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Friday, July 22, 2022

Why Hosting World Cup Soccer Games Is No Economic Score for Cities

Taxpayers aren’t made better off by the spending of the World Cup.

Image Credit Flickr-Daniel0685 | CC BY 2.0

Recently, news broke that Arrowhead Stadium will be one of the US cities hosting games of the FIFA Men’s World Cup tournament in 2026.

As an economist and someone who loves Kansas City, I was disappointed by the news.

While politicians and bureaucrats are quick to tout the benefits of massive hosted events such as the World Cup, economists are more pessimistic on the matter. Despite the highly visible claims of job creation and increasing spending, the costs of hosting events like this are often difficult to see and much larger. What’s worse is that often the supposed benefits never come to fruition.

For example, a study of the economic impact of the 2002 FIFA World Cup in Japan and South Korea found the countries experienced a $5.5-9.3 billion loss, despite estimates that it would generate a gain of $4 billion. So a study for the U.S. Soccer Federation by a Boston consulting group estimating a possible $620 million gain for Kansas City doesn’t excite me too much.

In his textbook “The Economics of Sports,” Michael Leeds summarizes the result of “mega-events” such as the World Cup, and the pattern is clear: Projections of revenue and job gains are consistently overly optimistic.

For example, the 2006 World Cup in Germany was predicted to create 60,000 new jobs. Actual net job creation? Zero.

Why is the World Cup so consistently disappointing? Believe it or not, a 19th century French economist gives us one convincing answer. In 1850, Frederic Bastiat wrote an essay which shed light on a common mistake known as the “broken window fallacy.” He did so by using a parable.

Imagine a neighborhood vandal breaks the window of a local store. The store owner must now hire a glassmaker for $100 to replace the window. While you may feel bad for the store owner, some might suggest there is a silver lining. The shop owner spends money which provides employment for the glassmaker, who uses his new money to buy other things. When the glassmaker uses his new income to buy things, he creates more jobs and more income for others. The economy improves. Or does it?

Bastiat points out this line of thinking is fallacious. Even though the glassmaker receives money, the shop owner loses wealth. Perhaps he was saving that wealth for a new suit. Or maybe now the bank he kept his money in has less in deposits to give out as loans.

It’s difficult to know how the $100 would have been used, and that’s precisely the problem. The benefit to the glassmaker is seen. The tailor who doesn’t get to sell a suit or the lender who doesn’t get a bank loan is hard to see.

The same problem exists with the World Cup. Cities must use resources obtained from taxpayers to win the bid for a World Cup. U.S. Soccer’s aforementioned report estimates the cost per city in the hundreds of millions, though Kansas City Mayor Quinton Lucas claims the current cost is $50 million dollars in renovations to Arrowhead Stadium. But if history is anything to go by, this could be a big underestimation.

What Kansas City taxpayers would have used their money for is not something we can easily know. But it’s easy to see how hotels, for example, may benefit from the World Cup.

But, like the shop owner, taxpayers aren’t made better off by the spending of the World Cup. This spending comes with a price tag. And as the studies show, this price tag is often ignored in pursuit of illusory benefits.

This commentary originally appeared in The Kansas City Star.

  • Peter Jacobsen is a Writing Fellow at the Foundation for Economic Education.