Economy

Economy

What's the World Cup worth?

Professor Simon Chadwick

Posted: June 8, 2014

Tagged: economy / events / impact / legacy

Ever wondered what the World Cup is worth? When Italian sculptor Silvio Gazzaniga designed the current trophy in 1971, it was worth $50,000. Following the recent economic downturn and rapidly inflating gold prices, the trophy is now estimated to be worth US$10 million. The World Cup is however much more than two human figures cast in 18 carat gold.

When assessing the nature of worth, one inevitably has to ask: to whom might the World Cup be worth something? The way in which nations battle one another to host the tournament suggests there is some considerable value to a country in hosting football’s biggest competition. Estimates indicate the last three World Cups have generated a positive economic impact of $9 billion (Japan and South Korea in 2002); $5 billion (Germany in 2006) and $4 billion (South Africa in 2010). For this year’s tournament in Brazil, various forecasters have identified the positive economic impact could be anything in a range from $3 billion to $11 billion.

The economic case for hosting the World Cup becomes even more compelling in the light of evidence suggesting that the tournament’s sustainable impact in Brazil could generate 3.63 million new jobs, add nearly $30 billion to Gross Domestic Product (between 2010 and 2014), and raise an additional $8 billion in tax revenues. Moreover, some estimates identify that FIFA’s showcase event is likely to draw-in an additional 3.7 million people to Brazil, each of whom will spend an average of $2,488.

Seemingly therefore, the tournament makes sound economic, and indeed political sense – elections have been won on the back of the World Cup. It is widely held that Harold Wilson’s Labour Party won the 1966 General Election in Britain, the country (and voters) motivated by the ‘feel good’ factor induced by the country’s hosting of the tournament that year. This is potentially good news for current Brazilian President, Dilma Rousseff – the country’s elections start during the World Cup.

Politically and economically, the ‘feel good’ factor can have other positive effects too. Research conducted in Britain prior to the 2006 World Cup showed that 70% of men and 62% of women said that the tournament would have an impact on their working lives. In turn, 62% of men and 52% of women suggested that if their national team did well, it would boost their morale. Over one third of the respondents also stated that team success would help to create a good team spirit at work. When people are not working, the British retail sector has typically experienced a $2 billion uplift in sales as people bought beer, pizzas, barbeque equipment, televisions and so forth.

There is also value in the World Cup for FIFA – it is football’s world governing body’s principle revenue earner. This is something of an understatement as commentators have been stunned by the commercial behemoth the World Cup has become. Over the four year period up to the 2002 tournament, FIFA reported a ‘positive result’ (note: FIFA reports do not refer to ‘profit’) of $129 million. At the end of the next four year period in to 2006, this figure had risen to $339 million. By 2010, FIFA’s ‘positive result’ had almost doubled to a massive $705 million.

While many will question the ethics and morality of such revenue growth, FIFA would no doubt counter by emphasising that in 2013, the organisation spent $200 million worldwide on development projects. Mention would no doubt be made too that this year’s World Cup winners will earn $35 million from a victory in the Final. Well worth it to the globe’s best team. Many of FIFA’s official commercial partners are often happy too; during the last tournament in South Africa, adidas sold 6 million football shirts, up from 3 million during Germany 2006. Similarly, Visa received 7.5 million views of its 2010 World Cup You Tube channel, 50% more than it was expecting.

In short, there is a seductive argument that says: ‘the World Cup is worth a lot’.

There is nevertheless significant evidence that leads one to question whether this is actually true. While optimistic forecasters look forward to the predicted $3 billion+ economic bounce in Brazil, critics point-out that hosting the tournament is actually costing the country $14 billion, nearly $1 billion of which is being spent on new stadiums. Despite this being relatively modest compared to the $6 billion spent by Japan and South Korea in 2002, the $2 billion spent by Germany in 2006 and the $1.1 billion spent by South Africa in 2010, such a spending commitment has caused massive problems in Brazil.

Aside from the direct economic cost of the 2014 competition, there are also indirect economic costs and, indeed, a social ones too. Brazil’s problematic stadium construction projects have led many commentators across the world to question the country’s ability to organise and manage projects. This has intangibly damaged Brazil’s image and reputation.

At the same time, since last November an average of one construction worker a day dies while working on World Cup related construction projects. This is not just Brazil’s problem though; in Qatar, 2022 host of the World Cup, figures indicate one worker per day dies working on tournament related projects.

During last summer’s FIFA Federations Cup in Brazil, a World Cup warm-up tournament, there were massive and frequent protests across the country as people protested at anything from corruption to tax breaks given to FIFA to bus fare price increases. Put another way, many among the Brazilian population think the tournament is simply not worth it. Such protests impose further costs; indeed, the Brazilian government is now believed to be spending around $863 million to beef-up national security.

This comes on top of significant spending on a favela clearance programme – Operation Pacification – that has resulted in countless gang leaders, drugs czars and other criminals being killed. Some in Brazil might believe that this is money well spent, but others think it has imposed massive costs on the country. For instance, Amnesty International has revealed that 80% of Brazilians are afraid of being tortured by their own police force. Meanwhile, the Brazilian Institute of Public Security has revealed that deaths associated with police conflicts rose by 69% between 2013 and 2014. In spite of rising security expenditure, crime in Brazil still appears to be on the rise; for example, in January this year there were 420 reported muggings on Rio de Janeiro buses, compared to 195 cases in January 2013.

Many of us tend to conveniently forget such matters when the World Cup starts as everyone celebrates the football feast ahead. Yet the problems do not necessarily stop; commentators are expecting trouble ahead in Brazil, with FIFA events having already been attacked in the run-up to the tournament starting. But civil unrest, crime and the costs they impose are only one concern. Evidence from previous global sporting mega events indicates that they crowd-out other tourists from host nations.

In other words, tournaments like the World Cup can be a zero-sum game: fans will come, but other tourists are put-off travelling and won’t visit. Consider South Africa: during the 2010 tournament, 309,000 visitors entered the country; the monthly average for rest of the year was closer to 620,000 entrants. In the case of a university, they allocated 92,000 ‘bed-nights’ worth of rooms to the World Cup. Just prior to the event, FIFA’s booking agency returned 91,000 nights unused. Whatever the number, consider what comes with the visitors as well – in 2006, 1,000 women were trafficked into Germany to work as prostitutes.

But it is not just in a host nation where the negative effects of the World Cup are felt. Britain’s Chartered Institute of Personnel and development has already issued guidelines for employers who might be concerned about absenteeism, poor productivity and drunkenness at work during the World Cup. This is not without good reason; during the 2010 tournament, research identified that 32% of people would consider skipping work to watch a game. Among regular football fans, this figure rose to 68%. In 2006, other research found that one in six workers turned-up for work drunk, having watched a World Cup game. Such problems are not just unique to Britain either; for example, in Singapore company bosses are already concerned about productivity, research having indicated that 40% of workers will stay-up to watch games in the middle of the night.

What’s the World Cup worth? Well, there’s no easy answer to the question and it depends who you ask it to. For the likes of FIFA, it is a cash cow and a commercial bonanza. A favela dweller in Rio could well see it as a waste of money, cash that should have been spent on housing, public transport and welfare programmes. As the tournament’s first ball is kicked, you might therefore reflect upon an alternative question: is the tournament worth it?

About Professor Simon Chadwick

Professor Simon Chadwick set-up and edits The Scorecard. He is Director of CIBS (Centre for the International Business of Sport) at Coventry University, where he works as Professor of Sport Business Strategy and Marketing. Twitter, @Prof_ChadwickLinkedIn.