Special Interview: Cost–benefit analysis of hosting the World Cup, Olympics

Sports economist Andrew Zimbalist explains the economic impacts on countries that host mega sporting events

Published: Updated:

In the following interview, sports economist Andrew Zimbalist explains in detail the economic impacts on countries that host mega sporting events such as the World Cup and the Olympics.

Andrew Zimbalist
Andrew Zimbalist

Dr. Zimbalist received his B.A. from the University of Wisconsin, Madison in 1969 and his M.A. and Ph.D. from Harvard University in 1972 and 1974, respectively. He is a world-renowned authority in the field of sports economics and is known for performing objective and independent research. He has been a member of the Economics Department at Smith College since 1974 and has been a visiting professor at several distinguished universities around the world. Currently, he is the Robert A. Woods Professor of Economics at Smith College and a member of the Five College Graduate Faculty. His research focuses on the economic impacts of sports tourism, mega sporting events and the construction of sports infrastructure. Dr. Zimbalist has published twenty-two books and several dozen articles, primarily in the areas of comparative economic systems, economic development and sports economics. He serves as a member of the editorial board of several distinguished academic journals, and his articles and essays have appeared in many renowned publications, including the New York Times, the Washington Post, USA Today, and the Wall Street Journal. Dr. Zimbalist has testified before Congress and several government committees.

Ricardo Guerra: Sporting events such as the World Cup and the Olympics are touted as bringing in thousands of tourists, and if the visitors have positive experiences, the trend just continues well into the future. What does the research actually show happening to cities that have hosted these events?

Andrew Zimbalist: What happens frequently during the Olympics and the World Cup is that regular tourists, who would actually come in a year these sporting events were not taking place, keep away from the country. In fact, Olympics and World Cup tourists often displace and disrupt normal tourism patterns. Also, a significant number of local residents in many hosting cities leave in order not to deal with the hassle. For example, the number of outbound tourists from China in 2008 rose significantly. Many local residents and tourists in general don’t want to deal with traffic, congested areas, security-related issues, and higher prices. So it’s not uncommon for the total amount of tourism to actually decline during the Olympics and the World Cup. In general, if we look at recent examples, it’s hard to expect a significant net increase in the number of visitors to a country during the World Cup or the Olympics. The number of tourists who were in London for the Olympics during July and August of 2012, for example, was lower than it had been the previous year, and several other countries and cities have also had the total number of visitors decline during a sporting event year. There are some cases of a net addition to tourism, but it’s insignificant. The point is you don’t get much of a tourism kick.

Ricardo Guerra: When Atlanta hosted the Olympic Games in 1996, the city made some major changes to their regional transportation system, and they build the Olympic Village that currently is used as a dormitory for university students. The well-known Centennial Park also became a lasting legacy for the people of Atlanta. Does Brazil have any major examples of infrastructure projects that could potentially have a lasting legacy for its citizens long after these sporting events are over?

Andrew Zimbalist:
I am sure that some of the investments made in transportation, road development, and airport expansion will pay off—but only a small fraction of them! We’re talking here about spending somewhere in the neighborhood of $15 to $20 billion for each of those events, and that is a staggering amount of resources. The question really isn’t whether you get $15 billion of infrastructure improvements that are worthwhile in the long run, because I doubt that you will. The real question is, how much are you wasting in the course of spending that exorbitant amount? Why do you need to spend $40 billion across the World Cup and Olympic Games in order to get 15 billion in infrastructure improvements in a country that is plagued by resource shortages, pollution, poverty, and grotesque levels of inequality? Why are we wasting $10 to $15 billion in constructing sports infrastructure for these events that at the end of the day is not going to be productive or have any meaningful use for the majority of the population and for the country’s development? Why do you need to spend 15 to 20 billion for each of those events in order to get a public park or a boardwalk? Those are the key questions.

Ricardo Guerra:
In your opinion, what will be the economic legacy or outcome for Brazil in hosting these events?

Andrew Zimbalist: First of all, the general research on this question has indicated that it is very difficult to make these kinds of investments and to economically benefit from them. The one chance that you have to make them pay off is to plan properly, which means starting with a development plan for the hosting city or country that should take place irrespective of actually hosting the event. 1 the get-go is very important. This should be the starting point, and only then do you determine to what extent hosting the World Cup or the Olympics can complement and support that pre-existing plan. Most countries have not done that, and consequently they are doomed to fail. In fact, they don’t have a plan beforehand but want to accommodate these events at any cost and are willing to do almost anything that they’re told. As a result, they will be at the mercy of what the IOC and FIFA dictate to them when they are chosen to host. In such a case, a country ends up spending billions of dollars that are completely wasted and that may be of critical importance for countries that have economic constraints and pervasive social problems to begin with. I think Brazil is one more country to have fallen prey to this vicious type of relationship with those two very powerful entities.

