Is Hosting the World Cup an Economic Windfall?

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This year, the United States, Mexico, and Canada will host the World Cup to much fanfare.  Soccer enthusiasts are excited about the competition. They look forward to some thrilling games and the prospect of their country coming out on top.  Off the field, an economic issue bears examination: Does hosting the World Cup make financial sense?  Holy Cross Professor Victor Matheson has taken a hard-nosed look at the pros and cons of serving as the host country.  While Matheson acknowledges the benefits, he does not conclude that hosting is an obvious positive from an economic standpoint.  Naturally, Matheson cites some of the significant costs that accrue to the host country.  More interestingly, he describes how the benefits are often overstated for three key reasons:

1. The substitution effect:  For the local citizens attending World Cup games, the spending may not be "new" or "incremental" in any real sense. This spending may simply displace other leisure activities. If so, the country's economy does not grow as a result of the locals' spending on World Cup games, apparel, etc. 

2. The crowding out effect: The hoopla around the event may cause tourists who may otherwise visit the host country or host cities to avoid traveling to those locations.  Matheson cites the example of Orlando, Florida.  The city lost tourists who otherwise would have visited area theme parks, but avoided the area because of the soccer fans filling up area hotels, restaurants, and the like.  He cites a similar study that found that France did not gain international tourists during the 1998 World Cup. 

3. Leakages.  Matheson argues that FIFA collects much of the ticket revenue, and most of that money does not remain in the host country.  Moreover, most of the increased hotel profits typically do not remain in the local economy.  

Matheson concludes that these three effects cause the economic gains often to be far lower than those projected before the event takes place.  In fact, he writes, "The results generally show that the observed impact of the World Cup has been a fraction that touted by the event boosters, and frequently the observed impact has actually been negative."  

By describing these issues, I don't mean to put a damper on what should be a very exciting event.  However, the analysis put forth by Matheson should cause us to examine "economic impact" studies with a very critical eye.  That does not just hold for World Cup events.  The same type of critical evaluation should be applied to any of these types of studies, whether it be for hosting an Olympics, building a new sports stadium, or constructing a new concert venue.