Assessing the Long-term Economic Impacts of the World Cup as Mega-sport Event

By Yundong Liu • Social Sciences, Cycle 4, 2013
 

 

 

Introduction

The FIFA World Cup, as one of the most prestigious sporting mega-events in the world, is often assumed by potential host countries as highly profitable. Current research, however, suggests that the economic growth experienced by these host nations due to the World Cup event is lower than expectations. Specifically, a number of economists assert that no observable short-term economic growth exists within the tourism, retailing, accommodation, and employment sectors of host countries (Allmers& Maennig, 2009; Matheson, 2012). As for the long-term impacts, some scholars insist that the World Cup cannot boost the four sectors listed above (Fedderson, Grotzinger and Maennig, 2009), while others argue that other beneficial factors, that do not affect the host countries in the short term, generate economic profits for host countries in the long term (Maennig, 2007). Some scholars even critique this claim, however, arguing that the new factors won’t bring profits to host countries (Matheson, 2012).

In my opinion, the World Cup cannot bring profits in the short run, but is beneficial to the host countries in the long run, assuming that different factors are considered in the long-term analysis. These factors include the novelty effect of new stadiums, the feel-good effect on citizens, and the World Cup’s effect on the international perception of a host country (Maennig, 2007; Allmers& Maennig, 2009). Not all factors affect every host nation to equal degrees; some may even hurt the benefit of certain host nations. But this paper will prove that the long-term impacts, as a whole, turn out to be positive.

In order to do prove this argument, this paper will first briefly introduce the debate on the short-term impacts; then illustrate why different determinant factors should be considered in the long term; finally it will focus on the detailed assessment of the three factors in the long term to prove why the general impacts are positive. Since current research on the economic impacts of the World Cup tends to be fairly pessimistic, it is necessary to explore the positive long-term impacts of the Cup to “save” the event, otherwise no country is willing to host in the future. Moreover, figuring out the long-term benefits of the World Cup will better assist policy-makers to make deliberate decisions, in order to maximize the profits for both the country and its citizens.

Debate on Short-term Impacts

Many politicians and economists in the past two decades hold optimistic views on the short-term impacts of the World Cup, believing that by increasing the demand for domestic tourism and retailing, the World Cup will bring additional revenue and employment to the host countries (Goodman& Stern, 1994). To support this claim by data, the international accounting firm Grant Thornton (2004) predicted that the 2010 World Cup in South Africa would create $2.5 billion dollars, 159,000 annual jobs and $845.8 million government taxes. Elmer Sterken (2006), as an economics professor in University of Groningen, also asserts that the World Cup increases the sale of sports facility manufacturers and breweries.

More and more economists in the last five years, however, assert that the real economic growth in the short-term is questionable. They claim that a number of regular businessmen and visitors who have no interest in the World Cup will be “crowded out” by sports fans (Matheson, 2012). Believing that stores and hotels will be crowded and expensive during the World Cup, these tourists may delay or cancel their journey to a host country to avoid unwanted stress. The World Cup, therefore, only changes the types of tourists in a host nation but does not increase their number. That means, while the revenue brought by tourists is still positive, the actual revenue growth is minimal or lower than expectation. Additionally, Arne Fedderson, Andre Grotzinger and Wolfgang Maennig (2009), all members of the faculty in the Department of Economics in University of Hamburg, claim that only the spending from foreigners brings extra money to the host countries. The domestic residents only switch their spending to Cup-related expenditures, but the total amount of money in the domestic market does not change unless interest rates change, a highly unlikely occurrence [1] (*footprints are shown at the end of the article.). Therefore, revenue is lower because foreign spending is small, when compared with the whole GDP (Fedderson et al., 2009). Also, adding the fact that many high-end hotels are owned by foreign enterprises, a big part of the increased accommodation revenue, in fact, escapes from the host country (Maennig, 2007). Combining all the claims together, the scholars assert that the short-term economic impacts on host countries are not positive, or at least, not as much as expected.

Difference between Short- and Long-term

Based on the short-term cost and benefit debates, some scholars use the same metrics to evaluate long-term impacts of the World Cup, focusing on changes in employment, tourism, accommodation and retailing. Professors Florian Hagn and Maennig (2007), for instance, have assessed the long-term employment effects of the 1974 World Cup in Germany to find that the event has no positive impact on raising the employment rate after thirty years. Similarly, other scholars find that the long-term impacts on tourism, accommodation and retailing are also negligible in most host countries [2] (Matheson, 2012). Therefore, these scholars believe that hosting the World Cup has no long-term positive economic impacts on a host nation’s economy (Matheson, 2012).

In this paper, however, it is argued that the long-term positive impacts are not reflected on employment or accommodation as mentioned above, but on new aspects like the stadiums, psychological states of citizens, and image of the host countries. In the short term, the sudden influx of fans would directly stimulate consumption in retailing, accommodation, tourism and temporary employment. But this condition doesn’t fit the long-term situation, for those fans leave the host country when the World Cup is over. So the promotions on these “short-term sectors” in the long run are not obvious because such stimulation doesn’t exist in the long run.

