Preparing the World Cup in Portugal is not a profitable endeavor

Portugal, along with Spain and Morocco, will host the final stage of the World Cup in 2030. History shows that hosting a tournament usually turns out to be a bad business for the organizer. Have we learned from Euro 2004?

In November of last year, the magazine "The Economist" asked the following question: "Is the World Cup a big waste of money?" For Portugal, one of the hosts of the2030 World Cup along with Spain and Morocco, the question posed by the British magazine deserves collective discussion. The expenses for building some stadiums during Euro2004 increased by200% compared to initial estimates, and some of them are now "white elephants." "As an investment, mega sporting events are almost always a failure," concludes "The Economist." Organizing the World Cup is far from a profitable business. This is shown by the data from the study "Structural Deficit of the Olympics and World Cups" conducted by Martin Muller, David Gogishvili, and Sven Daniel Wolf from the Department of Geography and Sustainable Development at the University of Lausanne in Switzerland, based on which the British magazine wrote its article. Since1966, only one tournament has generated more income than expenses: the2018 World Cup in Russia could claim the title of the only World Cup with a positive net balance of around $240 million. On the other hand, excluding the lavish Qatari World Cup, which after significant government investments will be considered the most expensive tournament in history, the2002 World Cup in Japan and South Korea incurred the biggest loss: $4.8 billion. These calculations factored in the costs and revenues directly related to the tournament, without considering other aspects usually associated with mega-events, such as the impact on tourism and international reputation, environmental footprint, and investments in public infrastructure like subways or city facilities - aspects that will be examined in a new project that this group of researchers will be working on starting in February, analyzing the economic, social, and ecological sustainability of over20 major sports events since1990. Thus, the expenses included construction and renovation costs of stadiums, as well as those directly related to the organization itself. Revenues included ticket sales, commercial agreements related to sponsorship and broadcasting. Revenues gradually increased with each tournament, but rarely reached a level sufficient to cover the tournament's expenses. The2002 World Cup in Japan and South Korea cost over seven billion dollars (the most expensive until Qatar2022), while revenues amounted to only $2.4 billion. In the case of Russia2018, tournament revenues reached $5.2 billion and were enough to cover the five billion expenses. Have we learned from Euro2004? According to David Gogishvili, one of the study's authors, the greatest risk for the country hosting the final stage of the World Cup is primarily related to stadium construction and their cost. "Mega-events are unfortunately known for significantly exceeding budgets, often due to the construction of sports facilities. In many cases, expenses increased by100% or200%," the researcher says. He does not directly mention Euro2004, organized by Portugal, but could have. The audit report from the State Audit Office in2005 showed that expenses for stadiums in Braga, Guimaraes, Aveiro, Coimbra, Leiria, and Algarve exceeded initial estimates by230% and cost the state over $320 million. Dragons', Bessa's, Alvalade's, and Luz's stadiums had more than $450 million spent on Euro2004, not including expenses for accessibility and parking in surrounding areas. If all ten stadiums were well-used during the tournament, today only half of them regularly host top-level matches, and only a few are fully filled on game days. The rest are forgotten. "If you don't need a65,000-seat stadium, don't increase the capacity of your stadiums and maintain what's already been done.

Allocation of risks and revenues

So far, only one World Cup has had a positive financial outcome, while most have proved to be almost a "minor tragedy" for the countries hosting the event. If the 2002 World Cups in Japan and South Korea and the 2010 World Cup in South Africa are not considered "major failures", then only by a small margin. "In general, one of the main reasons why World Cups don't make a profit for the organizer is the way the revenue is distributed," David Gogishvili points out. "While FIFA may insist and campaign for fair play on the field, it doesn't seem to care that in the current game of mega-events the cards are heavily in its favor," he believes. Since most of the revenue is generated by selling the rights to televise matches, it means that most of the World Cup revenue goes into the pockets of FIFA, which is the rights holder of those rights, while the organizers take the risks. "The organizing countries could push for a change in the way revenues are distributed.... They should lobby for a fairer distribution of revenues and risks," the researcher suggests.

Risk and cost allocation for the 2030 World Cup

In some ways, the risk and cost sharing for the 2030 World Cup is already in place, according to David Gogishvili. For the first time, the tournament will be played on three continents, in a new model whose effectiveness has yet to be proven, but: South America will host the first matches, while the rest of the championship will be held in Europe (Portugal and Spain) and Africa (Morocco). "Co-hosting the World Cup helps to keep its costs down. But I think the strong soccer culture of the countries involved minimizes the risk of a failed business," says David Gogishvili, pointing out that the Real Madrid and Barcelona stadiums are already being renovated before assigning the final stage to the Spaniards. Nevertheless, it is important to remember that ultimately "soccer will not save the economy," as Portugal's economy minister Antonio Costa Silva stated. "It is important to host events that bring financial and other benefits (if any), but they should not be seen as the last solution to solve economic problems or achieve a country's economic goals," says David Gogishvili. "Potential hosts should invest in an intervention if they realize that it can be used to achieve their goals, not the other way around, as is often the case," the researcher concludes.