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FIFA: The Real World Cup Winners?

Big sporting events do not make money for host countries. Almost every academic economist is in agreement on this.

Maracana Stadium During The Confederations Cup

Hosting the World Cup, European Championship or even the Olympic Games makes people happy, and focuses the world's attention on your country for an extended period of time. But in the long-run these events hamper rather than benefit a country's economy.

Why Countries Lose Out

World Cups cost a lot of money. Official figures from the 2010 World Cup show South Africa spent £3 billion building the stadiums and infrastructure necessary for the month long spectacle. They made a return of just £323 million, so that's a £2.7 billion loss.

The 1994 World Cup in America did even worse. Prior to the tournament economists predicted it would make a $4 billion profit. In a recent paper sports economist Dennis Coates showed that the United States actually lost $9.6 billion from hosting the World Cup in 1994, that's 13.6 billion less than the pre-tournament prediction.

Germany 2006 only broke even despite running a flawless tournament in a country where the majority of the infrastructure was already in place.

And with conservative estimates putting the cost of Brazil's World Cup party at $11 billion it's fair to say it doesn't look like they'll come out of it in the black.

A Waste of Money?

"The things you need for a football tournament are almost never the things you need for daily life." Wise words from Simon Kuper of ESPN. This is why Brazilians have been protesting about the World Cup in their thousands over the last few years.

World Cup Protest In Sau Paulo

Millions of people in Brazil desperately need better housing, improved access to electricity and more sophisticated medical care. Surely the billions of dollars the Brazilian government has spent on new football stadiums would have been better spent on schools, hospitals and other vital services?

Where Are FIFA in All of This?

FIFA is a non-profit organisation, but they have a highly commercial outlook. For example how many other non-profits have a range of official merchandise that could rival FIFA's? From best-selling computer games to plastic toys and sticker albums, they have the lot.

As a non-proft FIFA is required to spend all of its profits on fulfilling its football objectives, but its commercial side should not be ignored.

FIFA walk away from every single World Cup with a healthy profit, but often leave the host nation with a big debt to pay off.

For example FIFA made a $631 million profit from the 2007-10 World Cup cycle, and we've already mentioned the economic problems South Africa have been left with.

They do give money to help offset some of the costs, but could they be doing more? Take a look at this chart which shows how much FIFA's cash reserves have grown since 2003.

FIFA's Cash Reserves Since 2003

Click on the graph to see a larger version

FIFA says these cash reserves are necessary. A form of insurance against any unexpected events that might arise. The cancellation or postponement of a World Cup would be an example of this.

This is a valid point, but the amount of cash they're sitting on (currently $1.4 billion) is obscene. Plus their insurance policy covers postponement or moving of the tournament in the event of a natural disaster, war or an act of terrorism. In fact it's hard to think of a scenario where these reserves would come into play.

Surely it would be better if more of this money was spent helping countries like South Africa and Brazil cover more of their World Cup costs, or on their stated mission of developing the game?

FIFA's annual reports also show that in most years the organisation spends more on itself than football development. This should not be happening.

Conclusion

It's difficult to know what to make of FIFA's economics. It does a lot of good, and they are right to point out that the World Cup is far more lucrative than many of their other events (such as The FIFA U-20 World Cup) that need to be subsidised with profits from the tournament.

However, you can't help but feel FIFA could be doing a lot more with the vast sums of money they're generating. It needs to give more money to host nations, and spend more of their cash reserves on football development.

Until this is happens people will continue to scrutinize FIFA's finances and question whether they're doing the beautiful game more harm than good.

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