Azerbaijani-style sports economy
A grand opening ceremony of the 4th Islamic Solidarity Games is underway in Baku. How important is this sports event for the country, and how much will be spent (or, to be more precise, is being spent) on it?
As Adalat Muradov, a member of the working group on the elaboration of the anti-crisis action plan and also a rector of the country’s largest economic university, wrote in his article after the European Games last year, Azerbaijan had developed its sports economy. He was right to some extent, because Azerbaijan had officially spent just USD 3.8 billion on the European Games, whereas the unofficial amount was twice as much. It constituted 21% of the countries’ annual expenses, given that our annual budget expenditures totaled USD 18 billion.
In other words, the ‘sports economy’ expenditures have become one of the budget’s major trends, same as education or healthcare expenses. However, this tendency saw a decline in 2016 and 2017, though Azerbaijan kept pursuing its policy of organizing annual sports events in the country.
The minister’s revelations
It’s been unclear up now, how much Azerbaijan spent on Formula-1 in 2016 and what sum it is going to spend in future. In the case of the Islamic Games, the Azerbaijani Sports and Youth Minister demonstrated incredible sincerity and reported that the government was expected to spend USD 100 million on them. Of that amount, USD 60 million was already spent in 2016 and it is planned to spend USD 40 million this year. Touching upon the expenditure structure, the minister stated that it included maintenance of 60 international and 500 local specialists, as well as holding the games’ opening and closing ceremonies.
Interestingly, according to the Minister, the organizers’ basic expenses are related to those ceremonies. The Minister noted that ‘the opening ceremony won’t be inferior to that of the European Games’ (on which up to AZN100mln. were spent). Though, the Minister’s revelations with regard to the Islamic Games ended there. On the other hand, the Minister reported that 6,000 people (4,000 athletes and 2,000 service staff) would arrive and they would be accommodated in the sports village. Moreover, in the Minister’s words, the sports village will be returned to the businessmen after the games.
At the same time, the minister didn’t specify who of the businessmen would get the village, because the sports village for the First European Games had been built seemingly on the state order. This can be gauged from 2013 Government Procurements http://tender.gov.az/new/# . The order for laying cables to those facilities and supplying them with electric power was sent to Bakielektrikshebeke JSC. It’s unlikely that this state-run company could get such a contract from a private company.
To imagine the scope of expenses related to the Islamic Games, one should have some insight into what is going on during the games.
As it was officially reported, the games are held in 16 sport venues. Up to 4,000 athletes, 2,000 service staff and 1,000 journalists, were expected to join in the Games. In addition, funds were envisaged for maintenance of 12,000 volunteers (at least AZN1-1,5mln.), 90 additional ambulance crews, 12,000 police officers to ensure security during the games, Baku metro’s extended working day, 490 drivers on 3 additional express routes, etc. It totals about AZN7mln. at best.
55 states participated in the 1st Islamic Games. The Azerbaijani Organizing Committee set a goal to break that record and attract 57 states. Initially, 7 states had refused to participate in the games for different reasons. Among those countries were: Uzbekistan (which has never participated in the Games before), Egypt, Lebanon (because of financial problems) and Kuwait.
3 more states, that had initially refused to participate in the Games, later agreed to join in. At the same time, the conditions of their participation were not eventually specified. Though, shortly before that, the minister reported that the government was going to offer them a discount. Daily maintenance of 1 athlete in the sports village amounts to US$50 and the government intended to make abatement from that very sum. There was no other information in this regard.
Before the games started, there came reports that Azerbaijan had failed to attract 55 states. Only 54 out of 57 states-members of the Organization of the Islamic Cooperation agreed to participate in the games.
So, what are the Government’s total expenditures for the Islamic Games? According to the Finance Ministry, 2017 draft budget envisaged AZN32million for holding international sports events. In 2016, similar expenditures officially totaled AZN423million. At first we rejoiced that the costs had dropped 13 times: the government has obviously transferred something to a private contractor or has taken optimization measures.
But our hopes vanished after the Chamber of Auditors publicized its conclusion on 2017 draft budget. It turned out that budget provided for AZN317,3 mln. for the Islamic Games and Formula-1. At the same time, the Chamber of Auditors, that was supposed to reveal discrepancies in the budget and give its opinion in this regard, dedicated only 1 line in its 319-page document to the sports event-related costs. Though that very budget item provides detailed description of expenditures amounting to several hundreds of Manats for construction of social housing. At the same time, according to the Chamber of Auditors, AZN330,2 million will be spent for construction of sports venues, that is 13,2% of the state investments (this item is inferior by its share only to the energy and transport expenditures).
At the same time, it is planned to spend the remaining AZN12,9million on building sports halls in Qobustan, Buzovna, Puta and Türkan villages; a chess school in Yeni Guneshli; a mini football playground in Puta village and Youth Centers in Shirvan, Sheki and Barda.
However, it’s unknown, what those AZN317million will be spent on. Moreover, it’s impossible even to figure out how much it is in the national currency, since, for the first time, a projected nation currency exchange rate hasn’t been indicated in the state budget by the government. But judging from the 2016 data, it will make US$195million, plus the aforesaid AZN32million. That is the total of US$210-214million for holding international sports events.
If the expenses for 2017 are converted into the US dollars, we will get US$177million. In this case, we can more or less precisely divide the expenses for two major sporting events-the Islamic Games and Formula-1. If the Minister is right, then it turns out that US$40million will be spent on the Islamic Games and US$137million – on Formula 1.
Thus, we now have US$100million, declared by the Sports and Youth Affairs Minister as the expenses for holding the Islamic Games, and US$137million- for holding Formula-1, in 2017 And what about incomes?
Well, according to the official forecasts, 23,000, 30,000 and 60,000 people are expected to attend the Games test launch, opening and closing ceremonies, respectively. A total of 500,000 tickets are expected to be sold. A ticket price rangers from AZN2-5 to AZN20-200 (for opening ceremony) and AZN10-100 (for closing ceremony).
As reported, only 40,000 tickets were sold in the first month of ticket sale (since March 19). The total number of tickets sold ahead of launch of the games is unknown, but before the game started, something strange happen to the tickets. Well, the Organizing Committee officially reported that tickets for all football matches were almost sold out, and there were no tickets left for Azerbaijan national team matches. But the national team’s first match proceeded with half-empty bleachers
Anyway, the organizers can earn AZN1-1,5million from the tournament itself, AZN 1,5million- from the opening ceremony and AZN3million – from the closing ceremony. So, if things shape up in their favor, they can earn the total of AZN6-7million.
As for other sources of income for the games, those are sponsorship fees and broadcasting rights. There are only 13 sponsors (to be more precise, partners and sponsors), though it was expected that there would be about 20-30 of them. There are 2 state-run companies – Azal and SOCAR, among them. As for the rest, they provide game-related services (food and water suppliers, online ticket sale support, communication). In other words, they will be earning rather than spending on the games. As far as the incomes from TV broadcast is concerned, it’s doubtful that the agency, which covers Tanzania, Mozambique, Chad, Mali and some other countries of South Sahara and Central Africa, could pay much.
Thus, the government has to rely on the proceeds from tourist arrivals (according to the official data, a 25% growth was reported in Q1, 2017). But in other respects, the Azerbaijani analogue of the sports economy may once again show unprofitability, equally as many other fields of our economy, in general.