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From cycling to money: Tour de France in Utrecht

Peter Kerkers
Peter Kerkers has finished his bachelor Economie en Bedrijfseconomie and his Master Finance. Furthermore, he is the chairman of Asset | Economics 2018-2019.

Sounds good, hosting the start of the Tour de France, the biggest sport event in the world that is yearly organized. That is what Utrecht should have thought several years ago. The atmosphere, the city and country in the spotlights, nice events besides it and of course the best cyclists in the world coming to Utrecht are among the benefits of hosting this event. But what is the economic value of such an event?

Costs

With a sport event, there is always debate about how much a city or country wants to pay for it. Some people do not want to see governments pay substantial amounts of their tax payments to such a temporary thing as a sport event, while others are willing to pay big amounts of money to see their heroes close to their home. In the news, it is almost always the case that we find items about the extraordinary costs of a sport event, that the costs turn out to be much higher than expected and budgeted. A recent example is the start of the Tour de France in Utrecht last summer. The first estimates were costs of ten million euros, but before the start the costs were adjusted upwards to more than fifteen million euros. Recently, RTL has published an article in which they suggested that the costs were even millions higher, but that is not officially confirmed.

It sounds like a big amount of money that Utrecht has spent above their initial budget. But in this case, the most striking example is the 2014 Olympic Winter Games hosted by Russia in Sochi. The initial budget for this Games was $12 billion, while the real costs where $51 billion.

‘’The Russian state spent three times more on the road to organize the Olympic Winter Games than NASA did for the delivery and operation of a new generation of Mars rovers.’’

                                                                                                                                             Nemtsov & Martynyuk

Compared to this, Utrecht did a pretty good job framing their costs. In a paper written by Jonathan Barcley, it is suggested that all organizers of sport events tend to underestimate their costs. He states that there are some hidden costs that are not taken into account in the budgeting process for the Tour start. Important costs in this category are the costs that had to be made because of the extreme heat at the day of the Tour start.

Another possible explanation can be the political game. When citizens know that the costs will be higher, it is more likely that they will not agree with the plan and that they will vote for other parties within the next elections. So it is possible that local politicians have tried to hide some costs that had to be made for organizing the ‘Grand Départ’. Therefore the underestimation can be intentional, unintentional or a combination of both.

Benefits

Now question is why there is so much commotion about the costs of organizing the Tour. It would be reasonable if the costs, including the extra costs that in many cases arise after the initial budgeting, are higher than the benefits. Leading to an economic loss for the city of Utrecht. However, as stated by Maarten van Bottenburg from Utrecht University, the gains for the city were approximated to a mere €30 million. A reasonable benefit. Here the gains mainly consist of short term gains from the visitors that spent their money in the city and the many events that were organized around the Tour.

Economic value

For Utrecht, the organization of this big sport event has a positive economic value. There are several reasons for this profitability. A major reason is that there was no necessity to build big stadia, additional hotels or to invest big amounts in infrastructural projects for this sport event. The cyclists could cycle on existing roads and sleep in existing hotels. Another reason for the profitability is that businesses were eager to be connected to this sport event, to improve their image. Together with the already mentioned benefits, the conclusion is that Utrecht has made a good choice based on economic motives.

External effects

Besides the economic benefits that can be realized in the short term, it is possible to think of other benefits. First, the start of the tour put Utrecht in the spotlight of the global community, i.e. in total 3.5 billion people watched television and saw Utrecht from its best side. It is hard to precisely measure this benefit, but it is impossible to say that it has a negative effect on things like tourist expenditures. Furthermore, organizing such a big event in Utrecht is a thing where the inhabitants can be proud of.

As the British politician Nick Clegg said before the Grand Départ of 2014 in Yorkshire, hosting the start of the Tour de France is a once in a lifetime opportunity. Not only for cycling fans like myself, but also for the business life.

What could be done with the $51 billion that Russia spent on hosting the 2014 Olympic Winter Games:

  • Give every Russian citizen $357.
  • Financing the drug war in the United States for a year, including the costs that have to be made for the more than 500,000 people that are behind bars for drug law violations.
  • Buying Real Madrid, the highest valued football club in the world, more than 15 times.
  • Buying 2,550 times a seat aboard a Russian Soyuz as a ‘space tourist’.

 Sources:

http://www.rtlnieuws.nl/nieuws/binnenland/start-tour-utrecht-duurder-dan-gepland (Dutch)

http://www.bloomberg.com/bw/articles/2014-01-02/the-2014-winter-olympics-in-sochi-cost-51-billion

http://www.iea.org.uk/sites/default/files/publications/files/upldeconomicAffairs340pdfSummary.pdf

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

http://nos.nl/artikel/2036392-wat-houdt-utrecht-over-aan-tour-de-france.html (Dutch)

http://www.drugpolicy.org/wasted-tax-dollars

http://www.forbes.com/sites/mikeozanian/2015/05/06/real-madrid-tops-ranking-of-the-worlds-most-valuable-soccer-teams/#4be79fad3b36

http://edition.cnn.com/2013/08/15/travel/virgin-galactic-250000-ticket-to-space/

Image: http://micetravel.nl/mpi-in-teken-van-de-tour-de-france/

Video: https://www.youtube.com/watch?v=sGyQY3zq_b8

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