Blogs & Comment

The murky money behind the Rugby World Cup

New Zealand lost millions hosting the world's premier rugby tournament. It raises the question: Are major sporting events about turning profits?

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Photo: Manuel | MC/Flickr

In the lead-up to the Rugby World Cup, a six-week event that wrapped up Sunday in New Zealand, many news stories focused on how the event would pump hundreds of millions of dollars into the host country’s economy.

Those stories frequently cited two reports: “Potential Economic Impact of the Rugby World Cup on a Host Nation,” prepared by Deloitte, and “Economic Impact Report on Global Rugby,” a multi-part series by Coventry University’s Centre for the International Business of Sport.

And their economic projections were impressive.

The Deloitte report says the RWC can generate between £200 million and £810 million in “direct economic impact” for a host country, depending on its location, the number of visitors and their spending habits. Though when it comes to how much rugby fans spend, at least according to Deloitte, you shouldn’t fret too much. It describes rugby fans as being “in the higher socio-economic groups,” while the RWC tends to attract fans “who have a greater propensity to spend than supporters of other sports.”

When projecting long-term economic stimulus—what the Deloitte report calls the “ripple effect,” as direct expenditure is recycled through the economy—the RWC can generate as much as £2 billion for a host nation. New Zealand’s RWC, according to the Coventry report, “may deliver” up to NZ$800 million in tourist spending, with bigger returns over time.

But as the event got underway, and as trends started to emerge, it was clear that this edition of the RWC was not the stimulus boost that many had predicted. Nonetheless, politicians and organizers have defended their choice to host the event and accept losses, saying it was money well spent.

But when you see the extent of their losses, it raises questions about whether hosting events like the Olympics or RWC is motivated by turning a profit, or whether hosts are investing in something less tangible, like glory and national pride.

Tournament organizers said last week the event would lose an estimated NZ$40 million, as predicted years ago. Prime Minister John Key confirmed the loss, but said the cost was worth it for marketing the country. Ticket revenues may have exceeded projections, but so did event budgeting. Many taxpayers—often responsible for exorbitant costs in events like the Olympics—were left with a hefty tab, picking up two-thirds of tournament losses.

And the bad news doesn’t stop there.

Public spending for the event, as reported by The New Zealand Herald, is well in excess of NZ$200 million, not including hundreds of millions spent on stadium upgrades.

Meanwhile, consumer spending—a big part of those gaudy predictions by Deloitte and Coventry—was spotty at best. The tournament’s final weekend brought an expected windfall, though for the most part, spending on the Paymark network, which covers more than two-thirds of electronic transactions in the country, has been a disappointment. (In the first half of the event, tourists had spent under NZ$100 million on the Paymark network, well off-pace to reach the nearly NZ$700 million in tourist spending predicted by New Zealand’s central bank.)

It’s possible that news outlets put too much stock in the Deloitte and Coventry reports, more so when you consider their origins. The Deloitte report was commissioned by the International Rugby Board—the sport’s governing body, which has been frequently derided for some of its practices—while the Coventry report was commissioned by MasterCard Worldwide, the tournament’s official sponsor.

Deloitte’s report, for instance, fails to mention how tournament organizers paid NZ$150 million to the IRB for hosting fees. Maybe that cost doesn’t fit with Deloitte’s definition of “direct economic impact,” but when taxpayers are left on the hook for the tourney’s deficit, IRB fees shouldn’t be ignored.

In retrospect, hosting the RWC was a risky bet by New Zealand’s government and rugby union.

But given the result of Sunday’s final match—when New Zealand edged France to claim the championship, their first since the inaugural RWC in 1987—tournament losses might be easy for the public to overlook. The All Blacks have frequently choked in international competition, despite being a perennial powerhouse, so their golden moment on home turf is a welcome respite for frustrated New Zealanders.

In that sense, you can’t help but see parallels to the Vancouver Olympics. Both events were plagued with mounting taxpayer costs, budget overruns and murky economic projections. But in the end, the host nation prevailed over a bitter rival in the event’s biggest game. Whatever frustrations were at the forefront of public debate gave way, at least temporarily, to civic pride and celebration.

Maybe some international sporting events aren’t built to make money for a host country. The IRB definitely has some questions to answer, considering the New Zealand Rugby Union recently threatened their participation in the next RWC for financial reasons.

And yet cities and countries continue bidding for the right to host the Olympics, World Cup, RWC and any number of international events. It’s certainly possible the psychic benefits of hosting a tournament—especially when it results in victory for the host nation—are worth immeasurably more than whatever stimulus is pumped into the local economy.