Economics of Soccer

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Hosting a mega-event has always been a privilege that most countries want, and in today’s world, soccer is one of the most popular sports, with millions of people watching it around the world. This makes FIFA one of the most prestigious names in the world, as well as the branding behind the mega sports event of the World Cup, and as a result, many countries aspire to host the FIFA World Cup, assuming that the event will be extremely lucrative. Because of this, much current research has questioned the worth behind World Cup, and the arguments include it is a commercial bonanza while others argue that it is a waste of money and therefore, hosting the tournament is not worth it. The recent responses sparked interest in scrutinizing the business behind FIFA, which is the international governing body of soccer in every continent, by the media, government officials as well as the fans. It has been highlighted that though FIFA World Cup is a philanthropic activity to many countries, especially the developing countries, the way the organization is handled is not clear, and there are traces corruption and embezzlement. One would easily question why the management of FIFA has attracted enormous attention, especially in the recent years, this is simply because of the rich history it holds, the value of the brand and the global impact that soccer has in people in lives of different people. Therefore, the aim of this paper is to understand the management of FIFA, how it affects the economy of the world through the big money that is spent in running FIFA as well as the economic impacts of hosting FIFA World Cup.

Literature Review

Understanding FIFA

Most of the existing literature researching about the economics of soccer majorly focused the analysis of soccer at club level, and major events that make up the FIFA organization such as the FIFA World Cup and Football Leagues such as the Premier League, Bundesliga, La Liga and Ligue 1 are never treated empirically. As stated on the thesis, this paper will mainly pay attention to the management of FIFA and its grand event of World Cup that often affects a particular country as well as global population.

Soccer is a multi-million global industry, and it is FIFA that presides over it all with World Cup being FIFA’s primary tournament. Over the recent decades, the attention of FIFA World has massively grown and this, in turn, has increased the revenues of FIFA by far both from the ticket sales and being an event that attracts hundreds of brands seeking global attention. In the cycle of World Cup from 2011 to 2014, FIFA generated approximately $5.72 billion from revenues, and 70% of this came from the sale of television and marketing rights to the tournament that took place in Brazil in 2014 (Avsar & Unal, p 320). Additionally, FIFA currently holds cash reserves that have been valued at $1.52 billion.

It is significant to understand that with such huge amount of money comes greater responsibility that involves making decisions that not only affects the body but the millions of people across the globe who are ardent followers of soccer. One of the most technical decisions that FIFA has to make now and then is who hosts the future World Cups. The reason for this is that they have to consider the fact that World Cup will draw substantial revenue for FIFA and affect the economy of the hosting country. Hosting the World can either have a positive economic impact in the country hosting the tournament or if not well administered it can negatively affect the economy of the country and it is because of this that the decision has to be seriously assessed. Before Brazil hosted the 2014 World Cup, 14 million jobs were created in the 2011-2014 World Cup cycle, and most of these jobs were in the hosting nation. Total attendance of the previous World Cup in Brazil attracted a total audience of 3,429,873 people from all over the world, and these not only had to pay for the tickets but also food, hotel, and travel accommodations and all these were injected into the economy of Brazil. Researchers have reported that the expected revenue that a country gains from hosting FIFA World Cup from the investments can amount to approximately $7.2 billion (Ashton et al, p 783). Given these numbers, it is to understand why countries strive to host the tournament and why there is scrutiny of the management of FIFA.

It is easy to see the power that has been granted to FIFA and the influence it has on the economy of various countries by giving them the right to host the World Cup, but it is also imperative to bear the knowledge of the influence of monetary owned by FIFA. Just like other international organizations such as the United Nations, FIFA has 209 members across the world and distributes funds to these members via grants. Every nation that is a member of FIFA must always receive an annual grant of $250,000 through Financial Assistance Program (FAP) and in a year that there is World Cup like this year like in 2018, each member nation receives an additional bonus of $500,000 from the profits associated with World Cup.

As seen in these figures, it is evident that FIFA is a multi-billion corporation that influences the economy of the world, especially during World Cup and has the power to create millions of job opportunities through its FIFA Goal Program and World Cup. Decisions made by FIFA affect millions of people in the world from the existing governments, football clubs, players and even the fans who ardently follow the sport and are willing to spend their money to be part of this society. It is, therefore, comes as no surprise that with all its power, every decision made by this corporation has to be thoroughly assessed as one wrong decision can cause tension to run in the global market of finance.

Economic Impacts of Hosting FIFA World Cup

Hosting a large event such as the FIFA World Cup promises the world not only the excitement of watching their favorite teams play against each other and the exposure that the hosting country gets from the media, it also holds a positive return on the money spent or invested in the event by FIFA and the hosting country. Hosting World Cup, therefore, is considered by many countries as an event that builds a nation, improves the infrastructure of the country, enhances the global country recognition, tourism promotion, job creation, and about repositioning the country. When all these are achieved, of which as history has shown it that it typically goes through, then the governments considers hosting World Cup as a victory.

Just by the way that nations battle to host FIFA World Cup is proof enough that the tournament itself is a great source of revenue for the countries. Referring to history of the previous earnings, the 2002 Japan and South Korea World Cup generated $9 billion, the 2006 Germany World Cup generated $12 billion and the South African World Cup generated $5 billion to the country and apart from that, the countries tourism was boosted by approximately 40% because of the international recognition (Allmers & Maenning, p 508). The government of these countries often tend to benefit more as the event promotes the economy of the country by creating more job opportunities, attracting foreign investment and boost tourism as well and these are both short term and long term economic impacts.

