://www.youtube.com/watch?v=1iYpODEoLd4 18 8.3 The Long-Run Benefits of Hosting Mega-Events General Infrastructure Spending on general infrastructure improvements clearly has much better potential for positive returns. It is sometimes argued that a primary benefit of a major event like the Olympics is that it can generate the political will required to undertake needed infrastructure investments and give a region a firm deadline to complete these projects. But if a mega-event project uses public money that could be have been directed to an alternative project with a higher return (opportunity cost), then the Olympics spending reduces national output even if the event itself runs a surplus. Australian economists James Giesecke and John Madden found this when they examined Sydney’s 2000 Summer Olympic Games. Correcting for problems like the substitution effect, crowding out, and leakages, they compared the current state of the Australian economy against a hypothetical world in which Sydney had never hosted the Olympics. They estimate that household consumption in Australia would have been $2.1 billion higher without the Olympics. 19 8.3 The Long-Run Benefits of Hosting Mega-Events Advertising and Branding A mega-event can increase the profile of a city as a major tourist or business destination. Barcelona, which is often cited as hosting one of the most economically successful Olympics, was relatively unknown prior to 1992 and received less than half the number of annual visitors of its Spanish neighbor, Madrid. Focused its Olympic preparations on revitalizing its harbor and central business district, minimized its spending on sports facilities, and highlighted its non-sports offerings during its three weeks at the center of the sports world’s attention. Experienced the fastest tourism growth of any of Europe’s major cities, rising from the 13th to the 5th most popular tourist destination in Europe. But some cities lack attractions that would make them desirable for future tourism once an event is over (PyeongChang?). Other cities are already so well-known as tourist destinations that any additional advertising is unlikely to make much difference. 20 8.4 The Costs of Hosting Mega-Events 21st century → upward trend in the sports-related cost of both Summer and Winter Olympics, as seen by the rising height of the bubbles in Figure 8.1. Every Olympics has come in over budget. The size of the overruns – as seen by the size of the bubbles – has generally grown over time. In this century, the average Summer Olympics exceeded its budget by 125%, with the Winter Games only slightly better at 98% over budget → this is more than double the average cost overrun for railroads and five times the average overrun for roads. 21 8.4 The Costs of Hosting Mega-Events Ensuring that the region has sufficient infrastructure to accommodate the anticipated wave of tourists and athletes. For the Summer Olympics, the IOC requires that all prospective hosts have at least 40,000 hotel rooms and housing for 15,000 participants. Transportation facilities, hotel rooms for tourists, etc. Investing in infrastructure may leave a positive legacy for the host city, building hotels and transportation networks to meet peak demand during a mega-event may leave a city with severe excess capacity once the Games are over. Sochi became an “instant ghost town” after the 2014 Winter Olympics, while 40% of the luxury hotels in Lillehammer, the 1994 host, declared bankruptcy soon after the fans and athletes left town. Construction of competition venues. Cost is higher for the Olympics than other mega-events due to the relatively obscure sports they feature. Event management, transportation, and security, especially in a world in which terrorism is a concern. Even smaller events can entail large expenditures. The cost to host the Super Bowl is generally a closely guarded secret between the NFL and the local host committee. 22 8.4 The Cost of Hosting Mega-Events Often difficult to find accurate figures relating to the cost of hosting mega- events, as they are often run by private organizations. Also difficult to disentangle a region’s normal expenditures and investments from those related to a mega-event. Some might include the cost of the highway built between Salt Lake City and the mountains as a cost of the Olympics since the Games clearly affected the timing of the project. Others might not attribute the expense to the Olympics since the investment was long-planned and would have occurred eventually without the Olympics. Public officials and organizers are reluctant to release a full accounting of the costs because they fear a public outcry over cost overruns or corruption. For example, we will never know the true cost of the 1998 Winter Olympics in Nagano, Japan (estimated at $14 billion or more) because, at the conclusion of the Games the organizing committee ordered that all records be burned. The table on the next slide provides cost estimates for several recent mega-events, breaking up the costs into various components such as operations, sports infrastructure, and general infrastructure when such information is readily available. 