Journalists are supposed to be skeptical. Actually, all of us should be skeptical but not cynical. Big difference. A cynic dismisses ideas and arguments as a reflex. A skeptic checks them out.
So when the USA bids to host the World Cup, a bit of skepticism is healthy. It’s just due diligence. People have a right to ask how much the whole thing is going to cost.
University of Maryland-Baltimore County professor Dennis Coates wants to encourage people to ask these questions. He has produced a study claiming that the economic impact of a World Cup is either negligible or negative. Check the full PDF report or his op-eds. He is similarly skeptical of other sports development such as Baltimore ballpark Camden Yards.
Soccer fans may be naturally defensive upon hearing such things. We’re all prepared to spend some money on tickets if the World Cup doesn’t require a passport, long flight and awkward housing searches. So we should admit up front that we’re hardly disinterested parties. (Frankly, though, the BigSoccer discussion has been fairly reasonable.)
That said, from a purely logical perspective, I found myself with a lot of questions after reading the study. I asked Dr. Coates, and he was kind enough to respond.
I have a few comments in response, so what you’ll see here is my question in bold, his response in italic and my comments in plain text. It’s fair to say I find his argument unsatisfactory, but I shouldn’t have the last word — Dr. Coates is invited to leave comments here. And so are you.
On we go …
1. You restate several times in the paper that the Bid Committee’s economic figuring should be questioned because its members stand to gain from the World Cup. It’s necessary, of course, to point out the available numbers are not independent. But why belabor it? Is it unusual for any sort of enterprise to state its economic case? (As a philosophy major — many years ago, of course — I’m admittedly queasy with any attack on motive in a logical discussion.)
I don’t agree that the point is belabored, but that is a matter of opinion. I do think it is imperative that people understand that the claims of gains for the general populace are smoke and mirrors used to buttress what I believe is really just straightforward lobbying for a form of corporate welfare.
Fair enough, though I’d state again that it’s not unusual. They’re making a case for what they want to do, just like a job applicant would make a case for being hired. That’s not evil. And prospective host cities, who have the full economic report, are welcome to do their own analysis.
1A. In your listing of the Bid Committee Board of Directors are several people who would not benefit economically (Bill Clinton, Henry Kissinger, Spike Lee, Brad Pitt) and some people who, by your analysis, could incur costs to their constituents if the Bid Committee is successful (Michael Bloomberg, Arnold Schwarzenegger). What’s their motivation?
Some of them are soccer fans. Some of them have bought the malarky about increased income benefits to the local economy at no cost. Some of them both.
OK — so at least we’ve established that it’s not always financial gain that motivates the bidders.
2. On page 4, you say the economic gains do not benefit “average Americans.” Why would the U.S. Soccer Federation, which runs programs for millions of soccer players, not represent “average Americans”? And wouldn’t the stadium workers, security personnel and street-sweepers who would earn a payday through each game be “average Americans”?
The US Soccer Federation represents the interests of the US Soccer Federation. If the idea is to run soccer programs, then ask the American people for money to run soccer programs. In fact, argue that hosting the World Cup is a fund-raiser for such programs and outline the costs of fund-raising that way. But don’t argue that the World Cup is a cost free economic stimulus plan.
The goal of real economic analysis is to find the best use of resources. If using resources to host the World Cup generates $10 of benefit to the average person but using those same resources in an alternative way generates $40 of benefit to the average person, then by spending on the World Cup the average person is worse off by $30.
Of course, if the US Soccer Federation and FIFA capture all or part of that $30, they will rightly claim the event was profitable. Now suppose that 300 million people each lose $30 this way. The aggregate loss to Americans is about $9 billion but few people will really feel that loss. On the other hand, if FIFA and the Bid Committee capture even 10% of that loss they will have had a $900 million pay day.
It is important to remember that the workers you mention could also get a payday being employed in the activity that generates $30 of benefit in my example. Moreover, the money for those paydays comes from somewhere. If government pays it, then the rest of society is taxed extra to give out those paydays. The net gain to the society is therefore precisely zero. Every dollar paid to an event worker by government is a dollar of taxes collected from the rest of the population.
