Should the U.S. Really Try to Host Another World Cup?

DESCRIPTIONPhoto: zoonabar Many of the structures built for the 2004 Athens Olympic Games lie vacant.

There is a good section in the book Soccernomics about the economic impact studies that cities and countries sponsor when they are hoping to host a huge sporting event like the World Cup or the Olympics. The gist of it is that you can make an economic impact study say pretty much whatever you want, since it’s an exercise in speculation, and that the economists hired by bid committees make sure the numbers say yes.

The truth, however, is that most such events don’t provide much economic stimulus, and often turn out to be money losers. This isn’t to say that cities or countries shouldn’t try to host these events — but, as the Soccernomics authors argue, they should at least realize that what they’re doing is paying for the right to host a big party. The same is generally true for public funding of new sports arenas, as the economist Dennis Coates made clear not long ago.

Coates, who teaches economics at University of Maryland, Baltimore County and is the immediate past president of the North American Association of Sports Economists, is back with a stern warning for certain people with soccer fever. As it seems the U.S. is going hellbent for leather trying to land an upcoming World Cup, he wants to get ahead of the cheerleading to make clear how the economics will actually play out. His new paper, “World Cup Economics: What Americans Need to Know about a US World Cup Bid,” is an attempt to challenge “the rosy assumptions being made by U.S. bid leaders, and I hope it will force proponents to be more forthcoming with answers about what we can really expect from a U.S. World Cup.”

Coates’s central claim:

Despite bid organizers’ claims, the World Cup won’t be a boon for the American economy; in fact, it will likely cost the United States billions of dollars in lost economic impact. For example, economic estimates in support of the 1994 U.S. World Cup were later shown by economists to have been off by up to $14 billion. Far from having a positive economic impact, the last World Cup we hosted, a so-called major success, had a negative impact on the average U.S. host city of $712 million. Yet no one is discussing these figures despite the current economic troubles we face. … Few analysts who aren’t in the employ of the event boosters have ever found such events to pay for themselves in a purely dollars and cents view.

The recently completed South Africa World Cup is hardly an exception, with the bulk of the trouble lying in the gap between optimistic projected costs and actual costs:

The proposed budget for the 2010 games was about $225 million for stadiums and $421 million overall. Expenses have far exceeded those numbers. Reported stadium expenses jumped from the planned level of $225 million to $2.13 billion, and overall expenses jumped similarly from $421 million to over $5 billion.

And don’t forget the “ruins of modern Greece” — i.e., the abandoned facilities from the 2004 Summer Olympics in Athens. You think Greece might be feeling a bit of buyer’s remorse about now?


John White

I hope the US does not host another world cup. It was soooo boring last time. You need to host it in a country that has real fans, not in a country that does not "get" the game!

Peter B.

As the point has been raised the US would not have to build any stadiums. Imagine a nationally hosted world cup, with Group play in New York's New Medowlands Stadium, Dallas' Cowboy's Stadium, Houston's Reliant Stadium, Boston (Foxboro)'s Gillette Stadium, Chicago's Soldier Field, Miami's Landshark Stadium, LA's Rose Bowl, & DC's Fedex Field.

Sounds like a blast to me.

Michael

This is another case of Freakonomics not doing its homework...

First, the entire stated premise of the discussion (new sports arenas) shows Mr. Dubner hasn't even read up on the US bid, which hinges on the fact that the US already has dozens of stadiums that meet FIFA standards without building a single additional facility.

And quite frankly, the paper he points to is an embarrassment of conjecture and assumptions (with a side menu of cherrypicked research), making it hardly scientific. (Why someone like Coates chooses to do such professionally embarrassing work in the first place is a question I certainly can't answer beyond plain bias.)

The funniest part: while claiming on one hand that the "lost" economic growth is an awful thing, Mr. Coates then turns around to say the promised "additional" growth is a mere drop in the bucket anyway. (Is there a PhD in Having It Both Ways?)

And by my count this is the third time Mr. Dubner has trotted out the "major international competitions always lose money" argument, which completely ignores the fact that the 1994 World Cup, like the 1984 Summer Olympics, 1996 Summer Olympics and 2002 Winter Olympics, made a profit. In apparently never knowing (or ignoring?) this fairly common knowledge, Mr. Dubner devalues the Freakonomics brand.

Read more...

CJS

OK, fine, if Greece and South Africa are bad comparisons, what makes the comparison to the numbers from the U.S. 1994 World Cup, which "had a negative impact on the average U.S. host city of $712 million" bad?

Stanley Blair from Norway

It would be a bad idea given the rapid decline in every aspects of US society: massive joblessness, racial tension,
crimes, aged infrastructure and increasingly nasty political instability.
I am really afraid there maybe military coups in US this summer.

mike livingston

It's hard to measure this because of the difficulty in evaluating the psychological impact. But in terms of measurable effects I'm sure that Dubner is right.

GB

I also think that US would not have as big as problems if we don't need to build stadiums.

But I do wonder how much extra cost would go into security detail?

Tony

I would like to see the post-WC studies approached with the same level of skepticism as the pre-studies.

