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World Cup Bid 2018/2022

2010 July 20
tags:
by Dennis Coates

Stephen J. Dubner blogged about a report I wrote about the 2018/2022 World Cup bid a group of Americans has put together. I read comments on the blog and felt I needed to respond in a small way to them.

The report was intended to initiate a discussion about the merits of hosting the World Cup. If the blog comments are an indication, it may have succeeded in that, at least temporarily. In drafting the report I wanted to 1) assess the methodology and assumptions used by the consulting firm that projected a $5 billion impact on the US economy and 2) discuss the costs of hosting the event.

Assessing the methods was problematic as the bid committee did not respond to my emails after I told them my reason for wanting the report. I was left with evaluating the methodology and assumptions by referring to the press release posted on the bid committee website. Commenters at the freakonomics blog frequently pointed out issues I missed (often without having read the report to see that I did actually consider them) but not a one noted that my report is public for all to read and evaluate while the bid committee report is a secret, leaving us only to trust them.

Interestingly, I was accused of trying to have it both ways, that there is no impact and that the impact is small. What I actually said was that even if the report has the numbers exactly correct that the impact is pitifully small, though the bid committee does not want people to see that. Instead it boldly states $5 billion for the entire US as if that number is impressive. In fact, that number is less than the rounding error in the National Income and Product Accounts, so asserting that it is of vast significance is misleading. I then went on to argue why I doubt the number is correct.

Evaluating costs of hosting these events is quite difficult. There is very little evidence on the costs local jurisdictions incur often because the costs are opportunity costs, like redirecting local government employees from one activity into another. They are also difficult to identify because they are not clearly split out of local budget documents. For example, overtime pay for police may be listed in a budget, but there is no indication of how much of it relates to the event and how much relates to other local festivals, sports contests, and the like.

I am happy to see that some of the commenters suggested that the bid committee pay expenses, that local communities not pay extortion to attract visiting clubs, and that the American taxpayer should not be expected to pay the costs of the event while the benefits accrue to a small segment of society. That was exactly the point. I am not opposed to the World Cup. I am opposed to using public funds to generate corporate welfare for the soccer industry.

10 Responses
  1. hendrix permalink
    July 20, 2010

    If we avoided every taxpayer funded project that accrued benefits only to a “small segment of society,” we be cutting more than just funding to something like a World Cup.

    But there are two problems with your comment: you haven’t defined “benefits” broadly enough and you haven’t defined the “segment of society” that might benefit from the World Cup. You have already — without any stated methodology on these two points — assumed that segment is small without stating the benefits.

    The problem here is that government is not designed simply to fund projects that benefit 50% + 1 of the population. Governments very often fund projects that benefit minorities, despite your implication that somehow taxpayer funded projects cannot benefit small segments of the population (minorities).

    It’s also not as simple as “welfare for the soccer industry.” None of the matches will be played in new stadiums for soccer. Actually, all of the matches will be played in NFL or college football stadiums pre-built for their specific purposes. Where soccer benefits is in increasing interest in Major League Soccer, a league which has been subsidized by corporate partners since 1996. There are millions of Americans perfectly happy to see the growth of soccer in America.

  2. Steve permalink
    July 20, 2010

    With all respect, you can harldy be surprised that people are not applauding and jumping for joy at your miserly report. I have seen more compelling reports to show that major events are loss making, the case you make certainly is not definative, and appears to be as full of holes as the cheer-leader economic reports.

    It is pretty clear that the US hosting the World Cup is different to South Africa and Greece for the Olympics since there will be no new stadia constructed, it will just use the NFL. It would only plug into existing stadia, hotels, etc.

    Your talk of how $5 billion is nothing but a rounding error seems agenda driven when you are suddenly trying to whip up outrage at FIFA’s 1.3 billion pound profit. Compaling about the cost of sweeping the sidewalks after the event and security costs just have people scratching their heads.

    Ultimately the World Cup is a big party. People like parties. Politicians like to give people what they want.

