The Economics of Hosting the World Cup and Why the U.S. Should Make the Investment

This article was written by our guest author, Connor R. Sandler [1], ?a B.S. Marketing Candidate, Spring 2022, University of Delaware

The United States, Canada and Mexico have secured the rights to host the 2026 World Cup, which may prove to be the most watched sporting event in the World.[2]??The 2026 games will be played at sixteen different locations throughout the North American continent.[3]??Thanks to extensive television coverage of Euro 2020, the 2nd most prestigious international soccer tournament[4], and growing enthusiasm for the sport in the United States, soccer fever has swept through the States and enthusiasm about the upcoming tournaments continues to grow.??

Following two unsuccessful bids for the 2018 and 2022 World Cup, the USA Bid Committee revealed a private economic impact report prepared by AECOM[5]?that suggested potential positive economic impacts for the host countries of $5 billion as a result of hosting the World Cup.??The USA Bid Committee, however, refused to release this report to the public, calling into question the legitimacy of the report.??Fortunately, there are plenty of other independent studies that have examined past World Cups that give us a chance to look under the hood into the economics of hosting this “mega-event”.??This article will highlight some of these studies.???

One of the most significant pieces of information is the result of the 1994 World Cup, which was the last tournament hosted by the USA.??This data is not all positive.??AECOM, the consulting firm for the 1994 Bid Committee, predicted economic benefits of $4 billion for the host country as a result of the sporting event.??As cited in World Cup Economics,??post-tournament analysis found that the “host cities experienced an average reduction in income of $712 million relative to predictions” for “an overall negative impact on the host city economies of $9.26 billion” (Coates).??This means that the Bid Committee overestimated the economic benefits by more than $13 billion dollars.

Figure 1: US World Cup Economic Impact

The issue with these reports is that they are produced and released by the beneficiaries of the event themselves, so the data in the report is skewed in favor of hosting the World Cup, in a bid to increase support from the general public.??This means the released economic reports will predictably overstate the benefits of hosting the tournament, while understating the costs of the tournament.?

Following the 2018 World Cup hosted by Russia, FIFA[6]?released their financial report stating that a $1.4 billion profit over the tournament's “four-year cycle” was realized.[7]??$6.4 billion in gross revenue was realized, set off by spending around $5 billion.??The amount of profit may have been accurate but the identity of the beneficiary of the revenue was not fully transparent.??FIFA keeps most of this revenue for itself and the host cities realize little of the purported economy-stimulating revenue.??

Breaking down these revenue numbers more, FIFA?made $2.5 billion in TV rights fees, $1.6 billion in sponsorships, and $713 million in hospitality rights and ticket sales.??It must be noted that ticketing rights are 100% owned by direct FIFA subsidiaries, meaning that FIFA sees a large portion of this revenue as well.??

Furthermore, FIFA is known to have strict regulations on which vendors will be authorized to sell food and merchandise in and around the stadiums.??During the 2014 World Cup in Brazil, FIFA officials asked the Brazilian government to stop the small local vendors from selling goods to the people coming to the stadiums.??FIFA wants only their sponsors’ goods to be sold in and around the stadium.??As a result, FIFA is directing money away from the locals and the Brazilian economy.??This in turn, overstates the positive economic impact on Brazil, as the Brazilian economy does not see this influx of revenue because FIFA’s handpicked vendors are not native to the cities hosting the tournament.

A survey done in South Africa before the 2010 World Cup found that three quarters of respondents identified economic growth and job creation as two of the top three benefits of hosting the World Cup (Tomlinson, Bass, and Pillay).[8]??As these are some of the areas in which people are most concerned about hosting the World Cup, past tournaments and how these different sectors of the economy are impacted will be analyzed.

