To what extent do major sporting events act as a focus for inward investment?

University Degree Business and Administrative studies

Inward investment is the capital attracted to a region or a country from beyond it boundaries. (Source Skinner, Malcolm the complete A-Z Geography handbook second edition page 160) For major sporting events to be successful the government needs to play a key role to help actually pay for the bid to host the event. They also need to attract both domestic and international organisations to help to finance the event.

There are a number of important sporting events occurring annually all over the world. The sporting industry has become very profitable in recent times. One reason it has grown quite significantly is because of globalisation. For example the premiership is an English football league which can be viewed on a global scale because of Rupert Murdoch’s television empire

Figure 1. The table shows the television companies he owns in different countries. (Source march 2003)

All of these broadcasters show major sporting events in one way or another which can be viewed globally. There is intense competition to host these major sporting events because of the global demand to see all of these events for example two billion people one third of the global population were estimated to tune into the opening ceremony of the football world cup 2002. (Source Korea and Japan partnering for the 21st century by yun-take lee 2002)

Sport on the whole is becoming more lucrative. (See Figure 2 below)

Figure 2. Shows how different sports have grown financially in a space of a few years. (Source Deloitte & Touche Sport .http://news.bbc.co.uk/1/hi/business/2405373.stm

February 2003) Other factors which increase the demand for sporting events are due to people having more free time, improved access and more disposable income.

An issue to be discussed is ‘why do countries bid for the major sporting events?’

The prime reason is the economic benefits it brings in i.e. the multiplier effect. This is where a new economic activity in an area creates extra employment and raises the total purchasing power of the population, which in turn attracts further economic development creating more employment, services and wealth. This has been best described ‘success breeds success’ (theory by Swedish economist Gunnar Myrdal)

There are three main issues that must be considered in regards to inward investment. The first issue, is the increase in the profile of sport has attracted inward investment and sponsorship for major sporting events, but why? The reason is this is a great opportunity to market a company’s product on a global scale (global marketing) this is evident in the Japan/korea world cup 2002 case study (see figure.5)

Secondly, to be considered is why is inward investment not enough to fund the major sporting events? The reason for this is that Trans National Corporations are not going ...

This is a preview of the whole essay

Secondly, to be considered is why is inward investment not enough to fund the major sporting events? The reason for this is that Trans National Corporations are not going to invest heavily into a country when a country is trying to bid for a major sporting event. The main reason for that is if the country does not get the event, the investment would prove to be a waste of money. Therefore the government needs to provide some investment to actually pay for the bid itself and they may also need to invest in the infrastructure of the area to make the bid more attractive. (This is evident in the Manchester case study) It is only when the country actually secures the bid this is when foreign firms become interested because of the marketing opportunity.

Finally is why do some events attract more inward investment then others. The reasons are based upon the socio-economic and political circumstances in a particular country. If a country is politically and economically unstable then it is more than likely that firms will not invest heavily. This is the case for Zimbabwe and the 2003 cricket world cup.

South Korea and Japan were once bitter rivals as South Korea at one point was under Japanese colonial rule however Yun-Taek Lee (co-chairmen of the Korean world cup organising committee quotes ‘the world cup is bringing korea and Japan closer together and helping to build relationships that help transcend the painful memories of the past’)

The economic benefits are to be gained, however the substantial investment in resources required to prepare for the world cup is huge.

Figure 5 above shows the investment provided by the government to pay for the infrastructure require for the world cup (Source February 2003)

The question to be asked is how many countries can afford this today? These stadiums will be perfect for holding large scale concerts and performances so it will be able to attract commercial and tourist visitors in the long run. The economic benefits can be divided into direct and indirect effects (see Figure 6 below)

Figure 6. Shows the direct and indirect benefits to South Korea of co-hosting the world cup. (Source February 2003)

It is expected that 42 billion people will watch the matches on TV. (Source ) Similar viewing figures for the 1988 Seoul Olympics helped the Korean stock market doubled in less than 16 months. This clearly shows a link between major sporting events and the economic benefits that result from national image and confidence. Inward investment obviously plays a key role as there was many Trans national corporations who were official partners of the world cup these included McDonalds, adidas, coco-cola and MasterCard to name a few. The Harvard business school researched that MasterCard an official partner back in the 1994 world cup enjoyed sales to the value of $500 million from the exposure of an advert on a signboard for a total of about 12 minutes during the final. This just shows why major sporting events can easily attract inward investment.