Nevertheless, it doesn’t mean there is no positive impact on long-term economy. Rather, the benefits are reflected on relatively “indirect” or “intangible” factors, defined by Maennig (2007) as the novelty effect of new stadiums, the feel-good effect on citizens, and the Cup’s effect on the international perception of a host country. I have deemed these factors to be the most accurate representations of the Cup’s true impacts, despite the existence of other measurements like increases in investment and higher birth rates. In fact, the three chosen points of evaluation encapsulate many of these additional changes, as international perception often inspires additional investment and the feel-good effect often causes increases in countries’ birth rates. Some people may wonder why not use GDP to measure the long-term economic growth. GDP, I contend, is not an accurate indicator; even the real GDP that is adjusted for inflation has potential problems of counting repetitively and misevaluating the inflation index. Moreover, it’s hard to know why and where economic growth happens by using GDP. So, through a comprehensive consideration, this paper will qualitatively analyze the long-term impacts by focusing on stadiums, feel-good effect, and international perception.

The Novelty Effect of New Stadiums

Stadiums have a direct and huge cost to the host countries. FIFA requires the host country to have at least 12 modern stadiums dispersed in several host cities. The main stadium needs a capacity of seating 80,000 people while the rest are required to be capable of hosting 40,000 spectators (FIFA, 2011). In addition, every stadium requires nearly 3 billion dollars each year to maintain.

In spite of the cost, most host countries regard stadiums as investments because they generate profits from game tickets during and after the Cup. While the ticket revenue during the World Cup is quite considerable, the revenue after the Cup is even more substantial. After the World Cup, usually all stadiums are used by domestic soccer clubs as home stadiums. Since some developed host countries like Germany and France have top soccer leagues that are more attractive than common leagues, fans coming to future games can fill the stadiums almost every following competition. The advanced stadiums often provide preferable seating, views, and lights, so more spectators are curious and willing to buy tickets to sporting events despite higher prices after the World Cup. This revenue can be huge, assuming that every week one stadium hosts an event for 50,000 fans. Scholars Allmers and Maennig (2009) claim that this increased spending on tickets can make up for the maintenance of stadiums over the years.

Besides the ticket revenue, the stadiums’ “iconic” status and future influence to the neighborhood area also bring benefits to the host countries. Several stadiums, such as the Allianz Arena in Munich and Wembley Stadium in London, have become the landmark buildings of host cities. These iconic stadiums help enhance the perception of host cities and attract investments and tourists. It has been proved that the average number of tourists and spectators after the World Cup has risen 60% compared with the number before the Cup (Meannig, 2007), showing that the iconic influence is very significant to a host country in regards to tourism. Another benefit stadiums offer is the non-sports infrastructure that ends up springing up around them, such as expanded transportation networks and new business areas. Triggered by the World Cup, these infrastructures are supposed to boost the neighborhoods surrounding stadiums even when the event is over.

However, the novelty effect of new stadiums is merely beneficial for developed host countries rather than developing host countries [3]. Usually, developing countries spend more money building new stadiums than developed countries, which often already have several stadiums qualified for the World Cup. As for usage after the World Cup, the average attendance for the South African soccer league is 7,500, with many of the stadiums out of use entirely after the World Cup (Matheson, 2012). Furthermore, unlike housing for athletes that can be changed into commodity houses to earn money, stadiums are “generally quite difficult to convert to other uses” if abandoned (Matheson, 2012, p.13). Because of this low attendance, developing countries rarely enjoy the revenues from game tickets after the World Cup and can’t boost the neighborhood economy. In fact, in South Africa, the business areas located in stadium precincts eventually become segregated (Hendricks et al., 2012).

Therefore, when evaluating the effects of the new stadiums, developed and developing host countries should be discussed separately. The developed host countries spend less money on stadiums but receive more benefits from them. However, the developing countries are just the opposite – they spend a lot but earn little. In short, the novelty effect of new stadiums only benefits the developed host countries.

The Feel-good Effect on the Host Countries’ Citizens

First defined by Allmers and Maennig (2009), the feel-good effect is “the benefit for the host country’s population…even for those individuals who do not visit the stadium” (p.35). They explain that “the free and relaxed atmosphere during the World Cup, or increased topics of conversation” make citizens happier and prouder than they might otherwise be, and thus more willing to consume (Allmers & Maennig, 2009, p.35). This increased purchasing power, measured as willingness-to-pay (WTP), is quantitatively certified by Heyne et al. (2009). On the basis of ex ante (before event) and ex post (after event) studies of the 2006 German World Cup, they found that the average WTP of citizens was increased from €4.26 per person to €10.0 after the World Cup. If multiplied by the total number of 82 million inhabitants, the corresponding increase would be around €479.3 million. Kavetsos and Szymanski (2008) reconfirmed the theory that hosting mega-sport events like the Olympic Games and the World Cup can promote the happiness of residents. In the past, the feel-good effect has long been regarded as “non-useful” by many economists, they claim, because only the small part of residents who attend the Cup can be influenced. However, Maennig (2007) asserts that this intangible effect is applicable to all citizens of a host-nation and “perfectly quantifiable” (p.15).

