Source: Roy Morgan
Externalities arise out of incomplete property rights. The only externalities that arise from an airport expansion proposed in Wellington is from noise.
There are no externalities from building sports stadiums or hosting mega sports events because all of the effects are transacted through the market. No inputs are used without the permission of the owner, nothing is produced that is not charged for by the venue or event organisers.
As for the use of benefit cost analysis to strengthen the claim for a government subsidy, you use cost benefit analysis when you are too stupid to charge for the good or service such as a road or you are evaluating regulations because they deal with nonmarket effects, effects that are not mediated through the market process.
Sports stadiums and mega sports events should pass the usual market test. Is it profitable for the entrepreneurs backing the project when they are using their own money.
There is a large international literature documenting cost overruns in mega-projects and mega-sports events. Mega-projects are large-scale, complex construction ventures that take many years to develop and build.
The cost blow-outs in the Olympic Games, World Cup and Commonwealth Games will be more familiar to the reader because these are in the media in the run-up to these mega-sports events.
The Olympic Games, with one exception, involved massive, multi facility construction projects to a hard deadline. The only Olympics to come in on budget was the 1984 Los Angeles Olympics. It used existing sports facilities in that city. Los Angeles was able to stage the Olympics this way because few wanted to host them after the massive cost blow-out in Montréal – see Figure 1. The Los Angeles Olympics Organizing Committee was a private concern that could host an Olympics on the cheap and still be the winning bidder because Tehran withdrew the only competing bid to host the 1984 Olympics.
Figure 1: Sports-related cost overruns, Olympics 1960-2012; original currencies, real terms
Source: Flyvbjerg and Stewart (2012), table 1.