Four economists weigh in on Russia's claims of a World Cup-related financial windfall. (They’re all skeptical.)
Back in April, Russia—the host country for this year’s World Cup—claimed that the tournament would generate almost $31 billion in gross domestic product growth over the next 10 years. It credited tourism, infrastructure investment, and subsequent knock-on effects from those investments as the sources of its predicted growth. That Russia made such claims isn’t, on its face, surprising: In the run-up to a World Cup, host nations often boast of the rewards—both political and financial—that come with holding the tournament. In Moscow’s case, that promise of riches is essential in justifying the $14 billion price tag the government picked up in order to build the necessary stadia, transport, and other infrastructure necessary for the tournament, as reported by the Moscow Times.
But these promises aren’t always fulfilled. In response to the Russian government’s predictions, Moody’s Investor Service released a report that voiced skepticism about the supposed financial benefits. “Russia will only experience a short-lived economic benefit from hosting the 2018 FIFA World Cup tournament,” the report stated. “Much of the economic impact has already been felt through infrastructure spending, and even there the impact has been limited.”
In the last iteration of the tournament, held in Brazil in 2014, there were also major questions around the economic rewards for government spending. In the small working-class town of Manaus, the Arena Amazonia became a symbol of the excess and needless spending that comes along with FIFA’s marquee event. The stadium cost an estimated $46 million to build, and after hosting only two matches it now sits unused. In fact, the judges overseeing an ongoing corruption case about the artificially inflated building costs of various World Cup stadia suggested that, perhaps, the structure would better serve the community by becoming a prison.
We reached out to a group of sports economists to discuss the real value of a World Cup to the host country, and how the Russian government arrived at its lofty economic estimates.
In general, what does holding a World Cup mean for the economy of the host country? What factors, on a country-by-country basis, could positively or negatively influence the economic impact of hosting the World Cup?
John L. Solow (economics professor, University of Iowa): Generally speaking, economists do not believe there is much lasting positive economic impact of hosting mega-events in total, although there are winners and losers. This is the result of two responses to these events that are often overlooked—substitution and crowding out. Substitution is the idea that people who spend their entertainment dollars at the event would have spent those entertainment dollars elsewhere, and so while restaurants and hotels around the event may do better business, this comes at the expense of other restaurants and hotels. And the owners and employees of those restaurants and hotels whose business declines spend less, so the multiplier effect of successive rounds of spending apply to these declines as well.
John Vrooman (sports economics professor, Vanderbilt University): Estimations of net economic impact of hosting one-time sporting mega-events like the World Cup are grossly over-exaggerated by the host country. The overall direct impact is probably zero-sum at best because of the negative congestion costs and crowding out of other economic activity.
There are also significant underlying distributional factors that falsely prioritize the political agendas of football/soccer and hospitality industries. As a result, the wildly optimistic economic spread and multiplier effects for the World Cup are clearly self-promotion schemes designed to justify something-for-nothing state subsidy of the private business of professional football.
Victor A. Matheson (economics and accounting professor, Holy Cross University): The World Cup does boost tourism; however, the boost is not necessarily very large. In South Africa [in 2010], the total increase in international visitors was only about 200,000 total during the World Cup. Even under very optimistic visitor spending estimates you might be talking about $1 billion in additional tourism revenues, which doesn’t come close to covering the expenses of hosting the tournament. Infrastructure investment might pay some long-run returns, but you don’t have to host a money-losing tournament to build new roads and airports, and to the extent that your infrastructure spending goes primarily toward stadiums, essentially every economic study shows that stadiums are a terrible economic investment.
Craig A. Depken II (economics professor, University of North Carolina–Charlotte): Among many host countries the net impact on tourism is relatively minor. Most host countries already have a large tourism industry and the World Cup replaces normal tourists with football tourists. There is relatively little evidence that there are long-term impacts of hosting mega-events such as the World Cup. The infrastructure spending represents an opportunity cost—spending on building [and] renovating stadiums for the World Cup could have been spent on road repair or other infrastructure. In many cases, stadiums are built with the hopes of hosting future events but such hopes are not fulfilled.
It is typical for the bid proposals to include estimates of increased tourism, but these forecasts are not usually built on solid statistical models of past performance in other countries using data that is freely available from, for instance, the World Tourism Organization. It does not take much effort to see that countries with the largest tourism numbers tend to be host countries and that, after hosting, host countries do not receive a noticeable increase in their already large tourism numbers.
How do discrepancies like the one between the Russian government and Moody’s come about? Is the Russian government exaggerating the economic benefits for some reason? And how much does the size of the country and its existing infrastructure to host a major sporting event influence the potential economic benefits of the World Cup?
Solow: Where have I heard this before? Oh, yeah, the Sochi Winter Games were also supposed to generate regional economic development. Sochi was the most expensive Olympics ever, yet today you can easily find pictures online of the abandoned and crumbling facilities and empty hotel and vandalized apartments. The same is true for the Beijing Olympics—the fabulous Herzog and De Meuron Beijing National Stadium (the Bird’s Nest) is apparently still a tourist attraction, but the rest of the facilities are abandoned and decaying.
Why do governments make these claims? I can’t be sure, but generally when politicians talk I look for the special interests. Some construction companies somewhere made a lot of money building those stadiums, and their owners are often politically connected. Sell the taxpayer on the future benefits, make a lot of money on the contracts, and then when the benefits don’t appear and the taxpayers are left with a white elephant of a site, well, I’m all right, I got mine.
Vrooman: The usual rule of thumb is to move the decimal point one place to the left for the self-promoting and economic estimates of the heavily politicized events like the World Cup. So the more accurate estimate would be $3.1 billion. The limitations of the Russian economy and the state of Russian domestic football both restrict the broadly distributed economic impact of the current World Cup, as much of the benefit of the tournament will head to the highly visible and economically ambitious Russian Premier League. Exaggerating the economic impact of the World Cup mega-event is self-promotion. Playing the meta-game of political football on the World Cup pitch is a very expensive quick fix.
Matheson: The Russian government is lying. The country is likely to experience at most $1 billion in increased tourism spending. Russia is releasing these figures for purely propaganda reasons to make its autocratic leadership look good in their people’s eyes. Notice that Moody’s, with no reason to prop up [President Vladimir] Putin and nothing to gain from promoting phony claims, disputes the $30 billion figure.
Countries with good infrastructure stand to gain far more from the World Cup than smaller countries with underdeveloped infrastructure. For example, the United States spent a total of $5 million in stadium infrastructure improvements in 1994 to host the World Cup. Russia spent over $5 billion on stadium upgrades for 2018, Brazil spent over $3 billion, and South Africa spent about $2 billion. Qatar is reportedly spending $200 billion in their total preparations for 2022.
Depken: The $30 billion claim is not credible on the surface. Most of our academic studies in the U.S. put the net impact of a sporting event at about 10 percent of the claimed figures (whether those figures come from MLB, NFL, NBA, etc.). Using that measuring stick, this would put the impact of the World Cup at $3 billion for the Russian economy. Still seems rather high, but it is possible to construct an economic impact model that would reach such a number.