Five Things Brazil Should Know About World Cup Economics

The Winter Olympics have cost Russia over $50 billion - the highest amount spent by a host in the history of the Olympics. The reward for such spending is highly debatable. In fact, it’s downright controversial. For some, the reward is beyond economics – the investment is repaid in prestige and global recognition. For others, the reward should only be economical, and the positive spillover should last for decades.

Well, as it turns out, only part of that is true. Contrary to what most politicians say, the economic spillover of hosting a worldwide event often has a negative impact. And the sad part is, the mess left behind can last for decades – at least that part is true.

This year, the World Cup will be held in Brazil. Like the Olympics, the World Cup attracts the attention of billions around the world. The host nation welcomes 31 other teams from around the world in what is known as soccer’s (or football’s, depending on location) ultimate prize. The world’s most popular tournament consists of 64 matches sprawled throughout Brazil over the period of a month. The intense schedule doesn’t permit for much of a break for players, fans, or locals.

The early round of the tournament produces the most matches, 48, and requires the use of 12 venues. The Brazilian federal government, along with the support of 12 Brazilian cities, has already invested an average of $400 million per stadium – that’s not including nearby hotels, subway systems, or other basic civic infrastructures outside the stadium grounds.  Politicians are countering any harsh criticism by suggesting the infrastructure will have multiple-purposes, since Brazil was also awarded the 2016 Summer Olympics.

The host’s total estimated cost of hosting a World Cup is difficult to gauge. Corruption, running long term costs, and political trickery or collusion prevent analysts from firming up the exact number. Only time will tell if investing into the tournament and games actually provided a fiscal return. However, patience is one thing the locals do not have. Locals are already very skeptical about the government’s spending.

Some, specifically youth protest groups, have expressed dissatisfaction with the government over hosting the soccer tournament and Olympic Games altogether.  With both the World Cup and Olympics being hosted in the same nation only two years apart, the investment “should” provide the highest return in comparison to the host nations before it.

In light of the speculation and controversy, there are a few lessons that the Brazilian government can and should take away from these prestige projects. Here are the top five things Brazil should know before hosting the World Cup.

5 Stadiums Do Not Age Well

Twelve stadiums in twelve cities, 64 matches, and just one month to make it all happen. Then it’s all gone, and the locals are left to pick up the pieces and revert back to normal life. The good news is that life will normalize again - the bad news is that a giant concrete stadium will remain standing for decades to come. There are not many certainties in life, except at least one - concrete does not age well. It requires significant maintenance – specifically concrete structures that large.

Unlike other properties, such as homes, malls, and even skyscrapers, stadiums decrease heavily in value given their limited use and need for constant care. In addition to its inevitable decrepit future, poorly built stadiums deteriorate sooner rather than later. In Brazil’s case, the heightened sense of urgency to be ready might lead to costly undesirable shortcuts.

4 It’s Important To Recycle, Reuse, Repurpose

It’s easier said than done – but if Brazil can find more than one purpose for their newly built stadiums and nearby infrastructures, then maybe, just maybe it might all be worth it. Unfortunately that’s not necessarily the case.

Only six of the 12 World Cup stadiums are expected to be used for the Summer Olympics, which is leaving many locals irritated. Brazil’s rare opportunity to host the Summer Olympics just two years after the World Cup had many locals hopeful that they would get the best use of their new concrete structures. The truth is sadly telling a different story, as only half of what is getting built for the World Cup will see Olympic action. Stadiums in Rio, Salvador, Belo Horizonte, Brasília, and São Paulo will get a second look, while the 6 others will watch from the sideline.

And for those with no Olympic prospects, it may be difficult to find a permanent use that everyone agrees on. A proposal to turn the Amazonia stadium in Manaus into a prison has been ridiculed by some in government, who insist that it be used for cultural activities. The latter would likely be more difficult to fund, given the inconsistency of use when compared to the constant necessity of prisons.

3 It's A Good Idea To Cut Your Losses

Some business-savvy aficionados will argue that a key to making money is to cut losses before it is too late. When it comes to hosting a World Cup, history does tend to repeat itself. South African leaders have expressed disappointment in how little the World Cup helped their economy in 2010.

Events as large as the World Cup typically have significant running costs that are seldom calculated in advance of the event. These costs can lead to years of tax burden on locals that the private sector will not be obligated to help with. With every failure comes denial, and that is what many host nations should consider avoiding. Tear down the stadium, re-direct the road, and cut your losses. No need to drag it out any further.

2 Everyone Knows It's Not For The Economy

The public does not believe the World Cup will help the local economy – and they are right. No host nation has come forward to shed light on the positive economic spillover from hosting the World Cup. If it has not been recorded on paper, then it might as well have never happened and as of today, no political leader who has been left with the World Cup mess has come forward with positive words of support.

There are many reasons Brazil should host a World Cup, and none of them has to be the economy. Global recognition might be enough to convince many it is worth the financial burden. After all, political lobbying was what made the bid possible, not the overwhelming support of the Brazilian people.

1 FIFA Puts FIFA First

When host nations are awarded a World Cup, a new partnership is immediately formed. Once the excitement of the winning bid is over, it’s all business for partners FIFA and the host nation. At a glance, it’s a collaborative effort, but as time unfolds, FIFA’s rules become clearer – it’s FIFA’s final word on all things World Cup. That includes signage, merchandise, media access, timing, pre-game and post-game processes, and food vendors on stadium grounds.

Any conflict between FIFA and a host nation typically ends with a threat to pull the tournament, so generally speaking, host nations comply, and so they should – or else. Put simply, Brazil should know going in that there's only so much clout granted them as the host nation. Ultimately, FIFA gets the final say.

More in Economy