FIFA World Cup 2018 – Does it Make Economic Sense?

FIFA World Cup 2018 is in play and all eyes are on Russia, the host country. But what happens there when it’s all over? The United States will be co-hosting in 2026, so this is going to matter soon! Let’s take a look at whether or not it makes economic sense to host the World Cup and if that really should be the… gooaaalll!

If you know much about soccer–or, for the non-American world, football–you probably know something about the World Cup. This most prestigious of  tournaments pulls in even non-soccer fans from around the world. The FIFA World Cup 2018 is being hosted by Russia. In 2022, Qatar will be the host, and in 2026 – the US, Canda and Mexico.

Whether you’re interested in sports at all or not, you might be curious about the economic impacts of such large sporting events. My own native Indianapolis, IN hosted the Super Bowl several years ago, and saw some interesting long-term economic ramifications–many good ones, by the way–because of it. And when you look at a much longer, more global event like the World Cup, it’s clear that the economics should be an even bigger question.

That got me to thinking about whether or not it makes economic sense for a country to host the FIFA World Cup. So I dug around for some resources online, and what I found was, not surprisingly, a mixed bag.

Hosting the World Cup is a Big Risk

One interesting story in The Guardian compared events like the World Cup to a poisoned chalice. They might look good on the surface. But dig a little deeper, and you’ll find nothing but problems. The story specifically looked at the bids for a North American World Cup in 2026, and how some major cities like Chicago and Vancouver publicly declined to bid.

The problem? According to the story, for Chicago to invest in the World Cup’s requirements is just too big a financial risk. Sure, it could pay off big in the long term. But like most investments, with a potentially huge reward, there are also some big risks. Chicago and other cities that refused to bid seem to be picking up on more of the pros and cons of hosting an event like the FIFA World Cup 2018. Here are some of the pros and cons cities and countries should consider before bidding on an event like this one.

The World Cup – Is It a Good Investment?

First, it’s essential that cities and countries consider the opportunity costs. Typically to get ready for a big event like the Olympics or the World Cup, they’re going to dump millions of dollars into improvements. On the surface, this seems like a good thing. Who doesn’t like the idea of improving the place they live?

Unfortunately, as anyone with a budget knows, a dollar that goes to one place cannot also go to another. So by investing millions into some things, cities are foregoing investments that their citizenry may actually need more.

The World Economic Forum lays this out in detail by looking at the contracted investments for Brazil’s World Cup. Most of the money contracted was for airports, stadiums, and urban mobility, with only a little bit of the investment put towards ports, public safety, and telecommunications. But at the time of the article’s writing, only 64% of the investments had even been executed.

In short, most of the investments there were slated for things that would benefit tourists more than the country’s actual residents. And even then, many of those contracts weren’t made good on in a timely fashion. So money that could have gone to improve the lives of citizens or even more sustainable tourism activity long-term went towards improving airports and building massive stadiums that may not see much use now.

World Cup Facilities – Return on Investment in the Long Run

With that said, what gets built for a large event like the World Cup does stick around. And if a country or city can make a decent plan for those things, the event may turn out for the better. For instance, Brazil invested billions of dollars in airports to prepare for its World Cup. This could make things easier for tourists over the long haul, continuing to draw new money into the country.

We’ve seen similar things in my city from the Super Bowl. Several athletic facilities and community centers benefitted from philanthropic activity spurred by the Super Bowl. And those are still around serving the community today.

The key to coming out on top here is for communities to think about the long-term impact of the infrastructure changes they’ll make to get ready for a large event like the World Cup. Unfortunately, FIFA has control over much of what needs to be done for these events, which can impact a country’s ability to make the most of their resources. Still, if the infrastructure changes become useful long-term, they can definitely be a good thing.

Can Hosting The World Cup Hurt Tourism?

You’d think that hosting an event like the FIFA World Cup or the Olympics would only serve to increase tourism. But the evidence says otherwise. According to the UK government, tourism actually decreased during the London Olympic Games. It seemed that those who would normally have visited London refrained because of the increased prices and overcrowding they’d expect leading up to and during the games.

Of course, games like these can also bring in new visitors who might otherwise not have come to the country or city in the first place. But these may or may not actually outweigh the visitors that are lost who would have visited during a normal tourist season.

In a country that doesn’t have a lot of tourism typically, the disruptions may be minimal and more positive. But in countries and cities that regularly rely on tourism as part of their economy, the impact of hosting a World Cup may be in the negative.

World Cup Increasing Notoriety

On the flip side, sometimes hosting worldwide events that land on all the major news channels and around the internet can increase tourism over the long term. People who may be unable to visit during the expensive season surrounding a World Cup or Olympic games might be inspired to plan a trip afterwards. And that improved infrastructure aimed at tourists may help make that happen.

The key here is to have a continued plan to capitalize on the increased traffic and awareness generated by the games. It will be interesting to see what Qatar does in the realm of awareness and continued tourism after the next FIFA World Cup.

Increased Training for Workers

One 2014 article points out that Brazilian workers could benefit greatly from the changes made for that country’s World Cup. The improvements to travel infrastructure make it easier for workers to get to better jobs. And entrepreneurs in the area can make international connections that may help them grow their businesses over the long term. Plus, many businesses that move into a country ahead of a huge international event dump money and time into training employees in English and important service job skills.

Again, if the host country can leverage these connections and additional training, they may find themselves with a higher-skilled workforce ready to move forward with new ideas after hosting such a large event. But this also hinges on the country or city having longer-term plans for what to do with these entrepreneurs, businesses, and workers after the fact.

World Cup Direct Costs

One issue of increasing concern with international events like the FIFA World Cup and the Olympics has been how much of the money goes to the organization that runs the event. The World Economic Forum shows that the International Olympic Committee has taken a larger and larger portion of the broadcast revenue from the last several olympic games.

From 2011 to 2014, FIFA made a total of $5.718 billion in revenue, most of which was related to events. About $2.484 billion of that was from the sale of television rights. That’s a lot of money on the table, some of which could theoretically go back to the host country, instead. But when a city or country signs up to host an event like the World Cup, they agree to certain revenue-sharing measures, many of which favor the international organization over the host.

Plus, there are the expectations for the infrastructure and other changes that a country needs to make, as well as additional costs related to policing and public safety during these huge events. While some outside funding definitely comes into host countries and cities, they would do well to count the actual costs before signing on the dotted line.

Addressing Underlying Problems

One longer-term social outcome of some of these large events is one that is harder to quantify. In some countries, events like these have spurred the cleaning up of social ills, which only come to light when people start looking more into the area and its issues. Negative media coverage of problems for host countries can seem catastrophic. But sometimes it’s just this coming-to-light that causes the authorities to finally step up and do something to fix social ills that have plagued an area for decades or even generations.

Costs and Benefits of Hosting the FIFA World Cup 2018

At bottom, it’s really difficult to exactly quantify the economic costs and benefits of hosting an event like the FIFA World Cup 2018. In some areas, the additional investment, infrastructure changes, and tourism boost could mean long-term good for the area. In others, cities are left with so-called “white elephant” stadiums that they helped pay for but cannot really find a use for long-term, and tourism may actually take a hit.

The key is to look at a city or country’s individual circumstances and to work diligently to uncover all of the potential costs and benefits of hosting an event like the World Cup. Then they should only make a bid if they are truly prepared for the outcome–not just because they like the idea of how their name sounds in the headlines.

Topics: Smart Money

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