A few days ago, President Vladimir Putin released a video welcoming football fans to Russia to witness the biggest sporting event in the world. Putin said that hosting the FIFA World Cup 2018 was a matter of “great joy and honour” for the nation. Turns out, it is mostly just that.
Pride is mostly what comes out for the economy of the host, according to a report by Germany’s Commerzbank. There’s barely any overall economic gain barring a short-lived spike going by the average five-year GDP growth – two years before and after the event – of the hosts.
“Hosting a World Cup is an increasingly onerous business with candidates having to meet ever more stringent standards,” Commerzbank said. “This significantly increases costs and there is little evidence to suggest that the host derives much, if any, net economic benefit, contrary to claims made ahead of the tournament.”
Russia is hosting its first ever FIFA World Cup that begins this week. The country, which also hosted the 2014 Winter Olympics, has budgeted spending about $11.6 billion to build or refurbish its 12 stadiums. According to Commerzbank, that’s thrice of what Brazil spent in the previous 2014 edition. “This figure is likely to rise, since it excludes certain infrastructural items that the organising committee believe would have gone ahead regardless.”
The World Cup comes at a time when Russia’s economy is undergoing a fragile recovery after two years of contraction due to economic sanctions and low oil prices. The country’s organising committee recently released a study estimating that the 2018 World Cup will have a combined impact of $15 billion on Russia’s GDP.
That’s a big number. But Commerzbank disagrees.
Apart from the possible prestige element associated with being host, it is difficult to make a strong economic case for holding the tournament.Commerzbank AG
In its analysis, the German bank mapped the annual GDP growth of host countries for a five year period – two years before and after the event. And if found that there are “no obvious economic benefits to hosting the tournament”.
World Cup and the Economy
It is not totally futile though. In the run up to the World Cup, nations hosting it witness a relative spike in the non-residential investment growth. That tails off in the year of the tournament and slows down subsequently after that.
World Cup And Investments
“Whatever the benefits to the winner, much of the evidence suggests that the economic benefits to the host are overblown,” Commerzbank said. It added, citing a 2006 study, that impulses in the host nation’s retail business, tourism and employment have a partly positive impact but they are “not sufficient to have had any overall economic significance”.
Even Moody’s Investors Services has said that Russia will only experience a “short-lived economic benefit” from hosting the event.
Winner Takes All
There was one more interesting finding: World Cup winning nations get a sentiment boost. Commerzbank measured quarterly GDP growth in the year of the tournament for 10 of the last 11 finals. And the GDP growth in victorious countries in the third quarter, the one that comes after the World Cup is over, has been more rapid than in the second quarter on eight occasions.
“There is also a school of thought suggesting that the tournament winner derives a benefit from the feel-good factor in the immediate aftermath of the tournament,” the report said. Is that a co-incidence? “Maybe-maybe not!”
(This story was first published on BloombergQuint.)