Industry Confidential, PUSH Magazine, Volume 5, Issue 3

INDUSTRY CONFIDENTIAL

Check in every issue for the unfiltered thoughts of our guest writers and contributors as they discuss the hottest topics in sports tourism.

In this issue, our guest writer discusses the subject of the sports tourism industry’s financial imbalance issues.

The sports tourism industry is a thriving sector of the overall tourism industry, contributing significantly to the economies of host destinations. Sports events attract visitors who spend money on accommodations, dining, and entertainment, generating direct and indirect revenue for local economies.

However, a significant imbalance exists between event rights holders and host destinations. While event owners bring visitors to a destination, they often receive incentives, including financial contributions from local sponsorships and value-in-kind, marketing support, and event funding from destinations. These incentives create a skewed dynamic where destinations bear a financial burden. At the same time, event owners do not contribute monetarily to the host destinations beyond some customary expenses per event. As an events rights holder, I’m looking further to examine the inherent imbalance in the sports tourism industry and call for a more equitable partnership between destinations and event owners.

The Value Exchange: Event Owners vs. Destinations

Event Owners’ Contribution

Event rights holders play a pivotal role in driving tourism to a destination by organizing sports events that attract participants and spectators. These visitors, in turn, inject capital into the local economy by spending on accommodations, restaurants, transportation, attractions, and other tourism services. The economic impact of these events can be substantial, and destinations often calculate this benefit as a critical metric for justifying their investment in securing events.

From the event owners’ perspective, their contribution is the audience they bring to the destination—an influx of visitors whose spending boosts local businesses and tax revenues. Event organizers leverage their events’ economic impact to negotiate substantial financial incentives from host destinations, which often include venue fees, marketing budgets, in-kind requests providing budget relief, and even direct financial subsidies.

Destinations’ Contribution

While event rights holders provide a surge in visitors, destinations are the ones that provide the infrastructure that makes hosting these events possible. This includes facilities such as stadiums, arenas, sports complexes, parks, hotels, restaurants, and local attractions. Beyond the physical infrastructure, host cities invest in services like public safety, transportation, and hospitality, which enhance the overall visitor experience. Destinations also market these events extensively, investing time and resources into promoting the event to ensure maximum attendance, directly benefiting the event rights holders. It is important to note that these investments are often made at significant financial cost to the destinations. Hosting a major sporting event requires substantial upfront capital to ensure facilities meet the standards of the event while offering financial incentives to the event organizers can further strain local budgets. Although destinations see long-term economic benefits from increased tourism, the immediate financial burden falls on them.

The Financial Imbalance

The relationship between event rights holders and host destinations is one of mutual benefit. Both parties contribute value to the sports tourism ecosystem. However, the current model places an uneven financial burden on host destinations, which are expected to fund events, offer incentives, and provide infrastructure. In contrast, event owners collect revenues from ticket sales, sponsorships, registration, merchandise, and broadcast rights.

Event owners often charge high fees to destinations, expecting them to cover significant costs. These costs include bid fees, staff lodging, promotions, hospitality, officials and volunteer incentives, and more. However, there is little financial reciprocity, as event owners typically retain the lion’s share of profits without directly reinvesting in the destination.

The Realities of Economic Impact

While the economic impact of sports tourism is undeniable, the benefits are often more diffuse and long-term than immediate. Visitors may boost the local economy, but much of the revenue generated by the event itself flows to event owners. Event owners benefit from complimentary facilities, ticket sales, sponsorship agreements, and media rights. Although these events help boost tourism, the financial returns for the destination are not as direct or immediate as they are for the event owners.

Many sports tourism conferences and trade shows cater to the event rights holders. Destinations pay astronomical registration fees to conference owners that help fund the attendance of event rights holders. This has taken place for years to attract event owners to attend. They will have little to no reason to attend without their attendance destinations. And on goes the saga, thus making the conference registration fee wars among conference owners never-ending. With this scenario taking place for decades, who knows if it can be overcome, or if the conference fees will continue to rise.

The Need for Change

The current structure of the sports tourism industry perpetuates an imbalance that could be more sustainable for host destinations. In the long term, this imbalance may deter smaller or financially constrained destinations from competing to host major events, ultimately limiting the pool of potential hosts and potentially reducing the overall diversity of destinations in sports tourism.

There are several ways in which the industry can evolve to create a more balanced partnership between destinations and event owners:

1. Shared Risk and Reward Model

One possible solution is to develop a shared risk and reward model, where event owners and destinations both invest in the event and share in its profits. Under this model, event owners would contribute financially to the infrastructure and operational costs of hosting the event, while both parties would agree on revenue-sharing terms that ensure equitable distribution of the event’s financial success.

2. Financial Contributions from Event Owners

Event owners should consider contributing directly to the operational and logistical costs of hosting their events. This could include subsidizing facility upgrades, funding marketing initiatives, or covering some of the direct costs assumed currently by the destination. By doing so, they would help offset the financial burden placed on destinations and foster a more sustainable partnership. In several current cases, event rights holders do pay for facility costs to host events.

3. Performance-Based Incentives

Destinations could shift to a performance-based incentive model where event owners only receive financial support based on the actual economic impact generated by the event. This model would encourage event owners to work closely with the destination to maximize attendance and engagement, aligning both parties’ interests more closely. Some destinations currently have funding models using this type of sliding scale.

4. Transparent Economic Impact Assessments

One issue in the current system is that economic impact assessments are often inflated to justify the costs of hosting an event. Every methodology used to determine economic impact in the marketplace today has flaws. A more transparent and standardized approach to measuring the economic impact of sports tourism events could help ensure that the benefits are accurately represented, leading to fairer negotiations between event owners and destinations.

When Will the Sports Tourism Industry Change?

The imbalance in the sports tourism industry is unlikely to change without concerted efforts from both destinations and event owners. Event organizers must recognize that the infrastructure, services, and marketing provided by destinations are essential to their success and that a more equitable financial partnership is necessary for the long-term sustainability of the industry. Likewise, destinations must be more strategic in their negotiations, demanding a fairer share of the profits while investing wisely to ensure long-term returns.

As the sports tourism industry continues to grow, so does the urgency of addressing these imbalances. It is time for industry stakeholders to reimagine the financial dynamics of this relationship, ensuring that both event owners and host destinations share in the costs, risks, and rewards of hosting sporting events. Only then will a true balance be achieved, fostering a more sustainable and mutually beneficial sports tourism ecosystem.