    These sorts of events do leave legacies. My 2 home cities of Montreal, Canada and Melbourne, Australia both benefited from these sorts of events: Montreal with Expo ’67 which gave us the metro system, Parc Jean Drapeau (which now houses an amusement park, is where the Montreal Grand Prix is held, and is full of out-door music all summer). Melbourne benefitted from the ’54 Olympics with a cluster of down-town stadia including a 100,000 seat arena (the MCG) that is used year round and filled with surprising regularity and is also the precinct where the Australian Open Tennis is held … a rectangular soccer/rugby staduim has recently been upgraded there. It is less than a mile from the Central Business District and sits on the banks of the Yarra River. None of these legacy things would have gone into any economic benefit report upon the conclusion of the events, but both largely define these 2 cities. So your arguement against “beautifying” funds, etc just seems cheap.

    Feedback for what it is worth.

  3. Greg Pinelli permalink
    July 20, 2010

    My my..as soon as someone threatens to stop pouring swill into the trough there are some ill tempered reactions. If anything Mr. Coates analysis is too soft on the incredible pork events like the World Cup represent. It isn’t that the Cup’s benefits are marginal..it’s that they are perversely negative. Since the objections to the article state most of the carping I usually hear when the Cup is criticized I’ll address each directly..

    hendrix..The last time I checked the World Cup wasn’t supposed to be a generalized welfare program for the host country. FIFA is an enormously wealthy and highly politicized organization. They are first in line at the soccer trough..they are heavily featured in publicity, memento and gear sales and fiercely protect any infringement. They also make very precise and severe stadium demands than MUST be met…all the while hogging the lions share of the broadcast revenues. In fact, what takes place at the Cup is the host nation and all their area subdivisions shoulder enormous policing and supervision costs which are then clearly socialized to the public at large. In the US that would represent a very large public disinterested or uninterested in soccer. FIFA gets away with this bald faced monopolization of benefits and socializing of costs by playing one political group (bidding committees) off each other..sound vaguely familiar?? Think Olympics..an even grander scam. Individual players benefit enormously also. Think of Diego Forlan or Thomas Mueller (among many others) who are now incredibly hot properties.
    Yes..it’s quite clear who benefits and who pays..and the tab is quite large.

    Steve…Of course politicians like parties..so what else is new. Especially since they and their FIFA pals are at the center stage of all the important ones. Sweeping streets and cleaning up simply trivializes the real costs. There are enormous security preparations and tens of thousands of hours of policing overtime. In So Africa there was even a shadow Court system set up to deal with all the attendant thievery and scams encouraged by so many easy pickings.
    Australia or the US or So. Africa don’t have to wait for a World Cup to build stadiums. In fact, the real case is that the left over stadiums or (as in the case of the US) stadium upgrades simply improve the value of existing sports franchises that remain when the Cup is over. Once again the costs (of building, improving and often ongoing maintenance) are socialized and the benefits privatized. Think bank and financial bailout circa 2008-2009.

    Let FIFA put on the party..and pay the freight. If they can convince hotel chains and other private sponsors to shell out the big bucks for stadiums then more power to them. I can tell you precisely what would happen..FIFA would limit the World Cup to 2 or 3 proven venues that they’d already fleeced for beautiful stadiums (France, Germany and So Africa come to mind) and could rent the venues at reasonable prices. This precisely the terms these mega (maniacal) events should be on..cash and carry.

  4. Steve permalink
    July 20, 2010

    Greg,

    I don’t doubt for a second that the economic value of a such major events is over-stated in order to justify them.

    The fact that the price of staging a world cup is set to what it is (in terms of security, infrastructure, etc) (which for existing stadia is marginal business anyway), and FIFA or the Olympic committee can “charge” such a price to stage it, only indicates that there is a market demand for hosting such events, FIFA controlling supply. The solution of “Let FIFA put on the party..and pay the freight” only ensures that the USA does not host it. Because the other bidders (Australia, Belgium and the Netherlands, England, Japan, Portugal and Spain, Qatar, Russia, South Korea, Indonesia, Mexico) will simply bump the price. All these countries clearly see value in hosting such an event.

    So rather than suggesting haggling with FIFA, it is worth acknowledging that hosting the world cup is something that countries are prepared to pay for. The next quesiton is whether they are acting rationally, as I don’t really think that anyone truly buys the “economic benefit” argument. So the question is simply whether the US bid should be withdrawn because the price is too high and other bidders are not rational. Seems a difficult argument to win when the USA recently ordered themselves and bought a shiny-new winter Olympics and built such dubious arenas with small appeal as that for curling and bob-sledding when a world cup is simply played in existing NHL stadia.

