Finance

Finance

The World Cup is ostensibly a good news finance story, but...

Mr Stephen Morrow

Posted: June 8, 2014

Tagged: bidding / finance / football / impact

Ostensibly, the World Cup is a good news finance story. On the revenue side it has unique drawing potential; the record world-wide television audiences expected for the 2014 tournament enabling lucrative media and sponsorship deals. While the redistribution of economic power and rent to clubs and players over the last two decades or so has been well documented, two finance-related observations are worth highlighting in the context of the World Cup. First, the motivation for the world’s best players remains largely non-pecuniary in nature, apparently focusing more on things like patriotism and footballing ambition. That said a good tournament would be expected to benefit a player financially indirectly, in terms of their marketability within the game and beyond. The second observation relates to the clubs. Cognisant of the continuing demand shown by supporters, national associations and players for the World Cup, clubs might also be expected to continue to be supportive of the tournament. Over time, however, that support has been incentivised by increased compensation payable to clubs; now equivalent to $2,800 per day for their players’ participation over a two week period. As a result, the club likely to provide the greatest number of participating players, Bayern Munich, is likely to receive more than $1m.

On the cost side, the monopoly nature of the World Cup, coupled with the fact there continue to be many bidders willing to host the event, enables a great deal of the tournament costs to be passed directly to host nations. This is most satisfactory from FIFA’s point of view, resulting in it being probably the wealthiest sport governing body in the world. The nature of the World Cup’s cost side also explains FIFA’s use of the tournament as an economic tool. This can be illustrated by two issues that have dominated non-footballing World Cup discourse over the last couple of years.

The first relates to widespread social protests that engulfed Brazil during the Confederations Cup held there in June 2013. The grievances of protestors were wide ranging, encompassing concerns overs the quality of education, public transport health and security. But as the author and journalist David Goldblatt has argued, what acted as a focus for protestors’ outrage was the cost and social impact of the country hosting the World Cup; the highly visible costs associated with stadium development and related infrastructure catalysing the protest. Yet at the same time, a study by the ratings agency Moody’s suggested that a combination of the size of the Brazilian economy – the seventh biggest in the world according to the World Bank – and the short time period of the World Cup event will mean that spending on the World Cup will actually have a negligible impact on its economy. A poll of economists carried out by Reuters also suggested that the World Cup was likely to have a very limited impact on the country’s economic growth, perhaps in the region of 0.2 percentage points.

So why the disconnect between public perception and economic prediction? Unfortunately it can be explained most easily by an old refrain, one found in numerous academic studies on major events: that is, ambitious and quite often extravagant (non-sporting) claims around economic development and financial benefit, made as part of the lobbying that accompanies the bidding process and thereafter in the victorious host country’s public communications. Brazil has been no different. On the investment side, this is apparent in claims of significant World Cup-related economic activity being inflated by general infrastructure projects that were already planned for. On the income side, for example, there are suggestions of a substitution effect between World Cup visitors and more typical tourists and business travellers coming to Brazil; not dissimilar to that seen during the London Olympic Games. Once again the message here is unambiguous: governments and their advisers need to moderate their claims for major events, not least the anticipated financial effects.

The second issue relates not to this year’s event in Brazil, but instead to the decision announced in December 2010 to award the 2022 World Cup to Qatar. At the time the decision was greeted with incredulity, not least given the likely summer temperatures in Qatar and the absence of any discernible football culture in the country. The most generous interpretation, and one ostensibly consistent with decisions to host previous World Cups in the United States (1994) and in South Korea and Japan (2002), was that it was financially motivated: an economic door opener into new markets for FIFA and its sponsors; that a World Cup for Qatar was a World Cup for the Middle East. However, less benign interpretations have never been far from view, with suggestions of bribery and corruption over the bidding process. These suggestions resurfaced spectacularly in The Sunday Times newspaper at the beginning of June, with the paper claiming to have obtained millions of secret documents which suggest that the disgraced Qatari football official, Mohamed Bin Hamman, made payments of £3m to football officials in Africa and elsewhere to encourage their support for the Qatar bid. This in turn has led to calls for the 2022 bidding to be reopened. All the signs are that issues of governance and transparency are as likely as football to continue to dominate the World Cup headlines in the coming weeks.

More than anything these issues demonstrate that football finance is rarely simply a matter of income and expenditure figures. Football finance does not exist in a vacuum, but rather needs to be analysed and considered in its social and political context, for better or for worse.

About Stephen Morrow

Stephen is Senior Lecturer in Sport Finance at the University of Stirling. He was Head of the Department of Sports Studies, the predecessor to the School of Sport, for five years until summer 2011. His academic background is in accountancy and finance and he was a lecturer in these subjects at Heriot-Watt University, Edinburgh from 1990 until 2000. Stephen is a Chartered Accountant (ICAS) and trained with the international firm of accountants, Ernst & Young