23 8.4 The Cost of Hosting Mega-Events 24 8.4 The Cost of Hosting Mega-Events According to a study by Flyvberg and Stewart, every Olympic Games between 1968 and 2012 cost more than originally planned. The average Olympics ended up 150% over budget, and the worst offenders, Montreal in 1976 and Sarajevo in 1984, exceeded the original cost estimates by a factor of 10. Even these figures may understate the true cost overruns. London’s original bid for the 2012 Summer Olympics was £2.4 billion when it was awarded the Games in 2005. Within two years, however, its budget had grown to £9.3 billion, an increase of nearly 300%. When the final cost came in at “only” £8.77 billion, the organizers claimed without a trace of irony that the Olympics came in under budget. The nature of the bid selection process also tends to drive up costs, as the bid itself can be quite expensive. Chicago spent between $70 and $100 million in its ultimately unsuccessful attempt to host the 2016 Summer Games. By pitting cities against each other, the IOC can insist on more lavish accommodations for athletes and officials and more impressive venues. Cities facing rivals not only have to present a plan to successfully host the Olympics, they must also present a plan that is lavish enough to beat out the other candidates. 25 8.4 The Cost of Hosting Mega-Events The story of the 1984 Los Angeles Summer Olympics illustrates this phenomenon. Interest in hosting the Olympics waned in the 1970s due to concerns about spiraling expenses. By the time the IOC awarded the 1984 Summer Games, Los Angeles was the only bidder. This put Los Angeles in the driver’s seat, and the Los Angeles Organizing Committee (LAOC) could dictate the terms of bid to the International Olympic Committee rather than the other way around. The LAOC insisted on utilizing the area’s existing sports infrastructure, some of which had been used five decades earlier when Los Angeles had hosted the 1932 Olympics. The LAOC kept costs down, resulting in total expenditures of only $546 million ($1.244 billion in 2015 dollars), a figure less than one-quarter that spent by Montreal eight years earlier. The 1984 Los Angeles Games also managed to become one of the only profitable Games in modern Olympic history, with a profit of $232.5 million In the wake of Los Angeles’s profitable showing, multiple cities entered the bidding process in the hopes of earning a similar economic windfall, which shifted bargaining power back to the IOC. This situation led to an escalating “arms race” among Olympic bidders leading to increasingly spectacular bids and serious corruption in the bidding process. 26 8.4 The Cost of Hosting Mega-Events More recently, likely in response to what cities saw as out-of-control spending by hosts such as Sochi and Rio, the enthusiasm to bid for the Olympics has waned. Five of seven cities originally in the running for the 2022 Winter Olympics withdrew their bids, often in response to unfavorable outcomes on voter initiatives or general public pressure. The two remaining cities were Beijing (China) and Almaty (Kazakhstan), two locations not known for respecting the democratic wishes of their citizens. The competition for the 2024 Olympics went down to just two bidders as well, Los Angeles and Paris, as Hamburg, Rome, Budapest, and Boston all dropped from the running due to public concerns about costs. IOC decided to give 2024 Games to Paris and 2028 Games to Los Angeles. 27 8.5 Why Do Cities Continue to Bid? Institutional Reasons Why Cities Spend So Much Once the contract is signed, it’s difficult to reduce costs. Reversing course and canceling the event is politically and legally difficult, nor can it delay the event, as the deadline is fixed years in advance. That is why Denver remains the only city to back out of hosting an Olympics (1976). A host also has very few options as to the facilities it can provide, as the nature and quality of the arenas are often specified in detail. To host a World Cup, a country must provide 12 stadiums (14 starting in 2026) that hold 40,000 to 80,000 fans, depending upon the matches played there. Each stadium must be near an airport that can handle at least 1,450 people per hour. Each team must have its own base training site as well as a training site at each stadium. There must be 72 base camp hotels for teams and referees and four hotels near each stadium. Each host city must have hotels that can accommodate 1,760–8,080 fans, again depending upon the match played there. FIFA, the IOC, and other organizations make such demands because they are concerned solely with the revenue that the mega-events generate. Organizing committees are typically willing to accede to such demands because their costs are often limited to operational expenses associated with staging the events. The cost of providing the infrastructure for the events is typically left to the host city or country. 28 8.5 Why Do Cities Continue to Bid? The All-Or-Nothing Demand Curve Cities have to host the entire Olympic Games or none at all, and a country bidding for the World Cup does not get to choose which of the games it wishes to stage. The all-or-nothing choices give the IOC and FIFA an advantage that even the most powerful monopoly rarely has because they can choose both price and quantity. While a monopoly has the power to set the price it charges or the quantity it sells, it usually cannot do both at once. Under certain circumstances, a monopolist can dictate both price and quantity. Foot-long hot dogs at the stadium or one-pound boxes of cookies at the movie theater are far bigger than most consumers want, but they enable producers to extract consumer surplus by getting consumers to buy more than they wish to buy. The IOC or FIFA exploit their monopoly power by auctioning off teams or events to an array of eager cities, offering an all-or-nothing choice. 