Ricardo Guerra: Can you expand on the reasons why Brazil falls into this category?

Andrew Zimbalist: I am bewildered, for example, when you read about some of the plans for public transportation, such as the rapid bus route going from Ipanema to Barra. What is the purpose of this route? It is very clear that this route is transporting tourists from Ipanema Beach to the Olympic Village. With this example, it is evident than the main priority of this major project is to cater to the tourists who will be in the country for a very short time during that specific sports event. Consequently, it is a complete waste of money. Any major plan for the development of Brazilian citizens’ transportation needs over the long term is not a priority. I think that Brazil has many social problems that have not been attended to. People have become much more aware of the prevalent violence and repression that is taking place in several major cities in Brazil. They also have become much more aware of corruption and inefficiencies, and I don’t see how all these elements can create a positive image of the country in the international community. And on top of all these issues, there are strikes taking place and a robust popular movement protesting the lavish spending that has resulted from hosting these events. I am pessimistic that there is any chance that hosting these events will affect Brazil positively. The whole planning process was not executed in an effective manner, as evidenced by all the delays in various construction projects. There is this notion among BRICS countries that if you host these games you are going to confirm your status as a world power. In fact, that has not proved to be the case for any of the countries involved in hosting these mega sporting events, and it’s a rather silly and pathetic notion to begin with.

Ricardo Guerra: Governments hosting mega sporting events usually rely on specific institutions or other private research personnel to disseminate or propagate research that paints a rosy picture of the economic benefits that result from hosting events such as the World Cup and the Olympics. What is your opinion of these studies and the research generated by such entities?

Andrew Zimbalist: You already start with a flawed arrangement when the hosting agency is employing a consultancy company to do a study that does not have an objective foundation. In such cases, most of these studies are being lavishly paid for in order to come to a certain promotional or spin conclusion. As a result, it is very clear that hosting nations employ various personnel to conduct studies that come to unrealistic and optimistic conclusions regarding the economic outcomes of hosting an Olympics or a World Cup. There was even a case in London where an economist acquaintance of mine received a request for a proposal from the London organizing committee to do an economic impact study before the Olympics. The committee stated that they anticipated there was going to be a lot of public criticism about the economic spending on the Games and that they wanted to be able to respond to the criticism by showing what a good economic benefit the Games would be. In fact, this happens all over the place.

Ricardo Guerra: What are some of the methodological flaws that are employed by this research in order to paint a favorable picture?

Andrew Zimbalist: These researchers estimate a larger number of tourists than actually come, and they estimate that tourists spend more money than they actually do. Then they employ an unrealistically inflated multiplier. And they end up getting a greater economic impact as a result.

Protesters demonstrate against the public spending for the 2014 World Cup, in Rio de Janeiro June 15, 2014.  (Reuters)
Protesters demonstrate against the public spending for the 2014 World Cup, in Rio de Janeiro June 15, 2014. (Reuters)

Ricardo Guerra: What drives the objective research disseminated by economists like you?

Andrew Zimbalist: The driving force is trying to understand what actually happens rather than trying to promote a positive or negative result. We’re just trying to understand the dynamics of the situation. We are not getting paid by one side to reach any given conclusion.

Ricardo Guerra: Costly new stadiums have been built in cities such as Manaus, Cuiabá, and Brasília that have no major soccer tradition, or even teams in the first division or major fan bases, consequently raising concerns that they will become white elephants. Can you comment?

Andrew Zimbalist: Yes. I am aware that some of those cities don’t even have a team in the first or second division. I really don’t understand why someone would build a stadium with the capacity to sit 42,000 spectators in a city where there are no major soccer teams to begin with and that over the course of any given year will not even attract 1,000 or 2,000 spectators per match. Why are these modern stadiums being built with club seats, luxury boxes, abundant signage space and fancy locker rooms? There is no way that spending hundreds of millions of dollars on some of these stadiums makes any sense whatsoever when most of the time nobody will make use of them. The taxpayer will have to contend for several years with the cost of these projects and the operating costs involved in keeping these places running properly following the Olympics and the World Cup. And this money will never be recovered. I think this will be a problem that many cities such as Cuiabá, Manaus, Brasília, and others will have to contend with. I just scratch my head in bewilderment with all of this and wonder what planners were thinking when these projects began to come out of the ground.

Ricardo Guerra: What about the excessive costs involved in traveling in Brazil to more remote locations— how will that impact travel and tourism where games are being played?

