Data Card

The beautiful game?

Print edition : June 27, 2014
There is anger on the streets of Brazil, which is reeling under economic hardships, as it plays host to the most expensive Football World Cup so far.

Even before the greatest market-driven spectacle on earth got underway on June 12, Brazil witnessed a series of violent protests against spending huge sums of money for playing host to this year’s FIFA World Cup and the 2016 Olympics (in Rio de Janeiro).

The cost of hosting the World Cup alone is estimated at $14 billion—for 64 games for 32 teams over the course of 30 days. The costs include modernising old stadiums, building new ones and improving the transport infrastructure. There were huge cost overruns, interminable delays and monumental corruption. Much of the money for the mega event comes from federal funding; private contribution is less than 15 per cent.

The price of building or renovating the 12 stadiums has quadrupled from pre-construction estimates to $4.2 billion. An article in Celebrity Networth says the Mane Garrincha stadium in Brasilia, which does not even have a professional football team, is the second most expensive stadium ever built, at $900 million. Manaus, located in an isolated part of the Amazonian jungle, also does not have a professional team. Yet there is the Arena da Amazonia costing $290 million.

It is argued that Brazil’s economy is big enough to absorb such costs, but it is still to recover from the slowdown. Unemployment rates are high and spending on public infrastructure has been drastically reduced. These billions that have come from public funds, argue the protesters, could have paid for schools, hospitals, teachers, food and hundreds of much more worthy social programmes.

According to the Gini coefficient index of inequality assessment, an estimated 20 per cent of Brazilians live in abject poverty. Hence the anger on the streets. According to reports, more than 250,000 families have been forced out of their homes for new construction in the areas around the football stadiums.

The mega-event bug

There is a temptation among leaders of newly emerging economies such as Brazil, Russia, India, China and South Africa (BRICS) to show the world that they have “arrived”. These nations are pulling out all stops in their bid to host prestigious mega events such as the World Cup or the Olympics. China hosted the Olympics in 2008, South Africa the World Cup in 2010, Brazil has two mega events back to back, and Russia will host the 2018 World Cup.

These countries have spent heavily on these events and most of which have been mired in controversies. India blundered through as the host of the Commonwealth Games in 2010, which, in the public perception, was extremely corrupt.

Mega events deliver mega bucks to their sponsors and leave the host countries high and dry. In recent history, only the 1984 Los Angeles Olympics and the 1992 Barcelona Olympics have been financial successes.

FIFA and corruption

Only a few days ago, a story surfaced on the alleged corruption in FIFA’s choice of countries to host the 2018 (Russia) and 2022 (Qatar) World Cups. FIFA’s history since 2006, says The Guardian, is “a catalogue of slush funds, kickbacks, bribes and favouritism. Commercial offshoots are said to be run by insiders and family members of the FIFA president, Sepp Blatter.”

FIFA’s “reserves”—a euphemism for profits because FIFA is classified as a non-profit organisation in Switzerland—have steadily increased over the years. The World Cup provides the vast majority of its revenue and profits. Its largest revenue element is the sale of television rights and the second largest source of income comes from the marketing of the World Cup rights.

Hosts come a cropper

In a paper “The bidding paradox: Why rational politicians still want to bid for mega sports events”, the Dutch academics Michiel de Nooija and Marcel van den Bergb say that the economic arguments of the proponents of hosting mega events contrast sharply with academic literature, which consistently shows that mega sports events are in general economically unprofitable in terms of spending, GDP or employment. They find that the true costs, such as those associated with security, preparations by civil servants, distortionary taxes imposed to publicly finance the event, or even the costs of participating in the bidding process, are frequently ignored in the process of submitting a bid.

Brazil 2014 is set to be the most expensive World Cup so far. But compared with the $120 billion Qatar is spending for the 2022 event, it is loose change.