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Bad Economics from FIFA

Today, FIFA have confirmed they made $3.655 billion from the World Cup in South Africa.

President Sepp Blatter said that the figures proved it was the right decision to award the 2010 tournament to South Africa, despite fears that hosting the biggest event in football on the continent was a financial risk.

"I am the happiest man to announce that the World Cup in South Africa was a huge, huge financial success for everybody -- for Africa for South Africa, for FIFA," Blatter told reporters after a meeting of the executive committee of football's world governing body in Zurich on Thursday.

In just two short quotes Blatter makes two collossal economic blunders.

First, just because FIFA made a heap of money on the South African World Cup does not mean that the decision to host in South Africa was the right one from an economic standpoint. The overwhelming majority of the money a governing body like FIFA or the IOC makes from their mega-events is broadcasting rights. Had FIFA hosted the tournament in England or Spain or Italy, broadcast revenues would have sold for essentially the same price and higher ticket revenues may have been generated. Without a counterfactual of what FIFA's profits might have been had a different location been selected, it is meaningless to say that a profitable tournament implies that the site selection was optimal.

Second, just because FIFA made a bundle does not mean South Africa made a bundle. Indeed, FIFA and the IOC are able to generate such huge profits specifically because they don't bear the expense of building the sports infrastructure needed to host the event. If the governing bodies, rather than the host cities and countries, were on the hook for the sports facilities, we would see the Olympics rotate among a small number of locations, such as Los Angeles, with existing venues, and the 2022 World Cup would be headed to the United States, with its wealth of  existing state-of-the art stadiums instead of Qatar, a country with almost none of the infrastructure currently in place to host the event.

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