Downside of Hosting the World Cup

It is that time again when all attention is on FIFA World Cup. Qatar has the privilege of hosting the 2022 global showpiece and many are remarking that the “rich Arab state is swimming in more money.”   Surprisingly that might be an assumption despite thousands of people flocking to the host nation to participate in or watch the matches.

Visitors spend a lot of money in hospitality businesses and the country gains foreign currency but according to economists, no country found “any conclusive benefit by hosting the World cup.”

fifa world cup

Countries invest millions of dollars to build stadia and infrastructure to win a bid for World Cup hosting rights.  Closer scrutiny of the benefits shows that they are not significant.

 Economic Impact

Host countries rely on the economic impact of the world cup to generate revenue. A host nation gains short-term financial gains from the following contributors.

  • Tourism surge
  • Hotel bookings
  • High spending in restaurants and other businesses
  • Job creation

Economic-impact stops at short-term gains unless the host had a well-developed infrastructure before the tournament.  The reason is that countries without enough stadiums and necessary infrastructure to support the largest football tournament incur huge debts to build them.  The new facilities merely support the tournament and barely generate income that a government can use to repay debts and boost the local economy.  Some even end up becoming “white elephant structures.”

For instance, Brazil spent about $11.6 Billion to construct new stadiums, roads, transit lines, and hotels before the 2014 tournament.  An ideal case study is Mane Garrincha stadium.   The government turned the stadium in Brasilia into a bus depot because there were no other events to host yet it cost $ 1 billion.   Unhappy Brazilians criticized the government and FIFA during a protest lamenting that such huge funding should support social services instead of building stadiums.

The following factor prevents host nations from gaining meaningful longer benefits after hosting a World cup tournament.

FIFA Takes all the Profits

Broadcasting, marketing revenue, and ticket sales are the main moneymakers during the World cup but all go to FIFA.   The host country gets nothing yet it used taxpayersꞌ money to build infrastructure. FIFA only uses a part of the revenue to support the hosting nations in covering overall operations.  For instance, FIFA gave Qatar $1.7 billion including $440 million in prize money.   It retains most of the $4.7 billion revenue expected from the 2022 World cup.

FIFA keeps all the profits. Sometimes it even controls the local businesses owned by the payers of tax that governments use to build   World Cup infrastructure. In 2014, FIFA pushed the Brazilian government to prevent local vendors from selling any goods to people going into stadiums. The football governing body only allows the selling of goods coming from its sponsors.

Tax Breaks

FIFA collects all the profits and does not pay any taxes. It has agreements with hosting countries that all the money it makes during World Cups is tax-free.  The soccer governing body utilizes its monopoly power to negotiate tax relief.  The same governments charge tax from businesses where visitors spend their money.  The poor people do not get a direct benefit from the World Cup despite contributing to building stadiums by paying taxes.   Citizens in South Africa and Brazil protested because FIFA did not pay taxes to their government but FIFA did not budge.

Huge Investment without Long-Term Gains

FIFA insists on high-quality stadiums, hotels, and temporary accommodations in countries bidding to host the World cup.   Governments bear the huge expenses of building high-standard infrastructure within a short period but most of it is not used optimally after the tournament. Idle amenities after a global event are not a new thing even in other sports.  Greece plans to revamp the 2004 Olympic stadium using private funds and European Union funding. The facility had deteriorated since it did not host a big event since 2005.  The government has incurred a loss of 200 million euros ($235.66 million) in maintenance.

Disregard of Alternate Expenses

Incurred expenses during the FIFA World cup are included in the benefits caused by the tournament. An economic analysis accounts for opportunity costs except when it involves FIFA.   Their analysis does not take opportunity costs into account.   FIFA assumes the World cup increases expenditure in a country but the reality is that people would spend similar amounts in other ways if the tournament was not hosted in their country.  The World Cup just diverts expenditure to football.

Displacement of Traditional Tourism

Tourism is touted as the main benefit of hosting a world event but some economists doubt the prediction. World Cup attracts large groups to a country including the following.

  • FIFA delegation
  • Teams their delegation
  • Referees
  • Fans

However many tourists who frequently visit a country decide to keep away during mega-events including the World Cup because of congestion. Their displacement reduces the net number of arrivals.  The legacy effect of attracting more tourists to a World Cup is very small.

Most countries spend tens of billions to prepare everything required to host a World Cup but it is unlikely that they will recoup the hard cash during the tournament. Some will take years to repay loans and recoup the expenditure especially if they build infrastructure from scratch.

Leave a Reply