Moreover, this “wiliness to pay” improves the domestic economy atmosphere from pessimistic to optimistic, usually indicated in stock exchange markets. British scholars J.K. Ashton, B. Gerrard and R. Hudson (2003) have proved that the good performance of the English team in the World Cup can raise the price of shares traded in London stock exchange. And it is commonly acknowledged that a prosperous stock market tends to bring more vitality to the country. On the other hand, if the feel-good effect of a home team victory combines with an increase in national spirit due to hosting, the result can even improve productivity and efficiency. South Korea, for instance, has a significant economic boom surged after the 2002 Japan/Korea World Cup (John and Wolfram, 2004). Since soccer enjoys a high national prestige in South Korea, it is shown that both the production incentive and workers’ manufacture efficiency were significantly increased when the World Cup was held in South Korea (Kim, 2001). So the feel-good effect not only increases the purchasing power of citizens, but also enhances the vitality of domestic industries.

Though aspects of the feel-good effect are difficult to measure, it is widely accepted that this positive effect can influence a host country for a long time. With more and more scholars paying attention to the legitimacy of the feel-good effect, more quantitative research will certainly be conducted regarding it in the future.

Improved International Perception

The last intangible effect of the World Cup comes from the enhanced international perception of a host country/city. With vast international exposure via media during the World Cup, a host country becomes the focus of the international community. Convenient transportation systems, impressive security and advanced facilities in a host nation—all highlighted by media broadcasts—would enhance the perception of a country significantly (Maennig& Porsche, 2008). The perception of Germany, for example, has been enhanced in other countries according to Allmers and Meannig (2009), where “The erstwhile image abroad of Germany as ‘hard and cold … not a nation much associated with warmth, hospitality, beauty, culture or fun’ was improved through the World Cup” (p.35). This enhanced national image will, according to UC-Berkeley professors Spiegel and Rose (2010), increase international trade and investment in the host country. Specifically, they point out that the flow of capital quickens during the period of bidding before the World Cup, because, during the bidding phase, the demand of infrastructure investment is extremely large.

This enhanced perception benefits not only investment, but also future tourism. Visitors who enjoy their World Cup trip, for instance, may want to return in the future. Television viewers, as well, might find the host country fascinating, and decide to travel there someday (Matheson, 2008). Hosting the World Cup is truly a branding process for the host country and the enhanced perception, as a result of this process, helps the host countries in continuing to attract tourists and capital. Additionally, it can be asserted that the developing countries will benefit more from enhancing their national images since their images generally have more potential to be enhanced than the developed countries (Meannig, 2007).

Despite all the benefits from the improved international perception, some scholars such as Matheson, a professor in the College of Holy Cross, doubt that not all the publicity associated with hosting the World Cup is positive. Bribery, scandals, or terrorist events will decrease the reputation of the host country (Matheson, 2012). While this is true, this kind of disgraceful news only occurs occasionally. In general, the World Cup provides a platform for host countries to show themselves to the world, and this advertising effect of the World Cup is more influential than the occasional scandals. Admittedly, different host countries have different situations and therefore, the degrees of this enhancement vary, yet there is no doubt that the World Cup has this irreplaceable effect on enhancing the international perception of the host countries and cities.

Conclusion

By analyzing different factors from those in the short term, the analysis illustrates the positive long-term economic impacts of the World Cup. Specifically, the feel-good effect on the host countries’ citizens and the international perception effect clearly bring profits to the host counties. The novelty effect of new stadiums benefits host countries that are already developed while developing host countries actually suffer a loss from stadiums. But since the former two factors have potentially bigger positive influences to developing host countries, it is reasonable to assume that even the developing host countries still receive positive effects from the World Cup in the long run, though these benefits will be lower than those experienced by developed counties. Future research in this area should therefore focus on the quantitative measurement of these impacts in order to figure out the full extent of the positive impacts in the host countries.

Notes

[1] If interest rates do fall, household and firms would invest more money, thus increasing the money supply in the market. However, governments of host countries rarely lower interest rates during the World Cup.

[2] There are few exceptions, though, like Barcelona whose reputation and tourism industry get extremely enhanced after the 1992 Olympic Games. But for the World Cup, there’s no such successful example

[3] Yet in the assessment of later factors, the article will illustrate how developing host countries benefit more from those factors so that keeping their long-term impacts positive.