What can Brazilians expect to win from the World Cup?

Features

  • Author: Carlos Alberto Gómez Grajales
  • Date: 24 Jun 2014
  • Copyright: Image appears courtesy of iStock Photo

One of the greatest media events in the World is upon us. The celebration of the biggest sport on Earth is here. FIFA's World Cup, the tournament where the official football teams of every qualified country compete for.

Being such a major event, attracting the eyes of the world’s media, the World Cup means a lot of money. It is expected to collect $4 billion worth of commercial revenue for FIFA. This amount is due to sponsorships that include Adidas, Coca-Cola, Emirates, Hyundai, Sony and Visa, and also due to other income related finances such as broadcasting fees. European television networks have paid the majority of those rights fees to FIFA, according to former financial reports, totaling more than $1.5 billion in income. Not forgetting the related costs of about 3 million tickets available to buy. And for the record, the 64-match tournament is almost sold out (1).

We can then reliably argue that the World Cup is a great business, yet the citizens of the hosting country are not seeing it this way. Brazil's World Cup has been estimated to be the priciest of any yet, with an estimated cost of $11.5 billion (2). But some predictions claim that the Brazilian government will spend up to $14 billion on building and renovating 12 stadiums, upgrading federal, state and city infrastructure and on security plans to welcome the 32 teams and around 600,000 expected visitors (1). In a country with many economic and social issues still on the table, such amounts of spending, more than three times the amount spent on the last World Cup, seem irresponsible to Brazilian citizens (3).

thumbnail image: What can Brazilians expect to win from the World Cup?

This anger has fueled widespread and often violent anti-government protests that overran the country during June 2013, around the time the FIFA's Confederations Cup tournament, a form of preamble for the World Cup, took place in the country. Many protesters railed against corruption and the billions spent to host the events, claiming that government's money would be wasted in an ephemeral task, resulting in buildings that would become white elephants in the future. The main target of accusations has been the Mane Garrincha stadium, a Colosseum that will host some of the most important matches of the World Cup. With a projected cost of $900 million in public funds, the Brazilian government has just built the world's second-most expensive football stadium in a city that has no professional soccer team (2).

And the fact that most of the funding for Brazil's stadiums relies on financing from the federal district's coffers means that the cents come directly from taxpayers. This has also led to many accusations of corruption, a shadow that has covered the organization of the games since auditors and reports from the media started flagging inconsistencies and apparent overpricing. Add to that, allegations of poor working conditions and the 8 reported deaths related with work accidents in construction sites of World Cup projects (4). We have then a complex situation involving the realization of the latest World Cup.

With all these expense and related issues around the organization of the games, a worthy question that is surely revolving in Brazilians' heads is “Is it worth it?” What are the real benefits of hosting a worldwide sports event? Are there social and economic benefits as some claim? Do we have studies about it? Do we have statistics about it? Well, if someone proved mathematically that heaps of string or hair or almost anything else will inevitably tangle themselves up in knots (5), I bet we have some interesting results about the effect that World Cups will have in the organizer's nation.

When we talk about economic benefits, your first guess must be the tourism revenue, which is partly true, but not really worthy. Although it is true that one of the potential benefits to Brazil from the event is an increase in tourism, that number alone cannot justify the investment. With an estimated 600,000 people expected to visit the country during the tournament, if each tourist stayed in the country for ten days and spent $500 a day that would total about $3 billion, according to some predictions (6). That sounds like a lot of money, but remember the estimated cost of $11 billion for this World Cup. That would still leave a huge loss. Even worse, in the context of a $2 trillion economy, tourist spending might be equivalent to just 0.1-0.2% of GDP. Basic arithmetic shows that the tourism revenue is really not worth the expending, but maybe the profit is in the stadiums - those incredibly expensive stadiums.

Brazil's World Cup has been estimated to be the priciest of any yet, with an estimated cost of $11.5 billion. But some predictions claim that the Brazilian government will spend up to $14 billion on building and renovating 12 stadiums, upgrading federal, state and city infrastructure and on security plans to welcome the 32 teams and around 600,000 expected visitors (1). In a country with many economic and social issues still on the table, such amounts of spending, more than three times the amount spent on the last World Cup, seem irresponsible to Brazilian citizens.

Building stadiums is great for a city, or so they say. Not only in Brazil, but in many places of the world, a building spree has resulted in an exponential increase in the number of new stadiums. From 1990 to 2010, 104 new sports facilities were built in the U.S. and Canada compared with only 128 new facilities opened in the 90 years prior. One of the reasons is the increased public funding attached to such projects, just in the same way that the Brazilian government is spending great amounts of money on World Cup preparations.

The story goes like this. A new stadium will bring a revival in the economy of a city, or at least to the zone adjacent to the new stadium. It makes sense, doesn't it? A new stadium will drive more people to the neighbourhood, both local and foreign tourists. This will in time bring more value to the properties and eventually stimulate the creation of more businesses to take advantage of the crowds: restaurants, malls and entertainment options will drive economic growth and change the place for good. The region will then be “revitalized”. Such a concept is not exclusive to Brazil or Latin America. Lifting a city's economy with a sports project is a common practice seen in many other parts of the world (7).

