FIFA's demands will saddle South Africa with outsized costs well after a new football champion is crowned
The 2010 World Cup, like its predecessors, will leave a lasting impression on the sporting world. Unbelievably talented athletes from around the world playing the 'beautiful game' at the highest level, thrilling overtime penalty shot shoot-outs, head butts and even quasi-miraculous events like Diego Maradona's infamous 'Hand of God' goal in 1986, gild sports fans' memories of past World Cups.
But what about the economic legacy of the World Cup? If past World Cups, and other mega sporting events like the Olympic Games, provide any guidance, then the economic legacy will fall well short of the memories provided on the football pitch. The Federation Internationale de Football Association (FIFA), the international governing body for football and sponsor of the World Cup, practically guarantees that the economic legacy of the 2010 World Cup will be less than glorious.
It starts with the system FIFA uses to award the World Cup to a host country. The World Cup, like the Olympic Games, is awarded through a competitive 'bidding' process run by FIFA where prospective hosts compete for the rights to host a future World Cup. The bids cost millions of dollars to produce, and the 'bidding' takes the form of promises of more and more lavish new stadiums to host the games, new luxury hotels for the use of FIFA officials and well-heeled fans and other amenities. Most of the promised spending is public funds. The bidding process, actually a rent extraction scheme designed to separate taxpayers in host countries from their tax dollars and to maximize the prestige of FIFA, would make Bernie Madoff green with envy. The competitive nature of the award process ensures that each potential host promises to provide as large a subsidy as possible for venue construction and renovation, and other amenities.
South Africa, a developing economy, has GDP per capita of about US$10,000 per year, 50 percent of its population living in poverty based on estimates from 2000 and a 2009 unemployment rate of 24 percent. The latest reports indicate that the government of South Africa spent 11.5 billion rand, or US$1.48 billion, on new football stadium construction and renovation to existing stadiums for the World Cup. Five new football stadiums were built to host World Cup matches, and five existing stadiums were renovated and enlarged. FIFA regulations require all World Cup facilities to be state of the art, with luxury boxes and premium seating. The capacity of the new stadiums built for the World Cup range from 40,000 to 64,000.
Attendance at matches in the ABSA Premiership, the top domestic professional football league in South Africa, averaged less then 8,000 per game in the 2009-10 season that ended in March. Only four of the 212 matches played drew more that 40,000 fans. For next season, South Africa will have five brand new state of the art football stadiums that seat an average of 50,400 spectators and five newly renovated stadiums that seat an average of 53,300; this stadium capacity is more than six times the average attendance at a top professional domestic football match. All the new stadiums will have luxury boxes and premium seating, clearly a high demand good in a country with GDP per capita of US$10,000. Annual operation and maintenance of a modern outdoor sports facility can cost US$10 million or more in the U.S., suggesting that the continuing cost of the new World Cup stadiums in South Africa could be quite large.
The 2010 World Cup will clearly leave other economic legacies. Hundreds of thousands of tourists will travel to South Africa to watch the matches and spend money in the local economy. For several weeks South Africa will be the center of world wide media attention. This media exposure will reach billions of people and some of them will decide to visit South Africa in the future. However, South Africa was already a major tourist destination before hosting the World Cup, so some of the potential current and future World Cup related economic benefits from tourism should be offset by the existing economic impact of tourism in the country.
The net economic benefit from hosting the World Cup for South Africa, in terms of current and future tourism impact, is unclear. What is clear is that after the matches are over, and the fans return home, South Africa will be saddled with 10 new or newly renovated football stadiums that are much too large for domestic demand and require a large amount of spending for upkeep and maintenance. This is not surprising news. In Beijing the iconic Birds Nest Stadium, site of many vivid memories from the 2008 Summer Olympic Games, currently stands vacant almost every day of the year, unused by Chinese sports teams because it is too big, and poorly suited, for domestic sporting events. In Japan and South Korea, co-hosts of the 2002 World Cup, a number of new stadiums built for that competition currently host professional football teams that draw a fraction of their huge capacities for football matches.
Don't look for the FIFA officials, who require--and get--these stadiums and then stick the locals with the bill, in those vacant premium seats. They have already moved on to their next rent extraction target: Brazil, host of the 2014 World Cup. New stadium construction will soon be underway.
Brad R. Humphreys is a professor in the department of economics at the University of Alberta, where he holds the chair in the economics of gaming.