Employment

The most recent World Cup, hosted by Russia in 2018, gives a good look into the impact that the tournament has on employment.??As the most expensive World Cup ever hosted, Russia invested a lot of money into its infrastructure.??Of the $11 billion in total spent to host the tournament, 38% of this was attributed to construction costs.??Around the nation, twelve stadiums were constructed and renovated for a cost of $4.2 billion, resulting in the creation of roughly 220,000 jobs, 80,000 of which were in the construction industry (Global Banking and Finance Review).[9]??This helped Russia achieve their lowest levels of unemployment in the previous 20 years: falling from 5.8% to 4.8%.??While Russia touts its success in job creation, there is evidence that not every World Cup tournament has created significant jobs.??The 2018 World Cup produced similar results in this sector as the 2014 World Cup in Brazil.??The 2014 edition generated over 500,000 jobs and similarly reduced Brazil’s unemployment rate to historic lows of 6.2%.??In the years following the tournament, however, unemployment rose - hitting a rate of almost 14% by 2017, as the World Cup did not produce long-term sustainable jobs.?

Figure 2: Unemployment Rate in Brazil

Diving deeper into the effects in the employment sector, we look at findings from the 1974 World Cup in Germany, as this is the first and only World Cup in which long-term employment effects have been analyzed.???While it was reported that there were a large number of jobs created in preparation for the World Cup,?German economists Florian Hagn and Wolfgang Maennig examined the German employment effects of the 1974 World Cup.??Following a series of sensitivity analyses regarding employment, Hagn and Maennig concluded that the 1974 World Cup in Germany "did not generate any short to long-term employment effects that were significantly different from zero" (Hagn, Maennig, and Florian).[10]??They emphasized that the World Cup brings short-term, low-paying jobs.??Although the tournament may create a significant number of jobs, these jobs will not exist in the years following the tournament.?

Tourism

The World Cup is reputed to positively impact the tourism sector of the economy.??While many expect the World Cup to boost tourism by attracting global visitors, Maennig, the German economist, has a different view.??During the 2006 World Cup, Germany experienced a 9% increase in foreign visitor arrivals and had more than 500,000 tourists arrive for the tournament (Simpson).[11]??After analyzing data from the tournament, Maennig stated the tournament did not have a significant impact on the tourism industry.??His findings showed that many locals chose to leave Germany during the World Cup to avoid the crowds.??This outflux of locals offset the gains from incoming tourists.??While tourist levels increase in the months during the World Cup, it is a zero sum game in terms of revenue as the loss from outgoing locals counterbalances the gains from tourists.

Furthermore, the assumption that the World Cup attracts more global visitors is not always true. In 2002, co-host South Korea saw fewer foreign visitors during the World Cup compared with the same period a year earlier (Jin).[12]??This may be a significant concern for the 2026 World Cup as the US, Canada, and Mexico are all co-hosting the tournament.??A large majority of tourists will likely travel to the US instead of Canada and Mexico, as 75% games will be played in the United States.??Tourism levels in both Canada and Mexico may prove to be lower than in previous non-tournament years.??

Impacts on the Global Economy

To emphasize the global impact of the World Cup, we must take a look at past empirical studies.??According to Huijgens[13], an economist for FSG journal, there is a phenomenon called the ‘World Cup effect’ which creates a -2.5% decline in the US stock market. This drop in the American market is attributed from the collective negative changes in participating countries’ stock markets that originate from their performances in the World Cup.??It must be noted that there is a significant correlation between the American market and European markets.??According to a study performed on the American market and the corresponding European markets, “on average, about 26 percent of movements in European financial assets are attributable to developments in U.S. financial markets, while about 8 percent of U.S. financial market shifts are caused by European developments.”??More importantly, “movements in the U.S. stock prices trigger corresponding change in the euro area, with more than 50 percent of the U.S. market developments being reflected in euro area stock prices” (Ehrmann, Fratzscher, and Rigobon).[14]

?After France was knocked out of the 2010 World Cup, the nation experienced a sharp decline in the Paris Exchange, a situation which most countries’ experience following their exit from the tournament.??This ‘World Cup Effect’ is magnified through what Huijgens refers to as the Theory of Loss Aversion, in which the negative return of a losing country is larger than the positive return of the winning country.??Huijgens concluded that this negative return contrasts with the +1.2% increase in other months observed in the study (The St Andrews Economist).[15]

