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World Cup finances & knock-on effects

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.