Economics of the World Cup

By: Oleg Biletsky

While billions tune in to witness the drama and excitement of the world cup, many may not realize there are significant economic implications to the biggest sporting event on the globe.

Every four years, billions of people gather around their TV screens to watch the biggest sporting event on the planet: the World Cup. FIFA, the international governing body of football, reported that the 2014 World Cup in Brazil reached a global in-home television audience of 3.2 billion. With all the tournament drama surrounding the teams, players and FIFA’s corruption scandal, it is easy to forget that the World Cup has massive economic effects on the host nation and the various countries that qualify and do not qualify for the competition. With the next World Cup coming in less than 2 months, it is worthwhile to examine the many economic implications of this sporting mega-event.

Effects on the Host Country

This year’s World Cup will take in place in Russia. The country was selected to host the tournament in 2010 as Russia’s president, Vladimir Putin, sought this opportunity to showcase Russia as a global superpower. According to The Moscow Times, the country is expected to spend $13.2 billion on the tournament. Most of the budget is going to infrastructure, with St Petersburg’s stadium alone costing around $800 million to build. Previous hosts Brazil (2014) and South Africa (2010) also spent significant amounts on the tournament, with their budget totaling $15 billion and $3 billion respectfully. Although countries have historically faced substantial costs to host the World Cup, they were not able to greatly benefit from their investment. A study by Swantje Allmers and Wolfgang Maenning that looks at the economic impacts of the World Cup on host countries France (1998) and Germany (2006) finds little evidence that these tournaments had any short-run positive effects on tourism, employment and income. These results agree with other empirical findings that sporting mega-events such as the World Cup do little to benefit the host country’s economy. It seems as though Russia will therefore be no different. Russian economic expert Dmitry Kulikov was quoted by the Russian media group RBC saying that the expected effect of the tournament on economic growth of the country in 2018 “will be equivalent to that of a statistical error.” If host countries receive little economic benefits from the World Cup, what about the absentees and winners of the competition?

Impact on Winners and Absentees

World Cup winners tend to receive short-run economic benefits from the tournament. According to a 2014 Goldman Sachs report, the winner of the tournament outperforms the global market by 3.5% on average the first month after the competition. Sentiment and passion can only take the markets so far, as these gains tend to fade after three months. It also appears that World Cup winners have a high GDP growth rate for the few years prior to their victory. According to the same report, the GDP of a hypothetical ‘champion-to-be’ economy from years 1934-2010 would have had a 2.7% annual growth rate, making its 2010 GDP per capita 55% higher than in the US and 85% higher than a hypothetical ‘host-to-be’ economy.

While winners of the competition tend to experience a sizable GDP growth rate before their victory and a minor boom afterwards, countries that do not qualify for the tournament have many businesses suffer from their nation’s absence in the World Cup. According to the owner of SpeakEZ lounge in Grand Rapids, Eric Albertson, bars are set to lose around $400-$500 thousand in the West Michigan area alone due to US’s failure to qualify for the 2018 tournament. The US Soccer Federation, Fox News Network, the owner of broadcasting rights for the 2018 and 2022 World Cups, and Nike, the US’s team jersey sponsor, are set to suffer the most from USA’s World Cup absence. Economic losses are set to be even bigger in countries where the sport is more prominent.

Who Wins?

As we saw earlier, World Cup winners often experience a minor economic boom after the competition; yet the hosts receive little economic benefit for having spent enormous amounts to prepare their country for the tournament. The absentees also have many of their businesses suffer, whereas the participants aid companies in their country but experience little to no economic gains as a whole. If the majority of countries receive little to no economic benefits from the World Cup, who wins financially from the competition? Perhaps unsurprisingly, the overwhelming winners are the organization that made the tournament in the first place. According to Business Insider, FIFA generated a $2.6 billion profit from the 2014 World Cup, a $2.36 billion profit from the 2010 tournament and a $2.21 billion profit from the 2006 World Cup. It is important to note that these profits are not counting the unofficial payments from ‘host-to-be’ countries to various FIFA officials, which led to the FIFA corruption scandal where 14 individuals were indicted on corruption charges in May 2015. Although certain officials charged with corruption were removed from the organization, FIFA still stands to generate enormous revenues from the upcoming World Cup. This competition, like other sporting mega-events, will do little to uplift the economies of most countries. At least we as fans can still enjoy all the magical moments of this spectacular show.

Sources:

Bostwick, J. (2017, November 20). The Economic Effects of Missing Out on the World Cup. Retrieved April 19, 2018, from https://www.radiusworldwide.com/blog/2017/11/economic-effects-missing-out-world-cup

FIFA.com. (2015, December 16). 2014 FIFA World Cup™ reached 3.2 billion viewers, one billion watched final. Retrieved April 17, 2018, from http://www.fifa.com/worldcup/news/y=2015/m=12/news=2014-fifa-world-cuptm-reached-3-2-billion-viewers-one-billion-watched–2745519.html

Gaines, C. (2014, June 17). FIFA Is On Pace To Make A $2.61 Billion Profit On The World Cup. Retrieved April 19, 2018, from http://www.businessinsider.com/fifa-profit-world-cup-2014-6

The World Cup and Economics 2014 [PDF]. (n.d.). Goldman Sachs.

2018 World Cup Won’t Boost Russia’s Economy, Analysts Say. (n.d.). Retrieved April 17, 2018, from https://themoscowtimes.com/news/2018-world-cup-wont-boost-russias-economy-analysts-say-59768

Image source: Pixabay