Another study, performed in 2002 by Beijing-based ANBOUND Consulting[16], reported nearly $538 million in losses based on evidence that the nation would spend two hours out of two thousand working hours watching the matches.??This theory seemed to be validated by Gross Domestic Product growth that year.??The Chinese economy grew by 8.9% in the second quarter when the World Cup was played.??The growth that year was on par with that in the first quarter but slower than the 9.2% and 9.1% increases in the third and fourth quarters respectively (Jin).[17]??While this study focused on the economic loss as a result of deflated productivity levels for participating countries, a study performed by Captivate and Office Pulse[18]?prior to the 2018 World Cup, suggests negative effects on non-participating country’s economies.??The report stated that the USA would lose nearly $3.6 billion in productivity even though the U.S. did not participate in the tournament.??This monetary amount was based on estimates that over a third of white collar professionals would tune into the tournament throughout their workdays to watch the matches averaging one to two hours of watch-time per day.??

A Goldman Sachs[19]?report, titled “The World Cup and Economics 2014”, analyzed the relation between the World Cup and equity markets, and found some correlation between the two.??The report found that there is a clear pattern of outperformance by the winning team’s country in the weeks after the World Cup Final.??The World Cup Champion outperforms the global market by 3.5% in the first month on average.??This is a meaningful amount, although the outperformance fades significantly after the first three months following the tournament.??The report also states that the winning nation sees its stock market underperform by around 4% on average over the year following the tournament.??The message seems to be: Enjoy the gains while they last.

Figure 3: Market performance of World Cup winners before/after championship

Hosting a Profitable World Cup

So, how do you host a profitable World Cup???The first step is to minimize the costs of hosting the tournament.??The largest costs incurred by the host nation are by far the construction costs, including the construction of stadiums, training facilities, transportation, housing, etc.??A host nation that already has a majority of these necessities already constructed and ready for use, drastically cuts down on their costs, increasing the chances of a more profitable tournament.??On November 15, 2021, US President Joe Biden signed into law a $1.2 trillion infrastructure bill in which $550 billion will be allocated toward upgrading infrastructure throughout the country.??The significance of this law is that it gives the USA a head-start in preparing for the World Cup in 2026, as a great deal of this newly upgraded infrastructure can be utilized during the World Cup.??Breaking down this deal, the US will be spending $110 billion to reconstruct highways, roads, and bridges, $66 billion to upgrade Amtrak railroads, $39 billion to modernize public transport, and $25 billion to repair and upgrade airports, all of which will be utilized during the tournament for team and tourist travel.??The US will also be spending $65 billion to upgrade the power grid which will benefit the stadiums, training facilities, hotels, and any other facilities that utilize the power grid (The United States Government).??Although the cost of this infrastructure bill is enormous, it will help cut the future bill of World Cup exclusive costs as many infrastructure and transportation facilities that are needed for the tournament are already constructed and ready for use.

When comparing the construction costs for past and future tournaments, we find that having pre-built infrastructure in place increases the chances for a profitable tournament.??The most recent World Cup in which a significant amount of infrastructure was already built was Germany’s 2006 edition of the World Cup, in which they spent $4.6 billion in total to host the tournament.??Compare that with Russia who spent $4.2 billion on the construction and renovation of stadiums alone.??This does not even consider the $2 billion spent on renovating airports, or the $1 billion Russia spent on housing and medical infrastructure.??It is quite clear that nations that have preexisting, ready-to-use infrastructure drastically cut their cost. (Global Banking and Finance Review).[20]

A unique situation that must be examined is in Qatar, which will host the upcoming 2022 tournament.??Qatar is expected to spend a staggering $220 billion to host the tournament.??This is because Qatar had almost no usable infrastructure at the time of being awarded the rights to host the tournament, so their costs soared, having to build most of the infrastructure needed from scratch.??In the short run, this tournament will not be close to breaking even, as revenue statistics from past tournaments suggest it is impossible to generate that much revenue from the tournament alone.??This begs the question: why would Qatar be willing to spend this much money on the World Cup when they know that there will inevitably be a net loss from this tournament???This is because, for Qatar, it is a long term investment.??As the nation continues to develop as one of the wealthiest nations in the world[21], Qatar is looking to advance their nation in many different areas.??

