Hosting FIFA: An Economic Boon or Drain?

By Tanisha Kamat and Shambhavi Kumar | Edited by Aashni Rebello and Atiyah Krishnan

PROPOSITION

The World Cup is undoubtedly the pinnacle of football, with legends like Ronaldo, Messi, and Neymar being a part of it for years. The event’s general purpose is to provide entertainment for football fans around the world, but its commercialization has had a lasting impact on several countries’ economies. Regarding hosting the World Cup, countries are encouraged to assess their infrastructure and commercial capabilities to determine if the country can host the World Cup.

In the 21st century, the World Cup has been held in five different locations from Asia to South America. The most notable effect of hosting the World Cup was an overall economic expansion and an increase in consumption. FIFA requires host nations to have a variety of stadiums capable of holding 40,000 people for group matches and at least 80,000 people for finals, creating many short-term jobs in the country. In addition, significant investments are made in popular transport and travel methods in the host country. Qatar, for example, has reportedly invested about $11.5 billion in transport initiatives, of which $2.7 billion has been allocated to rail, port and road projects, among others. The impact of such investments was observed at the 2002 World Cup, co-hosted by South Korea and Japan. Lee and Taylor (2004) report that across a variety of sectors, the World Cup helped create over 31,000 jobs and an economic impact of about $1.35 billion output. In general, host countries are enjoying economic expansion in several economic sectors, increasing their GDP. 


Another way to profit from the World Cup is a phenomenon first defined by Allmers and Meannig as the ‘feel-good effect’. They explain that “a free and relaxed atmosphere between the World Cup and topics of conversation” makes citizens happier and prouder than usual, and therefore more willing to spend money. Based on ex ante (pre-event) and ex post (post-event) surveys of the 2018 Germany World Cup, they found that the average citizen WTP increased from €4.26 per capita to €10.0 after the World Cup. Multiplying this by the total population of 82 million gives an increase of approximately €479.3 million. Moreover, this “willingness to pay” improves domestic economic sentiment from pessimistic to optimistic. This is usually implied in the stock market. The feel-good effect of winning at home, combined with increased national sentiment by hosting, can even result in increased productivity and efficiency of the stock market. For example, South Korea has a significant economic boom that accelerated after the 2002 World Cup in Japan/Korea (John and Wolfram, 2004).

Finally, hosting a World Cup provides the host country with an opportunity to improve its international profile. Allmers and Meannig argue that Germany’s hosting of the 2006 World Cup helped the international community to perceive Germany’s cultural heritage in a more positive light after the World Cup, clearing their alleged ‘hard and cold’ image. This ultimately leads to a multiplier effect of tourism, starting with an influx of World Cup-related visitors and ending with improved perceptions. Moving from past to future, hosting the 2026 FIFA World Cup is predicted to generate more than $5 billion in short-term economic activity, including supporting approximately 40,000 jobs and more than $1 billion in incremental worker earnings across North America. Considering that the US economy is facing an economic recession, this would be of great help to the many citizens who are jobless, ultimately improving the per capita income and GNP of the country.

In the long term, better and improved infrastructure will ensure high security and improved physical access to the market, thus making the country more attractive to foreign investors. However, even with all these benefits, without proper budgeting and planning, governments will run out of money and make critical investments that can result in losses.

OPPOSITION

Despite the exuberance and glamour that comes with hosting the World Cup, they are far from being the economic propellants they are perceived to be, especially for developing countries. The magnanimity of FIFA implies that the games are organised with world-class standards, placing some harsh conditions on the host countries. 

A huge infrastructural revival takes place for the games to be conducted smoothly, including revamping roads and the transportation network, telecommunications and security infrastructure, and setting up new hotels to accommodate players and tourists, among others. In the case of Brazil and Qatar, new stadiums had to be set up which would become redundant after the World Cup. Such projects require heavy spending that puts a massive dent in public finances in the short run, especially if the host countries do not have the existing infrastructure. Brazil spent over $12 billion in total, with $4 billion spent exclusively on constructing new stadiums. Qatar spent over $220 billion for the 2022 FIFA World Cup, which is approximately 10% of its annual GDP on average, making it the most expensive World Cup to date (Aragao, 2015). 

To top that off, the immediate profits enjoyed by these countries are quite insignificant. The major sources of revenue that come from the sale of tickets and television rights go into the International Governing Body’s pockets. Around $4.6 billion worth of broadcasting  rights sales were made for the Russian FIFA tournament in 2018 which was kept by FIFA (Brownsell, 2022). Moreover, FIFA demands heavy tax exemptions from the host countries, choking another major source of revenue for the government. 

