The recent announcement that North America has been awarded the hosting rights for the 2026 World Cup from the combined bid of the United States, Mexico and Canada has been met by celebrations. Notwithstanding the sporting and cultural significance of hosting the games, the economic impact of hosting a ‘mega-event’ begins as soon as the host is announced. Indeed, one study illustrated the effect on the Doha Stock Exchange following the announcement of Qatar as the 2022 host of the world-cup. The authors attributed the stock market volatility to both the positive and negative reactions to the future of infrastructure projects in the area.
The cost of hosting the FIFA World Cup has dramatically risen since the United States hosted in 1994 (several hundred million), to $5-6 billion by South Africa in 2010 and $15 billion in Brazil in 2014. It is predicted that Qatar will far outspend all hosting predecessors. The reason for this escalation in bidding rights is in part the result of the monopoly over the selling rights of hosting (FIFA) and the multiple bidding parties, with the outcome resulting in what economists label the ‘winner’s curse’. This is where the winner has bid above the actual worth of the object (or in this case, event). Furthermore, much of the lobbying driving the bids arise from companies and private interests who will be set to receive lucrative contracts, rather than the tax-payers who account for the construction bills. FIFA’s publications on the economic impact of the World Cup should be assessed critically. As Peeters, Matheson and Szymanski (2014) suggest, “there is a clear conflict of interest for a sporting organization to publish an economic impact study when that organization will be using any estimated economic gains as a bargaining chip…” Although there are undoubtedly spill-over effects that the infrastructure and the tourism sector experience, much of the literature remains sceptical, if not divided, over the economic advantages of hosting the World Cup. On one side, studies such as Baade and Matheson (2004) show that “the economic impact of the event cannot justify this magnitude of expenditure… host cities experienced cumulative losses”, on the other Pettinger (2018) outlines the transportation and business improvements in host hubs.
As the hosts of this years’ World Cup, Russia acknowledged their hopes for a trickle-down of benefits. Former Deputy Russian Prime Minister Arkady Dvorkovich stated that over the last 5 years preparations for the World Cup had contributed 1% to GDP, arguing that “without the World Cup, there would be no economic growth at the moment.” Despite this, some economists have remained sceptical over the long-run impact of hosting. This has been confirmed with research on the limited impact for the tourism sector, with the number of international tourists increasing for just the three years following the event in former host countries. The development status of a host may also affect the relative gains or losses from hosting. An interesting study revealed the unequal distributive effect of hosting the event in South Africa and Brazil, with the study suggesting levels of corruption and inefficiency affect how well the country is able to capitalise on the benefits of hosting in the years following. As studies suggest, much of the infrastructure investments become redundant – this has led Qatar, the 2022 host, to consider constructing stadiums that may then be disassembled and (presumably) sold to other nations requiring such infrastructure.
Considering the United States’ failure to qualify for the world cup this year – and the interesting findings of Bostwick (2018) on the dimensions of economic loss incurred in the US as a result (sponsorship deals, merchandise, TV licensing, broadcasting losses and hits to sports-bars) – the country will be anticipating a comeback in 2026. Much akin to hosting an extravagant party, the costs and benefits of hosting the World Cup cannot be assessed in isolation from the social and political impact. Outside of improving international reputational costs, surveys suggest that the majority of citizens view the hosting of mega sports events favourably; which undoubtedly factors into both democratic and autocratic regime considerations (both of which incur ‘audience costs’ to varying degrees). So for hosts, is the world cup half-empty or half-full? A bit of both – the World Cup will generate socio-economic returns, but it is not a panacea for economic woes. It is one thing for executives and political decision-makers to argue that hosting the World Cup will improve national cohesion or cultural enrichment, and another to mislead a population by suggesting hosting will promise enormous returns.
Hayley Pring is the International Trade and Economy Fellow for Young Australians in International Affairs.