Economic Effects of Hosting the World Cup

R. Sanborn Brown

If Japan were to pull off a stunning series of upsets and win this summer's World Cup, the corresponding economic boost for the world's second largest economy would be some US$ 27 billion, reports the Dentsu Institute for Human Studies (DIHS). Ten plus years into recession, the prospect of the national team even surviving the first round against Belgium, Russia, and Tunisia has middle-aged salarymen, bureaucrats, and ministers—dyed-in-the-wool baseball fans all—salivating over the potential one-time deposit into the country's coffers.

Of all the many issues surrounding the World Cup, the finances are among the most complicated and, for the average fan, one of the least appealing sides of the quadrennial tournament that crowns the world champion of "the beautiful game." Moreover, as the business of sport has grown in recent years, bribery, vote-buying, exorbitant player salaries and transfer fees, and other attendant scandals have tainted both soccer and the Olympic games. This is a side of sport that many would rather not consider lest it detract from the thrill of the matches themselves.

Among politicians and policy-makers and soccer barons, though, it is a truism that the World Cup automatically results in a great windfall for the host nation(s). The overall economic effect of hosting the 2002 tournament for Japan is estimated to be $24.7 billion. Including training camp facility and new stadium construction, etc., Japan has thus far spent $4.3 billion in preparation for the World Cup. If the national team makes it as far as the best eight, DIHS calculates that overall consumption expenditures will total $636 million. In the short-term, then, it has been a tremendous boon to the local economy. Similarly, the Korean World Cup Organizing Committee (KOWOC) reckons that the net benefit to the local economy will be $8.3 billion; KOWOC is also expecting thirty-five thousand jobs being created as a result of co-hosting the World Cup. During the tournament, people go out to eat and drink more, there are home parties, people feel like spending—all of which will boost consumption in the month of June. A broader examination, though, casts doubt on the illusion of automatic growth and reveals that there are also negatives for both host country and for countries around the world.

In Brazil, for example, as a result of loss of worker concentration and stagnant production, it is estimated that millions of dollars are lost during the tournament. In other countries, workers take more time off or watch matches on television from their workplace. Also, though caterers do a brisk business, with many glued to the set restaurateurs actually fare badly.

A look at the economic effect on past host countries from a slightly longer-term perspective also highlights that all is not rosy (see chart below). The three most recent host countries—Italy, the United States, and France—have all experienced lower growth in the year following the World Cup. Even in the United States, which hosted a well-organized and financially successful Cup, there was no movement either on Wall Street or in the economy as a whole.

All of which, ironically, may have the aforementioned Japanese salarymen, bureaucrats, and ministers rooting against the home team: if Japan were to bow out of the tournament early, short-term gains would indeed be lower but the resulting economic hangover in the following year might seem that more mild. If the Japan does go out in first round, DHIS estimates total revenues would total $23.8 billion, or some $3.2 billion less than in the Japan-winning-it-all scenario.

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