  5. Steve permalink
    July 21, 2010

    I have been thinking further about this and would like to make the following points:

    1) I find it hard to believe that the marginal cost of hosting one additional major sports game in that stadium in Nashville you can see across the river from downtown really outweighs the marginal revenue, either for the organisers or for the cities hospitality industry.

    2) Although Greece saw a drop in net tourism during the Olympics, Greek tourism has some characteristics that American tourism does not have. Greek tourism is essentially summer Mediterranean beach tourism for Northern Europeans. It is therefore a commodity that is easily substituted “Greece will be a zoo this year, lets go to Spain instead”. Greece also houses 1 major international airport as a gateway, with people arriving in Athens and taking ferries to the islands, this is clearly not the case with the USA.

    US tourism is a different thing all together. First American tourism is not so seasonal … Disney world and the Grand Canyon are in fact better visited in the winter when it is not so hot. Canadian retiree’s, head to Florida and Arizona to escape their own brutal winters and this will not be affected one iota by a world cup. In Nashville, to further the example, tourism is largely for the country music scene. This is not a commodity with an easy substitution like a beach vacation. So sure, perhaps music affectionados that would have been in Nashville in June may say “Nashville will be a zoo in June, lets go in July instead”. I am therefore suggesting that inter-temporal substitution will come far more into play.

    The US has a population that is more than 30 times larger than Greece’s. One would not expect the world cup audience to be heading to Disney World. It is more likely that they will enjoy the experience with a uniquely American road trip from one game to another, eating in Waffle Huts, Diners, Soul Food joints, and dives along the way. Thus, one could argue that the World Cup tourism does not compete with the regular Niagara Falls and Hollywood Boulevard tourist sets, and will hardly chase people away in the same way as Greece.

    3) The US hosted a World Cup in ’94. This, therefore, would be a similar thing to Atlanta bidding on another Olympics. The costs incurred last time around on durable products need not be incurred again.

    These 3 things in addition to the existing large stadia already in place for the NHL mean that this event is different to the same reports constantly rolled out to point out the folly of hosting an Olympics, etc.

  6. Josh permalink
    July 21, 2010

    Steve,

    The big problem with your argument, and I think most of the point of the original and follow-up posts is that it is not “Russia, France, the US, etc. ” who are seeing the event is worthwhile, but similar small tightly bound interest groups with a huge financial windfall at stake.

    Say it with me “Collectivizing costs is the world’s easiest way to privatize gain”.

    Here is a much smaller, but basically similar example: I was living in Duluth in the late 90s.

    We had a mayor with very close ties to the construction industry and project after project came before the the city (Aquarium, Tech Village, etc.). Extremely dubious financial projections would badger the council into passing bonding for these projects, and then of course they would immediately fail to cashflow. (1000 people/day are going to pay 10$ to go to a freshwater aquarium? In a metro area of maybe 200,000? Really?)

    Of course were not failures from the point of view of the backers because they had already gotten paid/elected and were now retiring on the proceeds. Meanwhile the taxpayers were left holding the payments on bonds they had issued. Now the city is in extreme financial straits for other reasons (state LGA cuts, an old population, and bad union contracts) and it would be really nice if we weren’t still holding debt on these boondoggles.

  7. Dan permalink
    July 21, 2010

    The bottom line of the report from Dennis and Greg’s comment is that a wealthy private organization (FIFA) will profit from taxpayer expenditures that will outweigh taxpayer benefits for a small minority of taxpayers’ entertainment. Just as the costs of the Olympics are spread among everyone while benefiting a few that care about going to events. Or the small number of taxpayers that go to Mets or Yankee games.

    Government support for events like the WC or the Olympics is easy to find because the politicians voting for them are not the ones paying the cost and they always make sure they are first in line for great tickets (remember how the mayor got a luxury box in the new Yankee Stadium). Politicians like big events to secure votes while burying the true costs involved.

