Eurovision 2012: Looking for the Payoff

In February 2012, Azerbaijani cabinet ministers announced the official state budget for expenses related to Azerbaijan’s hosting of the Eurovision song contest, which will begin May 26. The budget, composed mainly of construction costs of new centers for Eurovision, is approximately 50 million AZN, which is roughly US $63.5 million.

$63.5 million tops what is believed to have been the most expensive Eurovision hosting to date—Eurovision 2009 in Moscow. That event exceeded $45 million for the first time in contest’s history. Other countries have spent respectively as follows: Greece €12 million (US$15.8 million), Serbia €9.3 million (US$12.2 million), and Germany €25 million (US$32.9 million).

Azerbaijani authorities have had less than a year to prepare the city for the contest. Government and industry have worked to enhance the city’s ability to accommodate the anticipated influx of tourists, primarily from Europe.

In a recent post, I estimated the revenue of Eurovision 2012 for Azerbaijan at about $40 million. The estimated revenue is significantly less than what government is actually spending on contest preparations. The question arises, what are the benefits of hosting such an expensive contest?

Russia, like many other Eurovision host countries, did not gain enough revenue from the contest to cover all the costs. This is how Russian officials see the benefit of the contest: “The income from ticket sales was nothing compared to the money spent on the competition. It is the external political effect, not revenue that matters.”

Mr. Vugar Bayramov, founder of the economic think tank Center for Economic and Social Development (CESD) is more optimistic about the contest. According to Mr. Bayramov, the contest will boost cultural and tourism development in the country.

Even though the Azerbaijani government will not gain direct revenue from the contest in the short run, the country will benefit culturally and economically from the contest in the long run. So, we can assume that Eurovision’s greatest benefit for Azerbaijan will be promotion of the country’s rich culture and history primarily to Europeans.

Many Europeans have never even heard of, not to mention visited, Azerbaijan. The Azerbaijani team of Ell & Nikki’s victory at the 2011 contest changes that fact. Clearly, tourists’ first impressions of the country will determine whether or not they will return. As such the Baku government and local businesses are taking necessary steps toward a successful celebration.

Businesses and government agencies are training customer-service employees throughout Baku. In addition, the government is ensuring strict regulation of prices to avoid any off-putting artificial price increases.

Clearly Eurovision 2012 will open European minds to Azerbaijan’s rich culture, heritage, and history. Not only 60,000 tourists visiting Baku but also 125 million viewers throughout the Europe will be fascinated by the modern look and intriguing culture of the country. These numbers suggest that a country that was unknown to many Westerners now will be “on the map” as a potential tourism destination for Europeans.

Statistics related to the economic impact of the Eurovision cultural experience will provide a much-needed baseline for Azerbaijani planners. The Eurovision experience has the near-future potential for doubling Azerbaijan’s annual tourist number, which has never before exceeded two million. The emerging numbers and statistics may reveal a shift of the Azerbaijani economy away from an economy based on oil and gas toward one based on cultural tourism. Observers will do well to keep track of the impact of the 2012 Eurovision Song Contest in Baku, Azerbaijan.

Post written by Elchin Abdullayev, Karabakh Foundation Analytical Economics Intern, Senior Undergraduate Student of Economics at George Mason University, and president of Azerbaijani Youth of America