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The Economics of Sports: The 2018 FIFA World Cup

Pele. Maradona. Messi. Ronaldo. It’s the question always guaranteed to spark vigorous debate among soccer fans: Who is the greatest player of all time? Considering the evolution of the game, perhaps it’s an unanswerable one. How do you compare athletes from the era of the half-time oranges and legal backpass to the highly-trained and physically advanced players of today?

Are the investments in the magnificent arenas of the game based upon economics or the fervor with which we celebrate the athletes and teams? 

The 2018 World Cup

According to the World Economic Forum (WEF), this summer’s FIFA World Cup in Russia may have a total net positive economic impact as high as $31 billion by 2023. While the total economic impact is not yet known, the anticipated effect is attributed to spending on event venue construction, general investments like infrastructure, the expected revenue generated by future business opportunities and additional factors.

As cited by EisnerAmper LLP in prior articles on the economics of major U.S. sporting events, the argument is often made that by hosting any major sporting event (e.g., Super Bowl, World Series) a host’s economy is boosted by attracting tourists, initiating and operating significant infrastructure projects, increasing employment, and promoting the host as a good place in which to do future business. However, in many examples around the world, the costs of hosting major sporting events with an intent to achieve meaningful investment returns appear to outweigh the economic benefits they produce or, as more often than not, generate only a modest return on total investment.

The 2016 Summer Olympics

Another example of the sporting event cost-benefit review cited by the WEF is the 2016 Olympics. In 2015, the estimated spending on Brazil’s Rio de Janeiro 2016 Olympics was projected to be more than $15 billion, with the expectation that tourism and infrastructure investments would produce significant long-term net economic benefits. According to the Rio 2016 Legacy Olympic News, Brazil’s 2016 Olympic Games helped the country achieve record tourism figures: Brazil in 2016 welcomed 6.6 million foreign tourists, a 4.8% increase over 2015. And, 2016 tourism revenue generated $6.2 billion, an increase of 6.2% over 2015. Additional benefits were attained by the construction of hotels and other infrastructure for the games, and approximately 16,000 employees were hired to work in the new buildings and athlete residences, therefore creating new training and employment opportunities.

The 2014 World Cup

Brazil also hosted another world-class event, the 2014 World Cup. Moody's forecasted Brazil’s 2014 World Cup economic stimulus at $12 billion; however, Moody’s cited the related economic benefit was very modest citing Brazil’s $2.2 trillion economy. Moody’s estimated the World Cup generated only 0.4% of additional gross domestic product for Brazil over a prospective ten-year period. The National Court of Auditors of Brazil, in contrast, concluded that public spending on the 2014 World Cup generated an estimated economic impact of $3 billion to $13 billion.

Considering the 2014 World Cup and 2016 Olympics, Brazil invested $27 billion to host both global sporting events. Economists argue that it’s difficult to determine if taxpayers, investors and Brazil will ultimately receive a fair return on their collective investments—especially considering the national economic benefits Brazil could possibly have been attained if these funds were invested elsewhere.

There is little doubt that the national prestige, world’s attention and public works advancements are significant benefits attained from hosting a global sporting event. Promoting a country’s sports and athleticism, history and culture is also an objective. Clearly, an event’s economic success is also very important. In 1958, soccer commentator Stuart Hall, while watching Manchester City play at Maine Road, used the term "The Beautiful Game" to describe Peter Doherty's playing style. Perhaps this, too, is a reason an international soccer game itself can contribute to a nation’s economic success.

Related Content:
The Economics of Sports: The 2018 FIFA World Cup
Russia Passes Special 2018 FIFA World Cup Tax Regulations
Taxation of Athletes Participating in the 2018 FIFA World Cup
7 Ways the World Cup May Impact Major League Soccer

Timothy Speiss is the Partner-in-Charge of EisnerAmper's Personal Wealth Advisors Group and Vice President of EisnerAmper Wealth Planning LLC. He chairs our Asia Practice and is a member of the firm’s community service group, EisnerAmper Cares.

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