    Politicians have been getting away with selling sporting events and venues as money makers for a long time. There was a time when teams built their own stadiums and events like the 1984 Olympics could be privately financed at a profit. But now we have public financing of venues for teams and – surprise surprise – franchise values keep growing (as the Golden State Warriors can attest). Owners get richer and players and their agents get richer too.

    If the WC is such a money maker where is the 2010 version of Peter Uberoth? But it’s a lot easier to convince a few politicians to put someone else’s money into their plans than to convince thousands of private investors to put up their own money in the hope of turning a profit.

  8. Robert Macdonald permalink
    July 21, 2010

    Steve,

    First, the Melbourne Olympics were in 1956.
    Second, the MCG had been in place for oh, about 70 years prior to the olympics coming to town, so they can hardly be seen as the reason for the MCG.
    Third, Melbourne Park (1988) and the new rectangular soccer stadium (2010) can hardly be attributed as ‘legacy benefits’ of either the 1956 Melbourne Olympics (or the 2006 Melbourne Commonwealth Games for that matter).

    It would seem you are at a stretch to attribute prior or subsequent developments to the 1956 olympics. Perhaps it was that the MCG was already in place that secured the games. That would be a reasonable proposition if you were to justify the Melbourne Sports Precinct as a path-dependent outcome of those games.

    It is about time people around the world woke up to the great cost these events put upon nations and were presented the facts by people other than paid for consultants and snivelling politicans. That organisations such as FIFA and the IOC seek to impose legal regimes exempting their events from many domestic laws and receive pblic money at the sam etime is disappointing at best and arguably scandalous. That Australians who like the sport of association football/the olympic work themselves into a quasi-religious lather to defend the notion of the FIFA World Cup/the olympics being deserving of such corporate welfare is an indication of how little evidence they have to defend their position with well-reasoned research. Meanwhile, we still have people sleeping in the streets and people waiting for hospital beds still in our grand olympic city; so big thrill if the circus comes to town. It didn’t help those people.

    More power to those able to take an independent viewpoint. Even more power to such people if this corporate welfare is shown to be a sham.

  9. Steve permalink
    July 22, 2010

    Hi Robert,

    You can argue about the lagacy of the Melbourne Olympics and argue it was a waste of money, but I feel there are few in Melbourne that would agree with you (including academics, architects, town-planners). The legacy for Melbourne was very large … cultural as much as anything, and laid the foundations for national pride in Olympic sucess and the revitalisation of what was a fairly drab city. That pride continues to today.

    As far as the Olympic precinct, you are as disingenious as I in suggesting that it was all already there. Although the MCG was there as a cricket ground, it underwent a massive upgrade with the Northern Stand built for the Olympics meaning that the opening ceremony had over 100,000 people and was only replaced for the 2006 Commonwealth games.

    The Olympic Pool was the first indoor pool at an olympics, and Olympic Park was only rebuilt into AAMI stadium last year. These form part of the sports precinct there, and one could argue that the other stadiums and structures built (like the Tennis Centre) were built there in the Olympic cluster to build one of the worlds finest sports precincts housing the Victorian Institute of Sport, sports scientists, physiotherapists and is central to what is Melbourne today.

    As far as the US World Cup bid, that is a different beast to the Australian one (that would require A LOT of spending on stadia), and for an Australian bid, the discussion of the Greek experience and white-elephants is fair. But for the US World Cup Bid, they have hosted it before, there are large capacity state-of-the-art rectangular stadiums all over the country already, and therefore these studies hold less relevance. It is the equivelent of trotting out such studies if Australia could host a World Cup on Oval stadiums such as an Australian Rules Football World Cup or a Cricket World Cup. You will agree that with all the existing stadia in place and regularly upgraded for domestic use, such a major event is a different proposition.

  10. Glenn permalink
    August 2, 2010

    Dennis – Although the level of discourse on the Freakonomics blog is probably higher than average, I wouldn’t get too worked up about those posts. If this was easy to understand we would all be out of a job.

    Steve you make some very good points. I am not averse to spending money to host a World Cup (or build a stadium, or a park, etc.) ….. I just don’t want the organizers and/or government telling me it will be a financial bonanza. Cause it won’t be. It certainly may be a social bonanza, as you note in Melbourne, which is just fine.

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