Three of these four paragraphs assume that some other activity could provide the same economic benefit more efficiently. I’m sure every American city would love to know what that activity is.
The argument reminds me of the MLS players’ lawsuit, in which the court took a dim view of the players’ argument that a Division I soccer league would have come into existence if MLS hadn’t done it.
3. Are there no intangible but real economic benefits to hosting an event like this, particularly at a time in which the United States’ image overseas is less than ideal?
There are intangible but real economic benefits. The question is whether those benefits are greater than the costs of acquiring them. My hope is that real investigation into that question occurs as a consequence of my report.
It might. But we should be careful not to let this report stand as the entire investigation. I don’t think Dr. Coates wants that, but I wonder if the media will give this such a careful read or follow up.
4. Is it inconsistent to argue on one hand that the World Cup won’t actually bring in $5 billion, then argue that $5 billion really isn’t that much money? And if the Cup were to lose $5 billion, for which I’ve seen no evidence, wouldn’t that also be negligible, particularly given the intangible benefits (basically, global marketing for your country) mentioned in Question 3?
It isn’t inconsistent at all to say the number is wrong but that even if it were correct that there are questions about whether it would cost more than that amount to put on the event. Be sure you don’t confuse FIFA and organizing committee profits with gains or losses to the general population. The event can make FIFA lots of money, and it surely will since FIFA gets all the revenues and pays very little of the costs, while still losing money for the American public.
Again, we don’t know what the true costs are. We know from numerous studies by independent researchers that the World Cup and other large events don’t produce the huge gains the event supporters advertise in their press releases. If we knew what the real costs were we could begin to compare those to estimates of the real benefits. So far, that has not been done, but it seems to me the burden of proof should fall on those people asking for our support for their project. And that proof should be independently verifiable and publicly available.
We’re going to get to these independent studies.
5. You cite studies that claim little to no net gain in tourism in a few cases. But given simple principles of supply and demand (and what we’ve heard from South Africa), wouldn’t hotels be more expensive during the World Cup? Wouldn’t the increase in demand create more revenue for hotels? Also, if there’s no net gain in tourism, then why would locals be displaced during the World Cup and not at other times of the year? (If they’re renting out their houses, as we know people do during the Olympics, wouldn’t that be more revenue flowing into the economy?)
The evidence is that hotels are more expensive. This fact has been documented for Super Bowls and Olympics and was widely known by sports economists long before the South Africa World Cup. But hotels aren’t generally any fuller. So owners of hotels get some extra revenue, perhaps a great deal. Are you suggesting that the US host the World Cup to give more money to the Hiltons?
The evidence is that there are few extra tourists because of the World Cup. That doesn’t mean the distribution of tourists over the year stays the same. Maennig found for Germany 2006 that there was an increase in tourism during June and July, during the event, but that tourism to Germany during April, May, and August was lower than usual. The total tourism for 2006 was roughly the same as would have been predicted for the year even without the World Cup.
If I rent my house to someone during the Olympics, I surely will collect some revenue. Of course, I still have to live somewhere, and I may even have to pay rent for a room in a hotel out of town or for a cottage in the mountains or at the beach. Doing so takes some or all of that rental revenue I got from letting my house to an Olympic visitor and passes it on to someone outside my community. Maennig’s results for Germany indicated that there was substantial out bound tourism by Germans during the World Cup.
As with the “average Americans” argument above, the comment here on giving money to “the Hiltons” reads like distasteful class warfare to me. Even people with a healthy skepticism toward “trickle-down” economic theory would have to concede that some of the money will go to people other than Paris’ parents.
As for the house — if it costs me more to leave the house than it does for me to stay, I’ll probably stay. And if I break even, well, the money that I earned from the rental subsidized a nice little vacation for me. That doesn’t mean the money disappeared — no moreso than if all the stadium workers take their paychecks from a World Cup game and buy new iPods.