Sadly, the benefits may not be for all. Some studies suggest that improving the wealth in one part of town affects the economy in the rest of the city (8). The urban spatial equilibrium model, a theory proposed by economists to understand the spatial structures of cities, indicates that the people around a new stadium will only benefit if they own their place. Real estate prices near a stadium will usually rise, though this will be a problem to those who rent, since their fees will surely rise as well. This will be an issue for businesses as well. It is true that restaurants, amenities and other companies that profit from the greater number of visitors will see a rise in their margins, yet some other businesses already in the area may not see such a clear benefit. And if they pay rent, then no sale.

So, even when an important number of studies report a clear correlation between new stadiums and local economic growth, a firm conclusion seems out of reach. Some authors question the economic impact analysis that accompanies many of these studies and conclude that some of their premises are inadequate at best (9). By focusing on total instead of marginal economic benefits, by omitting opportunity costs and by delimiting inaccurately the region of influence, most of the research that supports the public investment on new stadiums has been subjected to trial. Many of these studies are funded by organizations with a clear interest in promoting the construction of new sports facilities, so further suspicion may be justified. In fact, some publications are actually reporting that the “new stadium effect” is not even a significant thing. In one study, by conditioning on local income and poverty rates, the “revitalization” effect turned out to be somewhat lower - “half of what experts are claiming” lower. Apparently, characteristics of locations and the specifics of the neighbourhood drive many of the variables associated with the economic growth usually attached to new sports facilities (10). Research like this, based on a series of regressions models using census-tract level data and historical records of mortgage applications, somehow contradicts the notion that a huge improvement in the quality of life will be in for the Brazilians. So far, all we may predict is a modest effect in the area surrounding the stadium, and even then, only for a fraction of the population, particularly those with real estate properties.

So, if the stadiums won't dramatically boost Brazil's economy and the revenue will be less than the expenses, what can Brazilians win by organizing such an expensive event? Well, according to some economists, the real benefits cannot be directly measured. The profit comes in the fact that the World Cup will be an immense marketing scheme for the country.

"Playing host will immediately raise the global profile of a country and might even change perceptions of the host nation, resulting in increased tourism and political benefits and alliances, but accrue over many years”.

These are the words of the chief economist at Colliers International (11). "The World Cup will act as a giant advertisement for Brazil and its host cities, showcasing them as places in which to invest, visit and live." He then added some of those 'revitalisation' ideas about the new stadiums, yet we can no longer be sure about that.

Apparently, hosting a World Cup is a long term investment. It is not about immediate profits, nor about immediate economic boom. And certainly, countries like South Korea, China and South Africa have seemed to benefit from a better international profile after hosting some previous international events. For Brazil, the event is less about gaining money and more about gaining international traction. Think of it as huge sweet sixteenth party, an official presentation among the international society. Brazil is a huge country, a powerful economy, with a great potential. Investors have already looked upon Brazil for a while, but it is a time for everyone else to look. Brazil is here, it is beautiful and alive. A bright country, full of colour, joy and passion. Brazil is a great place and everyone should know that. That's what the World Cup is for.

References


(1) Record World Cup numbers game for FIFA, Brazil – USA Today (May, 2014) http://www.usatoday.com/story/money/business/2014/05/22/record-world-cup-numbers-game-for-fifa-and-brazil/9458457/
(2) Brazil Built The World's Second-Most Expensive Soccer Stadium In A City With No Pro Team – Business Insider(May,2014)  http://www.businessinsider.com/brazils-world-cup-problems-with-corruption-2014-5
(3) The Streets Erupt – The Economist (June, 2013) http://www.economist.com/blogs/americasview/2013/06/protests-brazil?spc=scode&spv=xm&ah=9d7f7ab945510a56fa6d37c30b6f1709
(4) Eighth World Cup construction worker killed in accident – Circa (June,2014) http://cir.ca/news/world-cup-stadium-problems
(5) Raymer, Dorian and Smith, Douglas. Spontaneous knotting of an agitated string - Proceedings of the National Academy of Sciences, vol. 104, no. 42, October 16, 2007, pp. 16432-7. - http://www.pnas.org/content/104/42/16432.abstract
(6) World Cup boost for Brazil? Don’t bet on it – CNBC (May ,2014) http://www.cnbc.com/id/101658206
(7) The Regina Revitalization Initiative. - http://www.reginarevitalization.ca/stadium-project/
(8) Coates, Dennis & Humphreys, Brad Can new stadiums revitalise urban neighbourhoods? Significance Magazine (June, 2011) DOI: 10.1111/j.1740-9713.2011.00488.x
(9) Crompton, J. L. Economic impact analysis of sports facilities and events: Eleven sources of misapplication. Journal of Sport Management, 9(1), 14–35. (1995) http://agrilifecdn.tamu.edu/cromptonrpts/files/2011/06/Full-Text100.pdf
(10) Humphreys, Brad & Haifang Huang Do New Sports Facilities Revitalize Urban Neighborhoods? Evidence from Residential Mortgage Applications – Working Paper No. 2012-05 University of Alberta (March, 2012)
(11)  Here's how the World Cup will boost Brazil's economy – CNBC (May ,2014) http://www.cnbc.com/id/101712497

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