Heavy opportunity costs are borne by countries hosting the world cup. Public expenditures that would have otherwise been spent on healthcare, education and other public services are directed towards the World Cup. It is a serious concerns, especially for developing countries. Although infrastructural growth is an important economic stimulus, the government could have invested in the development of infrastructure that would reap taxation benefits. The majority of the newly created stadiums are no longer used once World Cup ends as is evident from the severely underused stadiums in Brazil and South Africa after the FIFA World cups were here in 2014 and 2010 respectively. High operational costs are incurred for their maintenance which becomes a massive burden on taxpayer.  Moreover, the hotels and buildings constructed to accommodate a higher-than-usual influx of tourists during the FIFA season also become redundant once World Cup ends. Qatar’s empty hotel rooms and outflow of tourists became apparent even before the conclusion of the world cup. Sustaining the increased capacity created by these countries for the world cup becomes another uphill task. 

One major incentive that host countries anticipate is the influx of tourists and revenues from their increased spending. However, as Fourie and Santana-Gallego (2011) estimated, there are no lasting impacts on tourism after the event. The number of international visitors only increases for the following three years after the world cup (Aragao, 2015). South Africa saw a 33.3% increase in tourist arrival in 2011 which was less than the global growth. Even developed countries like South Korea saw no substantial increase in tourist inflows. Non-World Cup tourists, who would have otherwise visited the country tend to steer clear of such places due to the hefty costs of hotels and local merchandise. For example, Qatar permitted only those tourists who had tickets to the world cup to enter the country from November 1 till the end of the World Cup (Brownsell, 2022). Additionally, the revenues collected from tourist spending constituted a small portion of the total investments by Brazil and only 0.07% of the GDP in Germany during the 2006 World Cup. 

Employment generation is seen as an important byproduct of hosting these games. However, short-term analysis has shown that employment rates fell in Brazil a year after hosting the world’s biggest football tournament (Fick, 2014). 90% of Qatar’s workforce comprises migrants and therefore, there will be no significant benefit to the country’s economy with the newly created job opportunities due to the World Cup (Biswas, 2022). 

As Qatar hosts this year’s World cup, the International Monetary Fund predicts that the economy will grow by 3.4%. But may then slow down to 1.7% by 2024 (Biswas, 2022). One of the highlights of this world cup is that apart from the economic aspects, it has also brought to light the social issues of labour exploitation and homophobic attitudes that plague Qatar. Although the tournament aided in drawing attention to these issues, there were hardly any repercussions or corrective measures taken. It raises the question of whether hosting the FIFA world cup is truly beneficial to the economic and social structure of the country.

References 

Liu, Y. (2013). Assessing the long-term economic impacts of the World Cup as mega-sport event. Assessing the Long-term Economic Impacts of the World Cup as Mega-sport Event | The People, Ideas, and Things (PIT) Journal. https://pitjournal.unc.edu/article/assessing-long-term-economic-impacts-world-cup-mega-sport-event

Borga, J. (2020, April). Hosting the FIFA World Cup: An Economic Analysis of how the World Cup has Impacted the Economy of a Developed and a Developing Nation. Digitalshowcase.lynchburg.edu. https://digitalshowcase.lynchburg.edu/cgi/viewcontent.cgi?article=1159&context=utcp

Mrd, M. (2021, January 1). Does hosting a World Cup make economic sense? The St Andrews Economist. https://standrewseconomist.com/2020/12/20/does-hosting-a-world-cup-make-economic-sense/

Allmers, S., & Maennig, W. (2009). Economic Impacts of the FIFA Soccer World Cups in France 1998, Germany 2006, and Outlook for South Africa 2010.

Eastern Economic Journal, 35(4), 500-519. https://www.jstor.org/stable/40326165

Hosting the 2026 FIFA World Cup™ could create more than $5 billion in economic activity for North America. US Soccer. Sponsored by Volkswagen. (2018, February 8). https://www.ussoccer.com/stories/2018/02/hosting-the-2026-fifa-world-cup-could-create-more-than-5-billion-in-economic-activity-for-north-amer

Aragao, M. M. de. (n.d.). Economic Impacts of the FIFA World Cup in Developing Countries. ScholarWorks at WMU. https://scholarworks.wmich.edu/honors_theses/2609/

Biswas, B. A. (2022, November 15). Economics of FIFA World Cup. The Hindu BusinessLine. https://www.thehindubusinessline.com/opinion/economics-of-fifa-world-cup/article66141556.ece

Brownsell, J. (2022, November 17). Do host countries make money from the World Cup? Football | Al Jazeera. https://www.aljazeera.com/sports/2022/11/17/do-host-countries-make-money-from-the-world-cup

Effects of FIFA World Cup on the Economy. (n.d.). https://www.managementstudyguide.com/effects-of-fifa-world-cup-on-economy.htm

Fick, J. (2014, June 25). Who Said FIFA World Cup Meant Jobs? Forbes. https://www.forbes.com/sites/jefffick/2014/06/25/who-said-fifa-world-cup-meant-jobs/?sh=1050d8c4612f

World Cup Economics: What Americans Need to Know about a US World Cup Bid. (2010). http://www.umbc.edu. Retrieved December 18, 2022, from https://web.archive.org/web/20110630012810/http://www.umbc.edu/economics/wpapers/wp_10_121.pdf

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