First and foremost, they are looking to popularize the sport in their nation, and what better way to do that than to host the biggest soccer event in the world.??Soccer teams in Qatar have been known to offer foreign players enormous salaries in hopes of bringing them to Qatar and increasing the sport’s popularity.?Second, as Qatar continues to develop as a nation, they are looking to advance their infrastructure and stimulate an economic boost by infusing money into the economy through the construction of the tournament's infrastructure.??Hosting the World Cup will inevitably increase their exposure and promote an influx of tourists.??Qatar is hoping this will increase their power and reputation on a global scale.??The country, however, has struggled on this front already, as they are facing very harsh criticism regarding their working conditions.??News has come out that more than 6,500 workers have died as they are being worked in 120-degree heat and other very harsh conditions.??We can only wait and see if this long-term investment for Qatar will pay off.??

Understandably, with these massive costs to host the World Cup, host nations are looking to maximize the revenue generated from the tournament.??The United States is in a unique position to host the 2026 World Cup, as they can learn a lot from the upcoming 2022 World Cup.??While the USA will not have a cost bill anywhere near that of Qatar’s, they are in a similar position?in which the USA is looking to popularize the sport.??Over the past years, soccer has been increasing in popularity throughout the USA, however these levels are far from the popularity seen throughout South America and Europe.??This increase in popularity is partially due to the changing demographics in the United States.??Analyzing demographic trends throughout the last decade shows that the US is becoming more diverse every year (U.S. Census Bureau).[22]??Between 2010 and 2020, the population of people of Hispanic origin in the US increased from 16.3% to 18.7% (U.S. Census Bureau).??As people of Hispanic origin are much more culturally passionate about the sport, the sport’s popularity will only continue to grow.??

This tournament gives the United States the perfect opportunity to increase its popularity and introduce Americans to the sport and the level of passion seen throughout the rest of the world.??As soccer's popularity increases throughout the US, more and more eyes will be on the US national team which will be competing in the tournament.??As of now, the US is just starting to build a team that is able to compete with the best nations in the world.??As more and more American players travel overseas to develop in Europe, the US team continues to improve which increases the popularity of the sport.??Many Americans are looking toward the 2026 World Cup in hopes of the American team solidifying themselves as a true footballing nation.??If the US can host a successful tournament in 2026, the US should look to mirror Germany’s approach in 2006.??After hosting a successful edition of the World Cup, Germany reinvested a lot of their profit into the German league, known as the Bundesliga, and in turn has transformed it into one of the top five leagues around the world.??Germany is widely regarded as the best country for youth players to develop, as seen by the three best American talents in the world right now, all playing and developing in Germany.??In all other countries and leagues around the world, teams are able to sign players at any age, and develop them in their own youth programs instead of relying on other developmental programs and universities to develop these players.??This is why youth development systems across the globe are significantly better than the ones here in the US, and why almost all young promising American players travel overseas to develop.??The 2026 World Cup is so important for the US, both economically and as a way to advance the sport and create a new development program throughout the country that allows the USA to produce homegrown talent.?