29 8.5 Why Do Cities Continue to Bid? The All-Or-Nothing Demand Curve If this was a typical monopolist, a city would choose to buy Q1 events under monopoly price P1, and its residents would enjoy consumer surplus AEC. The IOC could take some of this surplus by telling the city that if it wanted to host any event at all, it had to stage all of them (Q2). At this price, there is a loss equal to EFG, because residents must pay more than the additional quantity is worth to them. As long as consuming “too many” sports is preferable to consuming none, the city chooses to consume too much. The IOC can push the city to stage more events until the size of the loss (EFG) catches up with the size of the surplus (AEC). 30 8.5 Why Do Cities Continue to Bid? The Winner’s Curse Behavioral economics proposes that cities might be falling victim to the winner’s curse. Occurs in auctions in which the bidders do not know the value of the prize with absolute certainty, and shows that in this setting, the winner may overpay for what has been won. Consider the fact that Rio had to outbid several other cities to host the 2016 Summer Olympics. Suppose all cities based their bids on how much they expected the Olympics to be worth and hired experts to evaluate the benefits, on which they based their bids. Rio might have won the bidding for any of three reasons. 1. It might have been able to put on a more profitable Olympics than any other city. 2. It might have overestimated the benefits that the Olympics would bring. 3. The auction process itself might lead Rio to bid more than the Games are worth by making winning the auction more valuable than the prize itself. Empirical studies of bidding behavior have shown that, on average, bidders accurately assess the value of uncertain prizes, but that the winning bid consistently overstates the value of the prize. The degree to which a winner overbids generally rises with the number of bidders. 31 8.5 Why Do Cities Continue to Bid? Every mega-event is different, and some may offer greater potential for economic success than others. Net benefits of some events may be positive even if less than expected. Some regions may be better equipped than others to host these events, usually because of existing facilities. Distribution of Costs and Benefits Even when net benefits are negative, some sectors of the economy will gain. The hospitality industry is likely to gain due to higher prices and increased occupancy rates. Local transportation providers such as taxis, limo services, and Uber drivers Bars and restaurants near the competition venues Construction companies gain from the need for new infrastructure. 32 8.5 Why Do Cities Continue to Bid? Non-Economic Rationales The bidding process may be driven by the egos of local politicians or by countries that wish to demonstrate their growing political or economic might. The 2008 Summer Olympics in Beijing were seen as a signal to the world that China had arrived as global leader. The 2014 Winter Olympics in Sochi, Russia was an effective display of Russian President Vladimir Putin’s political power (cost $51 billion). The rising economic power of the BRICS nations (an acronym for Brazil, Russia, India, China, and South Africa) is reflected in their desire to host mega-events. May also be worthwhile if they bring non-monetary benefits to the citizens of the host cities. Civic pride Allmers and Maennig found only a very small change in tourism and national income due to the 2006 World Cup in Germany, but they did find a measurable increase in the self-reported happiness of Germans following the tournament. 33 End of chapter questions 1) If a city already has sports infrastructure in place, should it frequently bid for mega-events? Should relatively poor countries refrain from hosting? 2) How does the economic impact of holding the Super Bowl in Minneapolis, Minnesota – the site of Super Bowl LII – compare with holding it in Miami or New Orleans at the same time? 3) Why would a Champions League final in Paris have more of an impact on Paris than a regular season PSG game that draws the same number of fans? 4) If you are the mayor of a city hosting the Champions League final, do you want the hometown team to make it to the championship game? 5) Suppose the International Olympic Committee announced that it would hold all of its Summer Games in Athens and all of its Winter Games in Sapporo. What is the likely impact on the monopoly power of the IOC, the IOC’s ability to exploit an all-or-nothing demand curve, and the winner’s curse? 6) Using the concepts discussed in this chapter, discuss whether a small city like Indianapolis or a big city like Los Angeles would benefit more from hosting the NBA All Star Game. 7) If the Summer Olympics typically attracts one million tourists and, the typical Olympic tourist spends $5,000 while at the Games, did the Coronavirus pandemic – and inability of Olympic tourists to enter Japan – cost the Japanese economy $5 billion? Justify your answer. 8) A consulting group estimates that holding the NBA All Star Game in Miami next February would attract 25,000 people from outside Miami. It further estimates that they would stay an average of three days and spend $400 per day. a. Using these assumptions, what is the direct impact of the game on Miami’s economy? b. If the consulting group assumes that the MPC in Miami is 0.95 and the MPI is 0.15, what is the total impact of the game? c. Why might your answers to (a) and (b) overstate the impact of the game? 34