Also, as mentioned, the 1994 Cup launched an entire pro sports league; was any of that impact considered in the analysis? What's the time line on breaking even through economic impact?

What happens if the uS wins the Cup? Do the models predict a different economic outcome?

Robert Stewart

The plethora of world class stadiums, highway infrastructure, and full service international airports in dozens of American cities makes hosting the WC no big deal. The financial benefits of such an event are greatly exaggerated but so are the costs.

A ton of cash comes in to a town that would have never otherwise come into the town. That is a fact. For example, if Korea meets Netherlands in a group stage game in Denver, there will be a minimum of 25,000 people who would have never spent a dime in the state of Colorado in the lives. Thats good for bartenders, cabbies, shop owners, hotel employees, etc. Much of this cash profit is never reported or accounted for

Ammon

I want to hear the author's opinion on Obama and his stimulus plans. I am just saying no matter what happens this puts people to work and that helps anyone's economy at least in the short term. This can't be any worse than allowing the government to continue on with their spending sprees. Bring the WC back to the USA!!!!!

Raffi

Considering all of the other things we pay for, the right to host a big party actually seems pretty reasonable.

Glenn

Would it be possible to split the investment cost of hosting a World Cup across multiple future host cities? This blog post indicates it cost South Africa $2.13B for Stadium expenses and a slightly greater amount for non-stadium expenses. What if the next host city could re-use the South Africa Stadium?

For instance, would it be feasible to create a multi-billion dollar floating stadium/complex that could be moored off the coast of the US for the next World Cup, then moved to the coast of the next host country for the subsequent World Cup? I don't know the life-cycle of a world cup stadium, but perhaps a floating stadium could offset any increased cost with its longer life-cycle?

Yes, this proposal is outrageous. But is it any more outrageous than creating what is currently, essentially a single-use, throw-away stadium complex? Perhaps a team of 2 to 3 host countries should do this feasibility study. :)

Read more...

Ariel

"The truth, however, is that most such events don't provide much economic stimulus, and often turn out to be money losers". It is a silly error to extrapolate from existing cases because other nations may have different economic and social environments.

So, for other nations such games may well bring investments in sorely needed infrastructure (subways, airports, freeways, hotels, etc) that would not be made under normal circumstances. Such investments might have powerful economic effects lasting long after the games are over.

New stadiums are possibly a smaller expense and if football is popular in the nation they are welcome anyway.

noel

The olimpics will always put a city at least a billion in the whole! Google London or Vancouver olimpics and you'll be in shock. The us soccer federation made 50 million on the 94 world cup and set up the us soccer foundation to help fund fields and amature clubs through out the USA. You might ask why cities bother to bid for Olimpics. because the politicos use all that olimpic white elephant projects to get money out of their contractor buddies who will in turn get rich on those olimpic jobs they'll win.

noel

For all you haters out there Bob Wolfley of jsonline.com today broke down sports demographics by sport. Soccer has the youngest of any sport and golf was the oldest! Fact is most of you haters are dinosuars. The tide has turn and soccer has won over young America. Its only a matter of time till America has soccer fever on a weekly basis instead of every 4 years. Lets face the truth and join the party. Or die bitter old men watching CBS sports.

Mike T

I agree that in general one time events like World Cups, Olympics, etc. are generally money losers:

1. Because you have a strict dealine to meet, you will pay MUCH higher costs to get work done by contractors. Companies know they can fleece you because you are on a deadline, so they will.

2. Unlike regular sporting events like NFL, "football (i.e. soccer)" leagues, etc. there is little "brand" revenue except for the very short term. For example, people continue to buy pro sports gear/clothing/etc even when their team is not in season playing. People aren't going to be buying Olympic shirts a year after the Olympics end.

3. Big events like Olympics/WC last a relatively short time compared to a season's worth of games.

4. Someone brought up the issue of extra security costs and I agree and would generalize it further in terms of "VIP Costs". Paying for all the security, accomodations, lodging, etc. of those who normally would pay their own way, or the number would be small enough to have just private security. But for huge events, you need to have the public police/fire/medical all on alert, and may need to hire even more private security, thus raising costs.

Although there may be a short term burst of recognition and injection of wealth, big events like these don't seem make sense for most in a purely economical sense (Beijing's Olympic costs is another example).

Read more...

md

The plural of stadium is stadia.

Eric M. Jones

I've starting my Chinese factories making red, white and blue vuvuzelas. Let's go.

JAke

What Drew said...
Since the US will be building zero stadiums and already has strong infrastructure, this article seems like it might be useful for a country like Brazil (2014 hosts), but not nearly as relevant for the US.

Mike D.

Commenter #11 (Aaron) has some great points. The cost of stadiums is mostly negligible in the grand scheme of money-losing.

One reason the NFL can do this and the World Cup cannot is scaling. You can make contracts for the NFL that last a few years, and you can use that as a bargaining chip because the service provider (concessions, security, whatever) thinks this can go on forever. OTOH, the World Cup & Olympics are *known* quantities that come very infrequently, so it's more a case of "getting while the getting's good". Also, FIFA may have a number of contracts already in-place for various services, disallowing the host country from picking their own service providers. I don't know anything about that, but I wouldn't find it surprising.