Conclusion

After analyzing the impacts that the World Cup has on the employment and tourism sectors of the economy, as well as the impacts on the global economy, I believe that hosting the 2026 World Cup will be a major success for the USA, however the same cannot be said for both Canada and Mexico.??It is not just for the advancement of the sport, but because the tournament will likely spark economic growth throughout the country.??The USA is in a unique position in which they are looking at the tournament as both a short-term and long-term investment.??Most importantly, all stadiums and a majority of the supporting infrastructure needed to host the tournament is already in place, which cuts a massive portion of the cost bill.??Pairing that with the growing desire for locals and tourists to visit the USA and experience the biggest sporting event in the world, the economic output generated should make the tournament a great investment.??Hosting a successful tournament will also contribute to the advancement of the sport in the USA, further generating more opportunities in the sport throughout the country in the years to come.??While this tournament will likely be a success for the USA, the same cannot be said for Mexico and Canada, as they will only host ten games each throughout the first half of the tournament.??Further research into the costs to host these ten games each is needed to make a conclusion on the overall success and profitability of the tournament for these two nations.??With that being said, while hosting the World Cup has seen many countries regretting that decision, leaving them in worse conditions than before, for the reasons stated prior, I believe that hosting the 2026 World Cup will be one of the most successful and profitable editions of the tournament seen to date for the United States.

References and Works Cited

MORE THAN HALF THE WORLD WATCHED RECORD-BREAKING 2018 WORLD CUP. FIFA. (2018, December 21). https://www.fifa.com/tournaments/mens/worldcup/2018russia/media-releases/more-than-half-the-world-watched-record-breaking-2018-world-cup.

Coates, D. (2014).?World Cup Economics: What Americans Need to Know. https://economics.umbc.edu/files/2014/09/wp_10_121.pdf.

Editor, P. by B. (2021, January 1).?Does hosting a World Cup make economic sense??The St Andrews Economist. https://thestandrewseconomist.com/2020/12/20/does-hosting-a-world-cup-make-economic-sense/.

Goldman Sachs Global Investment Research. (2014, May 30).?The World Cup and equity markets. Goldman Sachs. https://www.goldmansachs.com/insights/archive/world-cup-sections/world-cup-book-2014-equity-markets.html.

Jin, Z. (2018, June 22).?World Cup a time to ignore the numbers. China Daily. https://africa.chinadaily.com.cn/weekly/2018-06/22/content_36433316.htm.

Simpson, D. (2007, January 4).?German tourism scores big from World Cup. CABI. https://www.cabi.org/leisuretourism/news/16342.?

Hagn, Florian and Maennig, Wolfgang, Short-Term to Long-Term Employment Effects of the Football World Cup 1974 in Germany (2007). Hamburg Contemporary Economic Discussions, No. 9, 2007 , Available at SSRN:?https://ssrn.com/abstract=1541927?or?https://dx.doi.org/10.2139/ssrn.1541927

Tomlinson, Richard, Orli Bass, and Udesh Pillay. 2009 “Introduction” in Udesh Pillay, Richard Tomlinson, and Orli Bass (editors). Development and Dreams: The urban legacy of the 2010 Football World Cup. Capetown, South Africa: HSRC Press.?

Vitukevich, N. (2018, June 5).?World Cup viewing at work leads to $3.6B in lost productivity. Office Pulse. https://officepulse.captivate.com/15344-2world-cup-viewing-at-work-leads-to-3-6b-in-lost-productivity.

Brazil unemployment rate: 2012-2021. Brazil Unemployment Rate | 2012-2021 Data | 2022-2023 Forecast | Calendar | Historical. (n.d.). https://tradingeconomics.com/brazil/unemployment-rate.?

The Economics of the FIFA World Cup 2018. Global Banking and Finance Review. (n.d.). https://www.globalbankingandfinance.com/the-economics-of-the-fifa-world-cup-2018/.

Probasco, J. (2021, September 28).?Understanding the Infrastructure Bills. Investopedia. Retrieved August 20, 2021, from https://www.investopedia.com/here-s-what-s-in-the-usd1-trillion-infrastructure-bill-passed-by-the-senate-5196817.

U.S. Census Bureau, 2010 Census Redistricting Data (Public Law 94-171) Summary File; 2020 Census Redistricting Data (Public Law 94-171) Summary File

Bloomberg. (2018, June 15).?The World Cup is a Productivity Killer. Managers Should Embrace the Tourney to Meet Their-Ahem-Goals. Fortune. Retrieved August 20, 2021, from https://fortune.com/2018/06/15/world-cup-worker-productivity-employers-economies/.

