Croatia's Luka Modric in action with England's Jordan Henderson at the World Cup. Roughly 7,000 to 10,000 England supporters travelled to the event. Photo: Reuters
Croatia's Luka Modric in action with England's Jordan Henderson at the World Cup. Roughly 7,000 to 10,000 England supporters travelled to the event. Photo: Reuters

Does it pay to host the World Cup?



The 2018 World Cup is steaming to a close, with a global build-up of excitement and anticipation. Over a 1.5 billion people are expected to watch the final. World Cup frenzy takes over homes, businesses (with a consequent drop of productivity) and even trading rooms, where volumes decline and sick leave shoots up. Even conservative economists get excited. But economists can also be spoilsports. Despite the euphoria, they ask: does it make sense to host mega events like the World Cup, Olympics or World Expos? Do host countries benefit and do they recoup the investments made?

The arguments for undertaking mega projects and events focus primarily on the direct economic impact. This is the increase in activity and employment in the engineering, procurement and construction sector related to infrastructure spending, along with increased employment and spending in the tourism sector resulting from the inflow of tourists into the country (though this might displace non-event tourism because of congestion costs), as well as an increase in consumer spending during the event.

Research by Vanquis Bank reveals that England fans travelling to Russia for the World Cup and attending all matches would have spent £5,090 (Dh24,643) or 22 per cent of the average UK annual salary if England had reached the final. FIFA estimates close to 2.6 million fans would have watched the games in Russia by the time it wraps up on Sunday, but this is less than 0.1 per cent of the more than 3.5 billion fans expected to tune in on TV and online streaming.

In addition, there are “intangible benefits”: mega-event hosting nations use the opportunity to demonstrate their ability to undertake complex projects, and build and/or promote their “brand name”. In turn the higher value brand name could attract foreign investment and increased international trade and tourism.

The other immediate benefit in hosting the World Cup is that the host nation automatically qualifies for the tournament (and Russia had a good run reaching the quarter finals), but it also has to include massive tax exemptions for the Fifa association and its corporate partners. Germany, for example, offered Fifa an estimated $272 million in tax exemptions when it hosted the 2006 World Cup.

Indeed, the biggest winner from the World Cup is not the host country or the winning team (which takes home the 18-carat gold trophy whose current market value is about $150,000, and $3m along with prestige and honour), but Fifa. Fifa has become “big business”: broadcasting rights for this year is expected to generate $3bn in revenue – a 25 per cent uptick compared to 2014’s $2.4bn. In addition, corporate sponsorships (mostly from Russia itself, China, and Qatar which is hosting the next World Cup) likely brought in a further $1.6bn in revenue, according to KPMG.

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Read more from Nasser Saidi:

World Cup 2018: can anyone predict the winner?

Business Extra podcast: The commercial power of the World Cup

Party mood at Russia's World Cup has retailers cheering 

World Cup ticket scalpers thwart Fifa and Moscow's crackdowns

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Heavy investment, short duration

Hosting international mega-events like a World Cup or a World Expo, such as the UAE’s Expo 2020, involve large capital outlays: stadiums, sports facilities have to be built, modernised or upgraded along with hotels and lodging for visitors and participants. Investments have to be made in transport and logistics to move millions of people: roads, trains, stations and airports have to be built or expanded to absorb the high intensity of use due to the influx of millions over short periods.

In addition, there are the increasing and non-recapturable security costs. Russia’s World Cup 2018 declared bill of $14.2bn, is one of the highest spend so far (somewhat lower than Brazil’s $15bn) with most of the money invested in infrastructure ($6.1bn), stadium construction ($3.4bn) and transport ($680m) - and compares to a spending of $10bn or more by nations that hosted the previous editions of the event.

The Oxford Olympics Study 2016 found that direct sports-related costs for the summer games since 1960 are on average $5.2bn and for the winter games $3.1bnn. But these costs exclude the wider infrastructure costs like roads, urban rail and airports, which often cost as much or more than the sports-related costs.

