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World Cup finances & knock-on effects

2010 May 11
by Skip Sauer

This BBC story has a number of figures on the costs and revenues of staging this year’s World Cup in South Africa.  Among them (in British pounds):

  • FIFA’s expected revenue:  £2.1bn
  • FIFA’s budget:  £800m
  • Recent increase to ensure training camps are in good condition:  £67m (included above)
  • South Africa’s budget:  £3.5bn, or 1.72% of GDP

The expense incurred in South Africa is for building and renovating 10 stadiums, improved transport infrastructure, and security.  You can learn a bit about the stadiums here; they appear to be smartly designed.

No figures are given for the anticipated revenues that the country expects to generate.  But let’s do some work on the back of an envelope.  A total of 48 group games, 15 knockout games, and the third place game are to be played.  The ten stadiums have an average capacity of just over 56,000.   The average ticket price looks to be in the range of $200 (that’s using the median of the category two bracket, which is a bit generous).  If all games were to sell out at an average price of $200, that would total $717m in ticket revenue.

If South Africa kept all if this revenue, a multiplier of about 7.5 for food, lodging, etc, (including a factor of 1.5 to convert to British pounds), would generate revenues commensurate with the expense for the stadia, infrastructure, and security.  And that ignores the costs of making the food, lodging, etc available.

The story notes an accountant from the firm Grant Thornton believes that the 1.72% of GDP in direct expenses is “affordable” because it provided an economic stimulus for the country in the midst of a global economic downturn.  The story also states that FIFA’s general secretary “was confident the event would leave a lasting legacy on the country and the African continent.”

Once again, we observe the “knock-on” effects of a major sporting event being touted as justifying its lavish expense.  In the midst of a sovereign debt crisis, claims of economic stimulus, of the sort which creates demand that will evaporate within a month, are just not credible.  One can be hopeful on the legacy issue, but at the same time there are many examples in which investment to support these events turned into a long-term burden.

Is 1.5 to 2% of GDP are reasonable public investment in a one-month tournament for an emerging economy?  I’d want a more careful analysis of direct and indirect expenditures, costs and benefits, before turning to somewhat dubious knock-on effects to determine the answer.

I’m looking forward to the tournament, one of sport’s great occasions.  I’d enjoy it even more if tenuous  justifications of public expenditure were not associated with the spectacle itself.

4 Responses
  1. Dan permalink
    May 11, 2010

    I am not sure how comparable the World Cup costs are to what Greece spent on the Olympics, but there are economists that blame the cost of the Olympics for the current fiscal problems in Greece. More likely the cost of the Olympics accelerated the Greek fiscal problems since they’ve been on the bailout path since they went on the Euro but it still should be a caution to any country hoping for an economic benefit from big sporting events.

    Is 7.5 a reasonable multiplier for the WC? I always suspect that these multipliers are backed into to get the necessary spending to justify an event. An advantage the WC has is a lot of games in big stadiums as opposed to the Olympics which have a lot of events in smaller venues.

    Also, unlike the Olympics which has continually added events with commensurate costs, the WC has essentially the same number of games and should have a good track record of estimating the attendance and revenue they produce.

    And it should be a great tournament. Spain has the best league but their best players are from Argentina and Portugal. If I were betting I’d go with Spain or Italy but since I don’t bet I’ll go with the Netherlands. Robben wins the Champs League and the WC this year.

  2. Tom permalink
    May 13, 2010

    I couldn’t agree more with you conclusion. I went to the World Cup in Germany in 2006, it was great knowing that you were in stadiums that are well used by their host club teams; and stadiums that are appropriately sized for the German League. I hope South Africa’s stadiums are not “white elephants”, but I have my doubts.

  3. Greg Pinelli permalink
    May 13, 2010

    I’ve seen up close and personal the “knock on” effects of the World Cup..I offer the following…
    1. Soccer fans are notoriously cheap and very heavy burdens on peripherals..policing, cleanup and local damage and wear and tear…
    2. South Africa does NOT have a real soccer league…Germany, Italy and France could all make legitimate claims the stadiums left after the event had some productive purpose…
    3. Greece and So Africa are VERY similar in the end game..Greece incurred incredible debt and little benefit from the Olympics…So. Africa is a make up call for Africa..a continent that has NO business hosting a World Cup in WINTER!!
    4. So. Africa barely can generate electricity for its inhabitants..now it must provide incredible policing and surveillance efforts to maintain the peace….ridiculous.

    As an aside..the expenses in these “analyses” are ALWAYS underestimated..the gains exaggerated…..

  4. Tom permalink
    May 14, 2010

    I don’t see what “winter” has to do with it, explain. Any quantifiable evidence that soccer fans are “cheap?” And which fans? There are lot of different cultures in soccer, much of the world watches this game, but I guess for this discussion we are talking about World Cup fans. But compared to who? And what do you think explains it?

    Traveling World Cup fans seem a bit less corporate, and I can see them spending less than the average attendee of a superbowl- but I have no actual evidence of this. Does anyone have stats on this?

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