Why Losing the World Cup Bid Is a Big Win: A Guest Post

Dennis Coates, a professor of economics at the University of Maryland-Baltimore County, is the immediate past president of the North American Association of Sports Economists. His paper “World Cup Economics: What Americans Need to Know about a U.S. World Cup Bid” carried a stern warning for the U.S. and other countries bidding to host a World Cup. Here, he weighs in on today’s announcement of the 2018 and 2022 World Cup bid winners.

Why Losing the World Cup Bid Is a Big Win
A Guest Post
by Dennis Coates

The host countries for the 2018 and 2022 FIFA World Cup were announced earlier today in Zurich, Switzerland. Russia landed the 2018 event in competition with England, Belgium/Netherlands, and Spain/Portugal. Qatar won the 2022 World Cup over Australia, Japan, South Korea, and the United States. Congratulations to them. Both winning countries’ representatives promised that FIFA and the world will be proud of the events they host. I wonder if anyone in those countries’ bid committees ever heard of the winner’s curse?

I wonder because bidding for the World Cup is a perfect place for such a curse to arise. The basic idea is that there is a prize of uncertain value sought after by numerous bidders — none of whom has much experience in assessing the true value of the prize. This lack of expertise is the result of the prize (or other very similar prizes) going on auction only rarely. Each bidder makes a good faith effort to determine the true value of the prize, but because of the uncertainty, none of the bidders is likely to get the value exactly right and, indeed, all of them are very likely to be wrong. Some will be wrong by a little, some by a lot. Some will undervalue the prize, while others will over value the prize. The “winner” — in our case the countries that get to host the World Cup — are those bidders that overvalue the prize most. Hence, the winner is cursed to overpay to acquire the prize.

Economists and public policy analysts have studied the economic impact of large international sporting events like the World Cup and the Olympics, and national events like the Super Bowl, and the evidence shows that there is very little in the way of economic benefit from hosting these events. Incomes don’t grow faster, more jobs aren’t created, governments don’t rake in significant hauls of new tax revenues. In other words, the best evidence produced by disinterested researchers is that the economic value of hosting the World Cup or Olympics is not especially large.

There is much less consensus about the value of these events in terms of prestige and national pride. Measuring these benefits is, of course, difficult at best, and impossible at worst. Countries whose bids rely on estimates of these sorts of benefits will be likely to make larger errors in judgment than countries whose bids are predominantly about purely economic, dollars and cents, issues. I would contend that Russia and Qatar fit the description of countries whose bids rely heavily on prestige and national pride benefits. In short, they are countries whose bids are very likely to be wildly optimistic in terms of the value of hosting the World Cup.

So, congratulations to Russia and Qatar. I wish you well as you organize the World Cups in 2018 and 2022. I hope for your sakes that the victory you have today time does not reveal to be Pyrrhic. At the same time, I celebrate that the U.S. avoided the curse of winning the bid.

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  1. Bobby G says:

    Thank you FIFA.

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  2. Greg says:

    The article you cite to show that there is “little in the way of economic benefit” from hosting a world cup does not speak to the benefits of hosting such an event given that the infrastructure is already in place. The US already has all the necessary infrastructure and thus would not have to build any stadiums with the aid of taxpayer money. The US hosting the world cup would be a windfall for the country and especially local economies surrounding stadiums.

    The impact of hosting a world cup on the game of soccer in the US should not be overlooked, but that is a separate issue from the point you are making.

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  3. DG says:

    Everything is not about money! Some things make life interesting and enjoyable. Events that join people together and enhance the culture of a city and nation’s memory as well as a collective experience should not be written off because they are not statistically proven to line peoples pockets. To bring up your observation is worth discussing, but to say “I celebrate that the US avoided the curse” is a COLD joyless outlook.

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  4. Al says:

    Agree with #3

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  5. Ian Kemmish says:

    “Countries whose bids rely on estimates of these sorts of benefits will be likely to make larger errors in judgment than countries whose bids are predominantly about purely economic, dollars and cents, issues.”

    Can you adduce any evidence to support such a bald statement? It may seem obvious to you, but it seems equally obvious to me that the exact opposite is true. In other words, of all the countries which bid, Russia is the one most likely to admire and indeed boast of all the new airports, motorways and stadia it will be building, and the one least likely to experience buyer’s remorse over them.

    All this means is that they place a higher premium on national prestige than you do. It does not mean that your estimate of that premium is right and theirs wrong.

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  6. Karen H. says:

    One benefit of hosting large, prestigious sporting events which the author does not mention is that often the infrastructure and public buildings and spaces get repaired, replaced or at least freshened up. Maybe there is not a huge economic benefit from that other than short term local employmet) but it does help the people who live in the host city to have a bit of an upgrade to their surroundings.

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  7. JY says:

    “I celebrate that the US avoided the curse” is a COLD joyless outlook.” Well it happens to be a cold and joyless world. I’m Dutch and I’m mighty glad we’re not going to be spending millions of the public’s money to satisfy the whims of a questionable organisation like the FIFA, especially at a time of budgetary butchering like this.

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  8. Karen H. says:

    Greg, please note that the infrastructure in many places in the US is in sore need of repair and rejuvenation!

    Hey, you aren’t my cousin in Long Island, by any chance, are you?

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