Risks & Rewards to Hosting the World Cup

Brazil will have the unique opportunity to host both the World Cup and the Olympic/Paralympic Games in 2014 and 2016 respectively. While the prospect of hosting two global competitions, and thus citizens of each representative country, is exciting for both the government and citizens of Brazil, the excitement is not without anxiety and risk. It is often viewed that hosting the events would bring in short-term revenue, but perhaps create a long-term surge in tourism via the games’ visitors tasting Brazilian culture during the events. Brazil must use many resources to construct the facilities needed and host the events. Which may mean, to the detriment of its own citizens, relocating them to use their communities as a resting ground for the necessary infrastructure. While many may argue that hosting the events, displacing its own citizens, and using natural resources will be detrimental to Brazil and its economy, but hosting could mean a surge of economic growth and prosperity for the country. Evidence supports the notion that a strong economy will profit (Los Angeles) while weak economies may become far weaker after hosting global sporting events (South Africa and Greece); however, while the games are certainly a significant event and burden to bear fiscally, politically and internally, the act of hosting such global sporting events will only display and strengthen weaknesses in economies, not become the sole catalyst of its demise.   

No other economist could support Brazil’s investment in hosting such monumental events quite like John Maynard Keynes. During the 1930s, a new economic theory came to fruition. According to Daniel J. Mitchell, Ph.D., Keynes proposed that a budget deficit of government spending in the short term actually stimulated growth during the long term. In a time when the markets had crashed and growth could no longer be supported by consumer spending and market outlook, it seemed to be a viable option (Mitchell). Mitchell states, “Keynes argued that government spending-particularly increases in government spending-boosted growth by injecting purchasing power into the economy” (Mitchell).  While Keynes was mostly referencing the policy as a rescue tactic to use during weaker economic times, the theory could also be applied to pump up the economy to a greater and more stable state.  In the case of Brazil, using governmental resources to ready the country for both the World Cup and Olympics, there are many camps that both support and despise it; however, since Brazil has a thriving economy, the events could only help to solidify the nation as a competitive and global player. 

Brazil has had a troubled economic past due to high levels of inflation in the 1980s; however, today Brazil has the largest economy in South America and the seventh-largest market exchange rate economy in the world according to the International Monetary Fund and the World Bank. In terms of exporting, Brazil ranks 23rd in worldwide export value (Economist). According to the Economist, some of Brazil’s major exports include aircraft, electrical equipment, automobiles, iron ore, steel, ethanol, textiles, coffee, orange juice, soybeans and beef (Economist; world factbook np). Brazil has an estimated GDP (ppp) of $2.394 trillion and $12,100 per capita GDP. Prior to 2012, Brazil enjoyed GDP growth rates of 7.5 percent in 2010 and 2.7 percent in 2011; however, in 2012, growth slowed to 0.9 percent. While GDP per capita could stand to be improved significantly, globally Brazil is a major economic contender. Brazil’s major export partners as of 2012 are China (15.4 percent) US (14.7 percent), Argentina (7.4 percent) Germany (6.4 percent), and South Korea (4.1 percent). According to the CIA World Factbook Brazil’s current economic state is primed for a major global move, 

“Unemployment is at historic lows and Brazil's traditionally high level of income inequality has declined for each of the last 14 years. Brazil's historically high interest rates have made it an attractive destination for foreign investors” (World Factbook). Senior Portfolio Manager for the Trading Floor, Sverrir Sverrisson, agrees, “International sporting events can be seen as a coming-out party for countries who want to show off their new status as economic giants – think the Beijing Olympics of 2008, or even Barcelona in 1992” (Trading Floor).

However, despite Brazil’s economic success, many worry that the economy still cannot support such a major endeavor of hosting 2 global sporting events. In addition to the massive financial burden of preparing the infrastructure for both the World Cup and the Olympics, many citizens will be forced to relocate so that the space they once called home could be used for official event purposes. According to Jed Hughes, “Meanwhile, many low-income settlements known as favelas are set to be demolished and replaced by hotels and infrastructure designed to alleviate traffic congestion expected for the World Cup and the Olympics. The improvements for Rio will be long lasting, but the relocation process effectively evicts local citizens and sends them to large settlements nearly 50 miles away (Bleacher Report).

Many citizens also protest the rising tax costs to pay for the infrastructure, security and other internal changes needed before the World Cup and Olympics take place. According to Chris Chase, Costs of hosting next summer’s World Cup are expected to top $13 billion, a figure that’s criticized by citizens who say the country should be spending money elsewhere” (For the Win). Many citizens worry that the plans to host could leave the city/country in financial ruin (For the Win). 

