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The US Wants a World Cup of Its Own, But at What Cost?

2010 June 11
by Dennis Coates

Tomorrow the United States kicks off its World Cup 2010 competition against England. The excitement of this year’s event may fuel the existing US bid for the 2018 or 2022 World Cup, even among casual fans, should the American squad perform better than expected. Yet before deciding to allocate scarce public resources to the event we need to take a step back from the excitement of the South African games – which have run into many problems of their own.– and carefully consider the justifications for hosting the event and whether doing so is the right decision for the country.

In a recent blog about the burdens the World Cup imposes on a small country, Skip Sauer mentioned the US bid to host either the 2018 or 2022 World Cup and referred to the inflated economic impact numbers from the US Bid Committee. He didn’t know that I have been working on a report questioning those numbers. The report is soon to be released. My best guess is that the Bid Committee’s economic impact numbers are significantly inflated. I say guess because the actual report done by AECOM, the consultants hired by the Bid Committee, is not publicly available and my requests for it have been ignored since I told them that I wanted to evaluate the methodology and assumptions underlying the projected $5 billion of impact on the country and $400 to $600 million of impact on the individual host cities.

If history is any guide, AECOM’s projections may be very far from the truth. Under a different name, AECOM was responsible for the impact study leading up to the 1994 World Cup that promised a $4 billion economic impact. But their math appears to have been far off then, and it can’t be any better now. A post-1994 World Cup study by Robert Baade and Victor Matheson found that the 1994 World Cup did not positively impact the U.S. by $4 billion, but negatively impacted it by $9 billion in lost income. AECOM was $13 billion off then, and they and the Bid Committee want us to trust their private study now?

Disturbingly, there is no discussion on the Bid Committee website of the costs to be borne by American taxpayers from hosting the event. In fact, even the cities that are part of the bid have given very little thought to what it will cost them to put on the games. As was reported in the course of San Diego’s bid to become a host city, some of the city council asked those exact questions. The San Diego Union Tribune reported:

San Diego’s bid to host World Cup soccer matches in 2018 or 2022 moved forward Tuesday despite criticism by two City Council members that the city doesn’t know what it’s getting into.
The council approved a proposed host-city deal 6-2, with Councilwomen Marti Emerald and Donna Frye saying they were unconvinced the move wouldn’t cost taxpayers any money, as supporters suggest.
“Just sign it now and figure out the terms and conditions later,” Frye said. “Quite frankly I’m really kind of surprised that that type of recommendation would be coming from … the City Attorney’s Office.”

Unlike Councilwoman Frye, I am not at all surprised by the recommendation from the City Attorney’s Office. That is quite consistent with the approach the Bid Committee has taken with the broader American public. The Bid Committee tells us hosting the event will generate large economic impact but refuses to let us see the analysis that generated those impact numbers, resorting to ”Just sign it now.”

So, we have economic impact projections of dubious value and no information on costs. Nothing necessary to make a rational, informed decision is available. Before cities across the country and the nation commit irreversibly to the World Cup bid, decision-makers need all the necessary information. I hope public officials across the country will follow the lead of Councilwomen Emerald and Frye, and ask tough questions about the projected impact and the real costs.

5 Responses
  1. Greg Pinelli permalink
    June 11, 2010

    Those who’ve read my previous posts know that I am extremely skeptical of any claims to either stadium construction benefits or the hosting of “Major” world sporting events. The worst from an economic view..by a mile..are the Olympic Games..virtually certain of requiring incredible infrastructure and maintenance commitment and VERY little by way of future benefits.

    The next is the World Cup..Football (soccer) fans are notoriously cheap and incredibly expensive to manage. In a country that has a world class football league (Italy..England..Spain…France..Germany) stadium development makes some sense. In the US where stadiums already exist because of Professional and College American football further construction is unnecessary..the costs have been paid up front.

    South Africa’s only recourse is rugby..a Rugby World Cup in their future makes some benefit to the incredible sunk costs for this World Cup at least a possibility. After all the shouting and yelling South Africa will have paid dearly for this show.

  2. June 11, 2010

    While the bid committee may use economic projections, and based on your comments, dubious ones at that, to help justify the project – hosting the World Cup or the Olympic is more about prestige and chest-thumping pride than it is about true economic investment. What is the “economic” price of prestige and pride?

  3. Dennis permalink
    June 14, 2010

    Thom,

    If the Baade and Matheson findings regarding the 1994 World Cup are accepted, then the cost of prestige and chest-thumping pride was about $9 billion that time. It is likely even more this time around.

    Looking at it differently, as an American, I feel my country gives me a great deal to be proud of. Hosting the World Cup, or the Winter or Summer Olympics have nothing do with those sources of pride in my country.

  4. Victor Matheson permalink
    June 14, 2010

    I would note that studies of the 2006 World Cup in Germany by well-respected German economist Wolfgang Maennig did show like usual that there was little economic impact, but the same studies showed a significant increase in the happiness of the German people.

    Having co-authored the paper that Skip refers to in his post, I am obviously in the low economic impact camp, we shouldn’t discount non-pecuiary benefits entirely. Hosting the World Cup may not make us rich, but it may make us happy.

  5. Brad H. permalink
    June 14, 2010

    Here are a few recent papers on the economic value of prestige from sports

    http://ideas.repec.org/a/bla/coecpo/v18y2000i1p48-58.html

    http://ideas.repec.org/a/eej/eeconj/v30y2004i4p515-526.html

    http://ideas.repec.org/p/wop/eacaec/0014.html

    http://econ.appstate.edu/RePEc/pdf/wp0415.pdf

    The general conclusion that emerges from these papers is that the economic value is substantial, but not large enough to justify the typical subsidy given to build a new stadium.

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