The World Cup: How FIFA Benefits While Host Countries Lose Big

3p is proud to partner with the Presidio Graduate School’s Macroeconomics course on a blogging series about “the economics of sustainability.” This post is part of that series. To follow along, please click here. [caption id="attachment_90175" align="alignright" width="300" caption="As a player, Lionel Messi embodies the spirit of the beautiful game."][/caption] By: Shaun Webb Countries and cities spend vast amounts of money to participate in the bidding process to host world sporting events. Along with the pride and glory and the opportunity to showcase one's cities, nation, and culture, there is the perception that such events will create an economic windfall in that country. Whereas this may be the case for developed nations, the prize for hosting soccer’s World Cup can turn into fool's gold for developing countries and emerging markets. Fédération Internationale de Football Association, the governing body of world soccer, makes a number of demands on the host nation but it does not provide any real support. Does FIFA as an organization have a responsibility to the developing countries it awards its competition to? It should. South Africa 2010 In 2010, FIFA and its president, Sepp Blatter hailed the 2010 World Cup in South Africa to be a huge financial success for everyone. But this is only partly true. FIFA made over three and a half billion dollars from TV and other World Cup-related rights. South Africa and its taxpayers however, had to shoulder all of the costs (estimated to be 4.1 billion dollars) to modernize and construct the stadiums, hotels, roads, and other forms of local infrastructure necessary to host a global party. All this construction generated over 22,000 jobs, but they were all temporary contract jobs. The new infrastructure is beneficial to locals, but after the World Cup, all the extra hotels and stadiums are sitting idle, as South Africa has not been able to generate or maintain the level of tourism that it experienced during the tournament. The construction of these state-of-the-art stadiums is not sustainable, as ticket revenues alone were not able to make up for the costs of yearly maintenance. These costs are falling on local, potentially cash-strapped municipalities that don't need a state-of-the-art stadium. [caption id="attachment_90174" align="alignright" width="250" caption="2014 World Cup will be held in Brazil"][/caption] Brazil 2014 So what will happen to Brazil, who is not only hosting the 2014 World Cup, but also the 2016 Olympics? According to Professor Chris Gaffney, a visiting professor at the Universidade Federal Fluminese in the Department of Architecture and Urbanism, Brazil is going to experience the same pains that South Africa is currently experiencing. All twelve of the selected stadiums have to either be renovated or constructed, and the costs are already over budget. The Maracana stadium, the Mecca of modern soccer and location for the final, is undergoing a $600 million renovation. If construction/renovation costs were to balance with the expected generated revenue, then each spectator would have to spend about $1000 per game, which is an absurd figure. This will price out the majority of the Brazilian fans and after all, it's the people -- the middle and lower classes -- that create the passion and intensity that is so wonderful and amazing about a World Cup match. Transportation between the World Cup venues is limited to air travel. Airports will have to undergo expansive improvements, and hotels must be constructed. However, after both the Olympics and World Cup are over, those stadiums and hotels will become "white elephants." Initially, according to Professor Gaffney, all these costs were going to be privately funded, but as the budgets increased, the costs, like in South Africa, will be put on the public's shoulders in the form of federal loans and tax breaks, thus raising local and federal debt. What FIFA needs to do Mr. Blatter was especially proud that he finally brought the World Cup to African soil, yet in the end the costs outweighed the benefits. FIFA can ensure that the same doesn't happen to Brazil. FIFA makes money regardless of whether the cup is successful or not, as its profits are made well before the event starts through the sales of World Cup rights. Instead of creating a "private event" in which it can deny local businesses the opportunities to advertise within a 2-kilometer radius of the stadiums, FIFA could partner and promote soccer with these businesses to benefit the local economy as well as promote the FIFA brand. FIFA can also work with the local municipalities to create a responsible infrastructure for the future of the locals, versus something temporary that will burden generations to come. FIFA’s legacy Due to emerging reports regarding a financial bribery scandal and their lack of transparency regarding how they award the World Cup, Sepp Blatter and FIFA's current legacy is not that of the benevolent organization bringing the world's most popular game to developing nations and beyond. A start to changing this public perception would be to ensure that hosting their event is a financial and sustainable windfall for the nation that is so honored to host the World Cup. **** Shaun Webb is currently working towards a masters in business administration with a focus in sustainable management from the Presidio Graduate School in San Francisco. When he is not developing and designing websites or writing posts and papers, Shaun is waking up at ungodly hours to follow his favorite club soccer team. Shaun is also a writer and editor for the soccer publication The Shin Guardian. He can be reached at shaun.webb@presidiomba.org