Although the concerns of excessive spending to prepare for the events are not entirely displaced, there have been instances in which host cities and country have profited greatly from hosting global sporting events. In 1984, Los Angeles hosted the Olympics and profited more than $200 million, which was greater than all prior profits from the games combined (Leisure Studies192-193). According to Stephen Essex & Brian Chalkley, “The Los Angeles Games of 1984 were also characterized by comparatively modest investment in new facilities and almost total reliance on private- sector funding” (Leisure Studies 192). Since Los Angeles had hosted the Olympics before, the city could reuse some of the older infrastructures, as well as borrowing space from the major universities within city limits such as University of California and Southern California. Student dorms were used to house athletes, which reduced the need to construct more hotels.  According to Trading Economics, (see Fig B) was at its height of the 80’s GDP growth rate in 1984 at 8 percent. Even after the aftermath of the Olympics, (whether it significantly impacted economic growth) while the growth rate decreased a bit, it was still well above the growth rates of the earlier 1980s (Trading Economics).  Another concern many economists have is that short-term employment for global sporting events often leads to long-term unemployment when the events are finished. However, in the case of California, unemployment actually continued to decrease in the years following the 1984 Los Angeles Olympics (see Fig C and D) (Bureau of Labor Statistics).  

While some cities/countries have been successful both in hosting the games and dealing with the aftermath, others have not. Countries such as South Africa (host to the World Cup in 2010) and Greece (host to the Olympics in 2004), have not faired as well in preparing or dealing with the aftermath of hosting such events. In comparison with Brazil’s current economic state, South Africa has a GDP (ppp) of an estimated $592 Billion (2012) and a GDP growth rate of 2.5 percent. South Africa’s GDP per capita is estimated at $11,600 (2012) (World Factbook). Prior to their hosting of the World Cup in 2010, the GDP growth rate was between negative 1.7 – 6.3 percent (FIG A).  Since hosting the country has enjoyed an average growth rate of 2.9 percent with it’s highest growth rate being 4.8 percent and it’s lowest being  0.9 percent (Trading Economics). While on the whole, the GDP has been rising in South Africa since it hosted the World Cup, the outcome from hosting was not as prosperous as the country would have liked. According to Fox Sports writer Joshua Howat Berger, “The government spent $4.81 billion on the extravaganza, an event officials say attracted 310,000 tourists and $532.94 million in foreign spending to the economy” (Berger). From a business standpoint, only 22 percent of clients surveyed by the Consulting firm KPMG felt their companies had benefited from the World Cup. The year prior, when the World Cup hype was gaining momentum, 45 percent of companies surveyed felt they would profit from the event. Berger reported, “South Africa's economic growth slowed in the periods covering the June-July World Cup. But without the spending boost from the tournament, the country's flagging growth would likely have been slower still, analysts say” (Berger). 

Despite the small boost the World Cup provided, infrastructure continues to be problematic.  Many complained that instead of spending governmental funds on stadiums, which probably will not be used to the full extent of their potential, the funds should have been used for internal infrastructure such as more housing and expanding public transit. The tourism in South Africa also has not been as prosperous as supporters of World Cup hosting anticipated. In an interview with Berger, Michael Tatalias, head of the Southern Africa Tourism Services Association, said, “[T]he World Cup had put South Africa on the tourism map. ‘People don't ask, 'Where is South Africa?' anymore. They now ask, 'What can we do in South Africa?' he said” (Berger). Now South Africa faces new issues on the tourism front due to hosting such an outreaching global event such as the World Cup. 

When discussing hosting mishaps, it would be disadvantageous not mention the trials faced by Greece in 2004 when discussing the possible outcomes and trials Brazil could face. A 2012 article by Mark Perryman explores life after the Olympics for Athens Greece, “[I]n the afterglow of the Athens Olympics of 2004 by then Olympics minister, Tessa Jowell: ‘This summer, we’ve seen the transforming effect of hosting the Olympics. Athens is a changed place: cleaner, brighter, easier to get around, vibrant and modern. In Athens, as with Barcelona in 1992, the Olympics was a catalyst for investment, and the Games themselves an opportunity to present the city and country in a new light’” (Perryman). 

However, as Greece and the world would later learn, the resurgence that the Olympics were supposed to provide never came to pass. As with South Africa, infrastructure continues to be a pang on both the visual and economic landscape for Greece. Twenty-one of the twenty-two stadiums and arenas built for the games became irrelevant. Buyers were non-existent and a once glorious homage to the original games became a desolate reminder of the debt the county was now faced with after the games. The facilities were underused and boarded up while Greece still owed an estimated $784 million at the start of the Beijing Games four years later (Perryman). However, despite the economic hardship Greece faced after the games, hosting the Olympics cannot and should not be considered the sole economic demise of the country. Greece should not be considered a flawless economic model as it defaulted on loans several times in the 1800s; however, Greece enjoyed 14 consecutive years of growth until 2008, years past its 2004 Olympic hosting and years before. Also note that Greece was not the only country to suffer from an economic downturn during the 2008-2009 years and afterward, many of the countries did not host the Olympic games, yet still had economic troubles; therefore hosting global events cannot be solely attributed to hosting the games (Molfetas & Pateraki). 