Unlike the previous case study where cities like Seoul, Tokyo, and Kobe where the infrastructure was very modern, Manchester on the other hand was a deprived area. The Commonwealth games were the perfect opportunity for an urban regeneration programme. The prime focus was to use the event to bring in significant investment into Manchester and establish a new town centre. The transformational impact of sportcity has made Manchester an attractive area for inward investment however this would have been impossible without the games.

One impact of the games is it will generate a total of 16000 jobs which will vary in length of a temporary position to a permanent position. This is another example of the multiplier effect. It is forecasted that 6,100 jobs will be in full time employment of which a third are additional to the local economy. £22 million additional expenditure will be brought in; this will provide a basis for £36 million for business opportunities generated by inward investment and trade missions.

Figure 8. Shows the business opportunities and economic benefits to Manchester and the north west of hosting the Commonwealth games. (Sources McGonigle, S, December, 2002, ‘the local benefits from the commonwealth games’ in the beacons for a brighter future annual report 2001-2002)

The key to this achievement was and will be the inclusive approach to realising the benefits of the games.

The ICC (international cricket council) world cup 2003 co hosted by Zimbabwe is a contrasting case study. As this shows that are more variables involved when it comes to attracting inward investment then just hosting a major sporting event. Zimbabwe is co hosts with South Africa and Kenya. Kenya has also had difficulty in attracting inward investment. The reason for this was the recent attacks in late 2002 on an Israeli owned hotel and a charter plane (Source ). That was the main reason why the New Zealand cricket team decided not to play in Kenya.

The reason why foreign companies are not investing in Zimbabwe is because of the Mugabe regime. He is the Zimbabwean president who is infamous for forcing out white farmers from their own land to give to black residents and for the ‘death of democracy’ (Andy Flower and Henry Olonga February 2003)

The other variable includes hyper inflation projected at 522.2% according to the I.M.F (International Monetary Fund) next year. To put that into context a loaf of bread in Zimbabwe is currently $200 (£121) (Source march 2003) this may become more than $600(£363) if the I.M.F predictions are correct. (Source march 2003) This is a huge disincentive for foreign firms to stay away from the Zimbabwean market. Will Zimbabwe be remembered for the cricket or the controversy?

Another contrasting case study is the London 2012 Olympics. This example focuses on whether it is financially viable to bid for an event. The government postponed its decision whether it will bid for the games. The problem is that there are other variables preventing them to bid for the games. These include a possible war with Iraq, the economy and the public services. The British Olympic Association chief executive Simon Clegg expressed "bitter disappointment"(Source march 2003) at the latest delay.

The final deadline for a bid to be made is July 15th. The government can make the arguments that an unsuccessful bid is a waste of government tax revenue which could be spent of improving public services. The government do not want to see another bid fail as with the 2006 world cup. It will all depend on whether they have the confidence that the bid will be successful so it can gain from the benefits of inward investment.

Each of the case studies used in the essay either had arguments for and against hosting major sporting events. However in every one of those events inward investment will or has happened. But the difference is that inward investment will be larger in some events compared to others. In the current cricket world cup the two global partners are Pepsi and Lucky Goldstar whereas in the football world cup there were far more. The prime reason is that far more countries participate and there is a higher global demand for football then for cricket (see figure 9 below)

Figure 9 shows that far more nations compete in the football world cup compared to the cricket world cup.

(Sources march 2002 and march 2002)

The main reason inward investment happens is because it is the perfect marketing opportunity, as the brand name will be viewed on a global scale. This will increase sales for those products and the evidence for this was made in world cup case study about MasterCard enjoying sales of $500 million because of an advert seen at that final. However other factors do affect inward investment such as with the cricket case study with an antagonistic government and unstable economy inward investment will be a lot smaller regardless of the global demand for the event.

To conclude major sporting events will always attract inward investment however the amount will depend on the political and economic situation in the area and what is the global demand for watching the event.