The Price of the Emotional World Cup

Written by: Mark Eisa

The World Cup, no other prize has been coveted more in sports entertainment by each nation in the sport of soccer. The World Cup occurs every four years and has a wave of influence and impact on the hosting country’s economy. The hosting country of the World Cup enjoys the benefits of an increased spotlight from the world as it hosts an international tournament to see the champion of champions. However, to determine which country will host this prestigious event, several factors are taken into consideration in addition to the bid the interested countries make. These factors include the number of suitable stadiums as well as the potential for success and profit. Although there is a great joy in the hosting nation, there are severe economic issues that could arise in a lack of preparation and analysis.

For many countries the sport of soccer, or football as commonly said, is a religion, and one of those countries is Brazil. The nation of Brazil was thrilled to host this coveted event but it is a nation that exemplified the lack of proper financial analysis as well as planning their future appropriately. The country placed their emotional aspirations above their objective goals to a certain extent. Firstly, “the government of Brazil spent over $11 billion in preparation of the World Cup”[1]. Though an overjoyed nation was expected as they are hosting the thing they love most in the entire world, Brazil’s Favela’s experienced much unrest as the residents and police clashed. The reason for this is the significant debt that Brazil is facing and instead of using resources to alleviate some of this debt, the Government is incurring more debt to finance the World Cup. To illustrate, footballer-turned-congressman Romario says, “you see hospitals with no beds; you see hospitals with people on the floor, you see schools that don’t have lunch for kids; you see schools with no air-conditioning. You see buildings and schools with no accessibility for people who are handicapped.”[2] Furthermore, for remote areas, an increased expense was added in transportation of materials. For example, “Manaus, a very remote area, needed materials to be brought in by boat, shipped from the Atlantic from Portugal and up the Amazon River. This is a waste of money as the stadium built will only be used for 4 World Cup games.”[3] Moreover, there is no team in Manaus that could fill it, say in a seasonal match, essentially becoming a wasteland afterwards. Finally, there is no financial advantage in hosting the World Cup as Romario says, “FIFA, who invested nothing in Brazil to stage its signature event, will leave when it’s finished with considerable profits.”[4] It is actually FIFA, organizer of the World Cup, that makes money, and not the hosting country, as FIFA and its subsidiaries demand they be exempt from any tax levied at any level of Government. For example, “Brazil allowed FIFA to forego $250 million worth of taxes.”[5] Brazil, like many other countries, is an example that nations should recall when hosting the World Cup, making sure they are financially sufficient to host this lavish event.

Despite not receiving much international media coverage, many Brazilians protested the lavish costs of hosting FIFA's flagship event in Brazil.

Despite not receiving much international media coverage, many Brazilians protested the lavish costs of hosting FIFA’s flagship event in Brazil.

For the 2010 World Cup, Egypt made a bid to host the World Cup but received no votes and ultimately South Africa obtaining the most votes. To host the World Cup several factors need to be aligned and work together coherently to yield a successful event for FIFA. There were several reasons why Egypt could not host this tournament, mainly stemming from the political and economic risks at large during the time. Politically, Egypt had been struggling due to the reform that was taking place because of the need for change needed by the citizens. Between 2004 and 2011 “an economically liberal cabinet pursued an economic reform programme with far-reaching plans for change. Public opinion has turned against liberalisation, and post-Mubarak governments have demonstrated some populist tendencies.”[6] This has resulted in Egypt, as a republic, “undergoing a convoluted political transition, ostensibly designed to introduce a more democratic system.”[7] An unstable government has repercussions that deal with economy of the country as well as the foreseeable future of that country. Lack of continuity is a major factor any investor looks at to view a profitable return, which is the case for FIFA. Economically, Egypt was not on par with other countries, due to the crisis at the time, which did affect the flow of the economy. “Financial contagion was contained by limited direct exposure to structured products and low levels of financial integration with world financial markets.”[8] Moreover, the country’s finances remained heavily reliant in foreign aid and the tourism industry, making it vulnerable to external shocks. Egypt had a large debt to pay off, “weak growth prospects, and a persistently high fiscal deficit will continue to impair Egypt’s creditworthiness”[9]. In terms of future potential, Egypt still faces financial worries as “the Economist Intelligence Unit forecasts that the external debt stock will rise in 2015‑16, to an average of US$63.5 billion, but remain manageable at 17.5% of GDP. Ongoing security uncertainties pose additional downside risks to the sovereign rating”[10]. Lack of a fortified economy would prove to be a stringent liability for Egypt because of the several expenses needed building the stadiums, building transportation routes to the stadiums, and gathering construction materials.

The Logo of Egypt's failed bid to host the 2010 FIFA World Cup

The Logo of Egypt’s failed bid to host the 2010 FIFA World Cup

To summarize, the World Cup brings joy to the nation because in many ways, it is a celebration of the many cultures in our magnificent world. In the joy of celebration, many countries make the mistake of accepting this credit risk that comes with hosting this expensive event, without fully realizing the detrimental effects that could take place without a practical analysis. Brazil is an example of a country that may have taken on more than they could handle, as they sacrificed potential funding needed by its institutions in favour of, and liability, the FIFA World Cup. Egypt, in many regards, could not host this event because of the risks that it posed FIFA, as an investor. The political and economic risks were too great and may have harmed Egypt’s economy further if pursued. In looking to the future, Egypt’s political structure is starting to stabilize, and with a more stabilized political infrastructure, a more stable economy is on the rise.

[1] http://www.youtube.com/watch?v=DlJEt2KU33I

[2] http://bleacherreport.com/articles/1845944-how-much-has-hosting-the-world-cup-cost-brazil

[3] http://www.youtube.com/watch?v=DlJEt2KU33I

[4] http://bleacherreport.com/articles/1845944-how-much-has-hosting-the-world-cup-cost-brazil

[5] http://www.youtube.com/watch?v=DlJEt2KU33I

[6]http://country.eiu.com/article.aspx?articleid=512413635&Country=Egypt&topic=Summary&subtopic=Fact+sheet

[7]http://country.eiu.com/article.aspx?articleid=512413635&Country=Egypt&topic=Summary&subtopic=Fact+sheet

[8] https://www.imf.org/external/np/ms/2010/021610.htm

[9]http://country.eiu.com/article.aspx?articleid=652427849&Country=Egypt&topic=Risk&subtopic=Credit+risk&subsubtopic=Overview

[10]http://country.eiu.com/article.aspx?articleid=652427849&Country=Egypt&topic=Risk&subtopic=Credit+risk&subsubtopic=Overview

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s