 While events like the World Cup and Olympics may have an impacted the economies of its host city/country, (whether lasting or not) it should be noted that these games are not sole indicators or players in a country’s economy, nor should they be viewed as such. It would also be damaging not to mention that while economic theory is extremely helpful in the planning and implementation of various policy measures, economic theory seldom perfectly predicts real economic outcomes.  It is difficult to say whether Keynesian theory of government stimulus will create growth in every instance. To better hypothesize how well a country will fare after hosting global sporting events, such as the World Cup and the Olympics, one can use models of previous hosts to gain a better understanding based on similar factors the country shares with a previous host. Thus based on the research cited, one may conclude that cities/countries with stable economies, such as Los Angeles/U.S. in 1984, will be only slightly economically affected by hosting global games, if at all. While cities that have weaker economies, such as South Africa (World Cup 2010) and Greece (Olympics 2004), will not fare as well and could suffer greater after the games end due to intricacies needed of governmental and economic means. Based on the comparison of Brazil to previous host countries (USA, Greece and South Africa), Brazil falls between the U.S. and Greece and South Africa. Brazil’s economy is not as strong as the U.S., but not as weak as Greece or South Africa. Therefore, while in the short-term Brazil will face infrastructure costs and the internal trauma of relocating some of its citizens, the long-term political benefits of “coming out” as a world economic player greatly outweigh the short-term costs. While Brazil is not economically as strong as the U.S. in reference to the 1984 Olympics, it is not as week as Greece or South Africa, therefore while it may not see the profits the U.S. enjoyed in 1984, the Brazilian economy will not suffer to the extent of Greece and South Africa. Thus the global events, World Cup and Olympics, should not be seen as a catalyst for economic growth, but rather as an indicator of a countries economic strength. 

(Figures A, B, C & D omitted for preview. Available via download)

Works Cited

Berger, Joshua. "Six Months After the Start of the FIFA 2010 World Cup." Fox Sports. N.p., n.d. Web. 23 Sept. 2013. <www.foxsports.com.au/football/six-months-after-the-start-of-the-2010-fifa-world-cup-south-africans-are-asking-was-it-worth-the-money/story-e6frf423-1225969315584#.UkEjB2Q9D9J>.

Chase, Chris. "Mass protests in Brazil ahead of World Cup, Olympics." For The Win. N.p., n.d. Web. 23 Sept. 2013. <http://ftw.usatoday.com/2013/06/brazil-world-cup-protests/>.

Mitchell, Daniel J. "The Impact of Government Spending on Economic Growth." Conservative Policy Research and Analysis. N.p., n.d. Web. 23 Sept. 2013. <http://www.heritage.org/research/reports/2005/03/the-impact-of-government-spending-on-economic-growth>.

Molfetas, Kostas and Anastasia Pateraki. “Annual National Accounts: Year 2011 (2nd Estimation).” Hellenic Statistical Authority (5 Oct. 2012). PDF file.  

"Olympic Games: Catalyst of Urban Change." Leisure Studies 17.3 (1998): 187-206. Taylor and Francis online. Web. 23 Sept. 2013.

Perryman, Mark. "Do the Olympics Boost the Economy? Studies Show the Impact is Likely Negative." The Daily Beast. N.p., n.d. Web. 23 Sept. 2013. <http://www.thedailybeast.com/articles/2012/07/30/do-the-olympics-boost-the-economy-studies-show-the-impact-is-likely-negative.html>.

"South Africa." CIA World Factbook. N.p., n.d. Web. 23 Sept. 2013. <https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html>.

"The Economic Impact of Brazil’s 2014 World Cup and 2016 Olympics." Tradingfloor.com. N.p., n.d. Web. 23 Sept. 2013. <http://www.tradingfloor.com/posts/the-economic-impact-of-brazils-2014-world-cup-and-2016-olympics-526315521>.

"U.S. Bureau of Labor Statistics." Databases, Tables & Calculators by Subject. N.p., n.d. Web. 23 Sept. 2013. <http://data.bls.gov/pdq/SurveyOutputServlet>.

"United States GDP Annual Growth Rate | Actual Data | Forecasts." TRADING ECONOMICS. N.p., n.d. Web. 23 Sept. 2013. <http://www.tradingeconomics.com/united-states/gdp-growth-annual>.