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America Can Reverse Streak of World Cup Financial Losses


America Can Reverse Streak of World Cup Financial Losses

June 15, 2018

This week, the US-led North American bid was selected by members of FIFA to host the 2026 World Cup.  With this victory, the ‘United’ bid of Canada, Mexico, and the United States now has an opportunity to reverse the growing trend of financial failures among nations who host the world’s most-watched sporting tournament.

On the surface, hosting the World Cup seems to be a prime opportunity for a nation to establish legitimacy and boost tourism prospects.  Countries spend millions vying for the rights to host, hoping their investments will pay off in the form of increased media attention and foreign spending in their local economies.

However, recent World Cups have been marred by financial losses, and the overwhelming majority of research has concluded that the net economic effect of hosting international sporting events is neutral or even negative.

While optimism that the American-run event will succeed is high among organizers and the public, anything involving FIFA is prone to corruption and disappointment.  In order to maximize the economic benefits of running the event, the United States should take steps to avoid disrupting normal economic activity.

First, emphasis should be put on increasing international travel and participation.  By partnering with Canada and Mexico, the demand for tickets is already likely to be high within the international community.  To best increase economic activity, marketing campaigns should be centered around attracting foreign visitors, as these fans are inclined to spend more on hotels and airfare than their domestic counterparts.

Second, decisions about vendor and business activity should be based on the local economy rather than FIFA directives.  Prior to the 2010 World Cup in South Africa, FIFA’s exclusive accommodations provider, Match Event Service, was allowed to reserve 80 percent of hotel rooms in popular areas, later raising the price by 1,000 percent without providing any benefit back to South Africa.  The United States should not allow this kind of takeover, as rent-capturing contracts favor the companies involved at the expense of cities and fans.

Third, the United States must hold FIFA and its member nations to their commitments of paying their fair share of tournament expenses.  The situation cannot turn into a repeat of Brazil’s 2014 World Cup where FIFA only footed $453 million of the $15 billion bill while still collecting $2.6 billion in profit.

Especially among developing nations, hosting a major event can put immense stress on a country’s infrastructure and ignite political tension.  In many cases, the emphasis on building specialized stadiums diverts resources away from development projects that would benefit communities in the long run.  Brazil’s largest soccer stadium from the 2014 World Cup sits empty today and is only used as a parking lot, highlighting a wasted investment of $900 million.

Despite these concerns, the North American contingent is betting on past successes and a well-established sports apparatus to bring in big revenues.  Unlike other hosts before it, this group does not have to build any new stadiums, saving billions of dollars.

Fortunately, the United States has outlined in its Bid Book a clear budget that dictates there will be no public financing except for increased security measures and funding for extra events on a city-by-city basis.  These layers of accountability should help to ensure American taxpayers are not on the hook for any lingering costs that FIFA might try to avoid paying.

If organizers stick to their guns and remain focused on long-term growth, the United States could reap the traditionally elusive benefits of capturing the world spotlight and establishing a model for countries to follow in the future.

According to estimates from The Boston Consulting Group, hosting the World Cup could generate a net benefit to the North American economies up to $4 billion.  Because this study took into account the effects on normal economic activity that would have occurred regardless, it is more realistic and reliable than past projections such as Russia’s claim that hosting the 2018 World Cup will bring in $30.8 billion.

Overall, the United States is well positioned to profit from the 2026 World Cup, as the two main sources of previous hosting failures, major stadium construction and excessive public financing, are not in play.  However, caution should be taken to avoid pitfalls that have plagued other countries.

Stephen Vukovits is a contributor to Economics 21.  Follow him on Twitter @svukovits.

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