The United States Government. (2021, August 1).?Fact sheet: Historic bipartisan Infrastructure Deal. The White House. Retrieved August 20, 2021, from https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/28/fact-sheet-historic-bipartisan-infrastructure-deal/.

Huijgens, J. (2018, July 3).?'The World-Cup effect'. FSG Journal. Retrieved August 20, 2021, from https://fsgjournal.nl/article/2018-05-03-the-world-cup-effect.?

Lozada, C. (2005, September).?Interactions of U.S. and European Financial Markets. NBER: National Bureau of Economic Research. Retrieved August 20, 2021, from https://www.nber.org/digest/sep05/interactions-us-and-european-financial-markets.

Bureau, U. S. C. (2021, August 12).?The chance that two people chosen at random are of different race or ethnicity groups has increased since 2010. Census.gov. Retrieved August 20, 2021, from https://www.census.gov/library/stories/2021/08/2020-united-states-population-more-racially-ethnically-diverse-than-2010.html.

[1]?Candidate B.S. Marketing, Spring 2022, University of Delaware

[2]?The 2018 World Cup, played in Russia, attracted over 3.5 billion television viewers.

[3]?Such locations include Edmonton, Toronto, Mexico City, Monterrey, and Guadalajara.??The U.S. has identified 17 possible locations with the intention to cut this to 12 locations.??The current list of cities includes Los Angeles, New Jersey, Washington D.C., Dallas, Kansas City, Denver, Houston, Baltimore, Philadelphia, Nashville, Seattle, Atlanta, San Francisco, Boston, Cincinnati, Miami, and Orlando.

[4]?The 2020 European Championship (Euro 2020) attracted 30.95 million television viewers.

[5]?AECOM: Large infrastructure consulting firm tasked with preparing economic impact reports for the US Soccer Federation.

[6]?Fédération Internationale de Football Association (FIFA): The largest international governing body in soccer.

[7]?$6.4 billion in gross revenue was realized, set off by spending around $5 billion.

[8]?Tomlinson, Bass, and Pillay, 2009: Is a study on the urban development, economic policy, geography, tourism, local government and social policy of the 2010 World Cup

[9]?Global Banking and Finance Review: Is a finance magazine based in the United Kingdom focusing on global financial trends and developments

[10]?Hagn, Maennig, and Florian, 2007: Is a study on the?short-term to long-term employment effects of the 1974 World Cup in Germany

[11]?David Simpson: Author for CABI, an international not-for-profit that provides information and applies scientific expertise to solve problems in agriculture and the environment.

[12]?Zhang Jin: Author for China Daily, the largest English portal in China providing news and business information

[13]?Huijgens, 2018: Is a study on the effects the World Cup has on global stock market performance

[14]?Ehrmann, Fratzscher, and Rigobon, 2005:?Is a study on the interactions of the U.S. and European financial markets

[15]?The St Andrews Economist: The official publication of the St Andrews?Economics Society covering?global and current affairs, academic theory, economic policies and trends

[16]??ANBOUND Consulting, 2002: Is a study on the effects the 2002 World Cup on productivity levels in China

[17]?Zhang Jin: Author for China Daily, the largest English portal in China providing news and business information

[18]?Captivate and Office Pulse, 2018: Is a study on the effects the World Cup has on productivity levels

[19]?Goldman Sachs, 2014: Is a study on the relation between the World Cup and equity markets

[20]?Global Banking and Finance Review: Is a finance magazine based in the United Kingdom focusing on global financial trends and developments

[21]?Qatar has the 4th highest GDP per capita in the world at $93,416

[22]?The U.S. Census Bureau uses the Diversity Index to measure the probability that two people chosen at random will be from different racial and ethnic groups. This index increased from 54.9% in 2010 to 61.1% in 2020.