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.