6. Some parts of your study seem to raise straw-man arguments. Does any mega-event bid claim to have an ongoing effect on employment?
Basically they all do by implication. They rarely are clear that all these jobs will be for a few days out of the year. It sounds far less impressive to say 100,000 jobs in which people are employed for a day than it does to say 100,000 jobs.
I’d restate: Does anyone really think jobs pegged to a major event will outlive the event?
Here’s where it gets interesting.
7. Baade and Matheson used analysis of personal income in World Cup host cities to define how much the World Cup “lost.” But if the World Cup has a negligible impact on the economy at large (0.07% of GDP, by your earlier number), how can the World Cup be the sole factor in lost personal income?
The Baade and Matheson methodology was to predict the income in host cities using standard statistical techniques and to compare that to the actual income in those communities in the year of the World Cup. Surely other things happened, but there is no reason to believe that the same unaccounted for events in LA, for example, happened in Washington and Boston. Those unknown influences are have no impact once they are averaged across all the cities. The one obvious thing that was common to the cities in the Baade and Matheson analysis was hosting the World Cup.
This is the heart of the study, claiming that billions were lost rather than gained. And it’s the part I find most problematic.
LA, Washington and Boston have plenty of other things in common. They’re American cities whose economy is intrinsically tied to the American economy, which was in recovery mode in 1994. (Not fast enough to save the Democrats in Congress.)
But honestly — the revenue from the World Cup is negligible, but the Cup is solely responsible for billions of dollars of lost personal income?
That’s not enough evidence. We need to see where the money went. It didn’t go to white-elephant venues (a problem with the Olympics), and security costs couldn’t have accounted for all of it. Why would a city’s economy be so ruined by simply hosting a couple of soccer games, getting a couple more days of use from existing infrastructure?
8. “The Bid Committee goal is for the citizens of the US to pay for a vast marketing campaign to enhance the profitability of many committee members’ investments in the soccer business.” How are the citizens of the US, other than the Bid Committee itself, paying for this marketing campaign?
If the income of Americans is lower as a consequence of the US hosting the World Cup, then the citizens paid for the event indirectly.
Which, again, is a point for which the evidence is questionable.
9. Page 19-20: Why would cities be forced to pay money to host soccer teams for training? What prevents the cities from saying no?
You would have to ask that question of the cities that felt they must pay. I suspect it is all the intangible benefits they believe they are getting. It would be helpful to all cities to first get a good handle on what those intangible benefits might be worth to them before they agree to host some team.
If you haven’t read the study, here’s the argument: A few cities paid considerable sums for the honor of having, say, Brazil’s national team training there.
On a city-by-city basis, it’s valid to ask whether your locality should be spending that money. But this isn’t a necessary consequence. If no city offers to pay Brazil to use its fields, Brazil can’t extort that money somehow. Brazil will just have to rent a field like anyone else.
10. Is it fair to call on the experiences of London, which must construct many new venues, with the costs that will be incurred by holding a World Cup in existing venues, many of them already built with the idea of hosting world-class soccer games?
The London Olympic organizers have expressed regrets about taking on the task of hosting the Olympics. They made the decision to seek to host the games despite the fact that lots of economists told them they should be wary of the costs of doing so and that the benefits would likely be smaller than they were being told. I think it is fair to use that experience as a cautionary tale. But note that I also call upon the experience of Germany in 2006 and the US in 1994, and report on evidence that those events were not the source of great economic gains in income and employment.
The US has already built the stadiums in which the games would be played, and the same was true in 1994. The fact that independent analysis suggests the US economy suffered in terms of lost income as a consequence of hosting th1994 World Cup even when no stadiums had to be built should raise concerns about hosting another event in similar circumstances. Moreover, the facts that the stadiums are built, and the transportation infrastructure is in place, and that each potential host city has world class medical facilities all means that the US is an especially attractive location for the event. In those circumstances, I think the American people should get more out of hosting the World Cup than vague promises of economic impact and intangible benefits whose value is unknown.
We’re back to assuming that the analysis of lost income is true.
Congratulations for reading this far. Any comments?