The most expensive summer Olympics was Beijing at $40-44bn and the massively expensive winter games of Sochi 2014 at $51bn. As of 2016, costs per participating athlete are on average $599,000 for the summer games and $1.3m for the winter event, which are higher given the smaller number of events and participating athletes. For London 2012, cost per athlete was $1.4m; for Sochi 2014, $7.9m.

Costs and benefits of mega events

The common characteristic of mega international events is that the investments are designed for a specific purpose and for a “limited duration” - running from several weeks for the World Cup or Olympics to six months in the case of World Expos. Historical evidence points towards large budget overruns: over the past 50 plus years, Olympic Games have gone over-budget by 179 per cent on average.

The bottom line is that the short-term benefits from the host country’s share of the event, tourism revenues and increased consumption are far outweighed by the heavy costs of event-related investments. In addition, there is an opportunity cost: mega-project investments are likely to crowd out spending towards health, education, social development, and in some cases, basic infrastructure (India’s embarrassing experience with the 2010 commonwealth Games comes to mind). Unless the economics change and there is revenue sharing from media and related property rights, it typically does not pay to host a mega-event, despite prestige and the higher value brand name.

Some lessons on hosting mega-events

What are the lessons from experience for countries and cities planning to host a World Cup or other mega-event? One, use and upgrade existing facilities. Two, focus on the legacy: what will become of the new facilities post-event? How will they be used to avoid white camels? Three, focus on and build lasting economic linkages between the event and the domestic economy. Four, sport is increasingly digital. Negotiate a share of the global media (TV and online) and IP rights with the organisers.

Nasser Saidi is the former chief economist of DIFC and has served as Lebanon’s economy minister

Emergency

Director: Kangana Ranaut

Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry 

Rating: 2/5

The biog

Title: General Practitioner with a speciality in cardiology

Previous jobs: Worked in well-known hospitals Jaslok and Breach Candy in Mumbai, India

Education: Medical degree from the Government Medical College in Nagpur

How it all began: opened his first clinic in Ajman in 1993

Family: a 90-year-old mother, wife and two daughters

Remembers a time when medicines from India were purchased per kilo

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THREE POSSIBLE REPLACEMENTS

Khalfan Mubarak
The Al Jazira playmaker has for some time been tipped for stardom within UAE football, with Quique Sanchez Flores, his former manager at Al Ahli, once labelling him a “genius”. He was only 17. Now 23, Mubarak has developed into a crafty supplier of chances, evidenced by his seven assists in six league matches this season. Still to display his class at international level, though.

Rayan Yaslam
The Al Ain attacking midfielder has become a regular starter for his club in the past 15 months. Yaslam, 23, is a tidy and intelligent player, technically proficient with an eye for opening up defences. Developed while alongside Abdulrahman in the Al Ain first-team and has progressed well since manager Zoran Mamic’s arrival. However, made his UAE debut only last December.

Ismail Matar
The Al Wahda forward is revered by teammates and a key contributor to the squad. At 35, his best days are behind him, but Matar is incredibly experienced and an example to his colleagues. His ability to cope with tournament football is a concern, though, despite Matar beginning the season well. Not a like-for-like replacement, although the system could be adjusted to suit.

Results

6.30pm: Mazrat Al Ruwayah Group Two (PA) US$55,000 (Dirt) 1,600m; Winner: Rasi, Harry Bentley (jockey), Sulaiman Al Ghunaimi (trainer).

7.05pm: Meydan Trophy (TB) $100,000 (Turf) 1,900m; Winner: Ya Hayati, William Buick, Charlie Appleby.

7.40pm: Handicap (TB) $135,000 (D) 1,200m; Winner: Bochart, Richard Mullen, Satish Seemar.

8.15pm: Balanchine Group Two (TB) $250,000 (T) 1,800m; Winner: Magic Lily, William Buick, Charlie Appleby.

8.50pm: Handicap (TB) $135,000 (T) 1,000m; Winner: Waady, Jim Crowley, Doug Watson.

9.25pm: Firebreak Stakes Group Three (TB) $200,000 (D) 1,600m; Winner: Capezzano, Mickael Barzalona, Salem bin Ghadayer.

10pm: Handicap (TB) $175,000 (T) 2,410m; Winner: Eynhallow, Mickael Barzalona, Charlie Appleby.