Before counting the profits of hosting this event, one of the things that FIFA often considers is the capability of a nation to raise funds that to be spent on enhancing the country and this includes security as well. In the case of the Brazilian World Cup, the government spent approximately $13 billion in financing the tournament, and this included $2 billion that was set aside for security purposes and this only means that it is not an event that not any country can host. On this positive side, developing countries that have the capability of raising such an amount of money often benefit from the event and even after the event from the expansion of amenities like airports, highways, and railways, and besides the increase in the number of investors in the country often help the country too.

Reports indicate that the national government of South Africa witnessed a positive economic impact in the year 2010 and this was both before the event and even after the event. World Cup contributed $509 million to the real GDP of 2010, and additionally, it generated about $769 million that benefited households and low-income families (Szymanski, p 229). In terms of labor, 130,000 job opportunities were created through the construction and maintenance of the stadia, infrastructure, and hospitality. Tourism is often one of the sectors that majorly benefit from hosting World Cup, and though most people may consider this as an economic impact that only lasts during the tournament, the recognition gained from hosting millions of people across the globe may influence the country even ten years after the tournament.

The mentioned economic effects though are debatable though in terms of short-term effects and long-term economic effects of FIFA World Cup.

Economists and governments have often held an optimistic perspective based on short-term impacts of hosting FIFA World Cup, by believing that the event will boost the tourism of the country as well as retailing and in turn, this will add revenue and employment to the countries hosting the event (Allmers & Maenning, p 502). Moreover, economists have asserted that World Cup improves the sales of breweries and manufacturers of the sports facility. In the recent years though more economists have mentioned that such short-term economic impacts are questionable, and they support this by stating that regular visitors and business persons that are not interested in the tournament will be crowded out by the millions of the fans (Hagn & Maening, p 16). Most of these people will hold onto the belief that restaurants and their favorite places will be crowded, the prices will as well increase, and therefore they may delay or cancel their visits to the hosting countries. It hence simply means that hosting World Cup will only alter the type of tourists in the country, but in the long run, it will not improve the traffic. That then means that even if the revenue brought in by tourism will remain active, the growth will either minimal or lower than the set expectations. Moreover, the spending from the tourists during the tournament brings in extra money to the hosting countries. Nevertheless, this should be understood from the fact that the domestic residents will switch their expenditure to match the demands of the time; however, it is only when the interests change that the total amount of money in the domestic market will change, and this is highly unlikely (Szymanski, p 231). Simply, this means that the revenue will be lower because the spending of the tourist will be small in comparison to the aggregate GDP. From this perspective, it can be asserted that the short-term economic impacts of hosting World Cup are not as much as expected.

Nevertheless, this does mean that there will be no positive long-term economic effect of hosting World Cup, but the benefits are reflected indirectly or on intangible factors. Once FIFA announces the country to host World Cup, most foreign investors evaluate the viability of their businesses in that country, both in short-term and long-term views, and any business that opens their branch in the country improves the economy of the country. The idea of general perception is an inspiration to additional investment, mainly from the companies that are sponsoring the event. Though most of the brands that host World Cup are international brands, it does not mean that they have established their branches in every country, or have been well marketed in every country. Therefore, a country hosting World Cup gives the different companies a better brand exposure as they get to interact with their markets at first and this boosts brand recognition and appreciation in the hosting country.

Conclusion

From this assessment, we can notice the power of FIFA in influencing the global economy. Soccer is a global sport that brings the world together, and World Cup is even a major event that unites different countries as people travel from different corners of the world to participate in the event. FIFA being the governing body of soccer influences attitudes and economy of various countries by the decisions that they make, and it is because of this that the management of FIFA demands close attention. Analyzing the different factors surrounding World Cup, it is evident to see that there are many positive long-term economic effects. As discussed these include, improved infrastructure, increased foreign investment, an enhanced international recognition that affects the tourism of the country and lastly increased employment opportunities. Just like the hosting countries benefit from hosting World Cup, FIFA as a body sees this event as one of their primary sources of income and therefore, they must be very careful on how they choose a country to host the tournament. Based on the improved numbers in revenue from World Cup is evidence that the management of FIFA has improved to ensure that countries benefit from the events governed and promoted by the body.

Works Cited

Allmers, Swantje, and Wolfgang Maennig. “Economic impacts of the FIFA Soccer World Cups in France 1998, Germany 2006, and outlook for South Africa 2010.” Eastern Economic Journal, vol. 35, no. 4, 2009, pp. 500–519., doi:10.1057/eej.2009.30.

Ashton, J. K., et al. “Economic impact of national sporting success: evidence from the London stock exchange.” Applied Economics Letters, vol. 10, no. 12, 2003, pp. 783–785., doi:10.1080/1350485032000126712.

Avsar, Veysel, and Umut Unal. “Trading Effects of the FIFA World Cup.” Kyklos, vol. 67, no. 3, Feb. 2014, pp. 315–329., doi:10.1111/kykl.12056.

Hagn, Florian, and Wolfgang Maennig. “Short-Term to Long-Term Employment Effects of the Football World Cup 1974 in Germany.” SSRN Electronic Journal, vol. 9, 2007, pp. 1–24., doi:10.2139/ssrn.1541927.

Szymanski, Stefan. “The Economic Impact of the World Cup.” Football Economics and Policy, 2010, pp. 226–235., doi:10.1057/9780230274266_11.

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