Andrew Zimbalist: Traveling within Brazil is very expensive. I suspect that many of the international travelers are just going to come primarily to the southeastern part of the country, Rio and São Paulo. I don’t think they are going to travel around the country. Even if travelers did go to some of these places, it is not clear that it would help tourism in the long term. To a certain extent, sports tourists are a peculiar bunch who don’t really pay much attention to architectural or other cultural attractions but rather focus solely on their preferred sporting event. Building stadiums in some of these places was an ill-conceived effort. If they really had a sound plan for the World Cup and were interested in reducing costs, they should have focused on making improvements in already existing stadiums and stayed within the biggest sports markets of the country. Also, by confining the games within that specific region, travel would be more affordable and the climate surely more amenable to playing soccer.

Protesters demonstrate against the public spending for the 2014 World Cup, in Rio de Janeiro June 15, 2014.  (Reuters)
Protesters demonstrate against the public spending for the 2014 World Cup, in Rio de Janeiro June 15, 2014. (Reuters)

Ricardo Guerra: Who really gains from hosting these events?

Andrew Zimbalist:
I think that the construction companies and their allies are the main beneficiaries. Other elements benefiting from these mega events are some investment banks that float the bonds to finance these projects, and of course bureaucrats who handle many of the contracts.

Ricardo Guerra: What about the successful cases of the United States and Germany hosting the World Cup?

Andrew Zimbalist: In the case of Los Angeles, they were very frugal. They only had to build a very few facilities, and the director of the LA Olympics, Peter Ueberroth, got private companies to put up the money to build those facilities, so they did not have to use public money. Peter Ueberroth also introduced a new model for raising corporate money for sponsorships, which was very successful, and I think the combination of those factors meant that they were able to generate a small surplus, something like $215 million from the 1984 Games. And with the World Cup in Germany, there may have been a very small positive effect in certain areas that hosted the Cup, particularly with regard to employment, but not with regard to income. And that primarily was because they were using existing facilities and did not have to make any significant infrastructure investments.

Ricardo Guerra: W
hat about the Barcelona model of the Olympics, touted by many as an example of successful legacy benefits, and how such events are of economic benefit?

Andrew Zimbalist: The Olympics contributed somewhat to the development of Barcelona, but in no way can we say that contribution was significant or that the city’s renaissance rested solely with the hosting of that event. A series of other factors, such as Spain’s entrance into the European Union common market and the deregulation of the airline industry, also contributed to the city’s progress. It is also important to note that the economic growth of Barcelona was similar to that of other European cities during the period following the Olympics. As well, Barcelona already had some hidden jewels that had not been exploited for tourism but that nevertheless were ready with a little bit of effort. We should also examine certain historical facts about the city. Barcelona and the whole Catalonia area had largely been neglected under Franco, and the region was ready for some development following his death. Specifically, Barcelona was separated from the sea by an area comprising warehouses, factories, and the railroad, and among many initiatives of the major plan to change Barcelona that started in the late ’70s was the project to open it up to the sea. That plan pre-dated the Olympics. When the city won the right to host the Olympics, the planners put that event in the service of the pre-existing plan—so the Olympics were made to work for the city rather than the city working for the Olympics. Therefore, the dynamic of that relationship, characterized by the fact that Barcelona as a city already had a development plan years before it was chosen to host the Olympics, was of utmost importance to sound progress. In fact, very few hosting cities have a pre-existing development plan like the one displayed by Barcelona.

Ricardo Guerra: In one of your articles, you mention that Brazilian planners had given up on the idea of creating a new terminal at the international airport in São Paulo before the World Cup and that alternatively they would rely on temporary warehouse modules to accommodate additional travelers. You warned that such actions are exactly what hosting countries need to avoid. Could you expand on your opinion about this issue for our readers?

Andrew Zimbalist: The general point is that when you are spending hundreds of millions or billions of dollars to build infrastructure, you want it to be infrastructure that is useful for the country after the Olympics and the World Cup are over. If you are building temporary modules, by definition, they are not going to be useful to anybody after those events are over. They are going to be taken down. So you have the expense of putting them up. You have the expense of the material, you have the expense of taking them down, and at the end you have nothing. It’s a complete waste of resources and indicative of poor planning. You should plan ahead and have enough lead time to do things the right way and avoid placing yourself in a situation where you are building temporary modules. Transportation infrastructure that is being built should be useful for the next several decades.


Ricardo Guerra is a journalist and blogger. His articles have appeared in several international publications in five different languages, and his writing covers topics related to medicine, science, sports, politics, and current events.