World Cup could bring hundreds of millions in spending to U.S., but that’s not actually that great: an explainer

So yeah, that story I didn’t get to from Friday: It was in Sportico, the new “business of sports” publication (always take with a grain of salt anyone who covers “business of,” unless they also make a point of covering “labor of” and “consumer rights of”), and was about the economic impact of the World Cup. And it included a surprising (if you’re only dimly paying attention to economics) voice arguing that the World Cup packs more bang for its bucks than, say, the Super Bowl or Olympics:

Victor Matheson (professor of economics, Holy Cross) explained, “If you have [an] event that people will travel to, [there is] some potential impact (i.e. new spending in the city as a result of the event). But the impact is smaller than one might guess and way smaller than the leagues or other boosters try to tell the public.”

That’s not the case with the World Cup, though–even as FIFA controls nearly all commercial rights tied to the quadrennial tournament. “Because of the long nature of the event and the ability to accommodate lots of tourists, [a city] realistically could be looking at hundreds of millions in new spending due to foreign tourism during a World Cup,” Matheson said.

If you’re even only dimly paying attention to this website, you’ll recall Matheson as one of the foremost pooh-poohers of economic windfall claims: He’s appeared here in the past citing the economic impact of a baseball postseason as statistically indistinguishable from zero, noting that attendance at Broadway shows actually fell when the 2004 Republican National Convention was in town, and calling a plan to move the Olympics to Florida “batshit crazy.” (Matheson has a way with a quote. Also that plan was exceptionally batshit.) In the case of the World Cup, though, he’s willing to move the decimal point a couple of spaces to the right, and call hosting the event a windfall — though it’s still important to remember that the hundreds of millions of dollars would just be in economic impact, which Matheson himself memorably defined as: “Imagine an airplane landing at an airport and everyone gets out and gives each other a million bucks, then gets back on the plane. That’s $200 million in economic activity, but it’s not any benefit to the local economy.” What gives?

As Matheson emailed me when I asked about it, he’s done several studies on the World Cup (unsurprising, as he moonlights as a college soccer referee), including his most-cited paper, 2004’s “The Quest for the Cup: Assessing the Economic Impact of the World Cup,” which he co-wrote with Robert Baade of Lake Forest College. After running through all the reasons why sports impact predictions are often overstated — they assume all local spending by fans wouldn’t have happened without the sports event, they ignore crowding-out effects where sports tourists just take up hotel rooms that would have gone to regular tourists, etc. — Baade and Matheson found that during the 1994 World Cup in the U.S. “the average host city experienced a reduction in income of $712 million relative to predictions” of what they would have received without the Cup, though some cities fared better and some even worse. Among the apparent reasons:

  • Crowding-out effects from other tourists steering clear of town during Cup games, to avoid high hotel rates and “rowdy” soccer fans. And because matches aren’t held on consecutive days, people who are scared off likely disappear more than just the dates on which games are being played.
  • Residents may flee town as well during the Cup, or at least stay away from areas where games are being held, which could put a damper on downtown restaurant spending, say.
  • Increased interest from locals in watching the World Cup, once it being in town makes them realize soccer is a thing, could make them stay home to watch on TV if they don’t have tickets, which, cf. above.

So the World Cup is no great shakes either — what’s the deal with that “hundreds of millions in new spending,” then?

The answer is it’s not actually all that much money compared to what Cup boosters claim: One projection cited by Baade and Matheson had the 1994 Cup creating $4 billion in economic impact, which, just no. And even a few hundred million in economic impact likely translates into just a few tens of millions in actual city revenue, since only a thin slice of that spending is paid out in taxes. So a World Cup could be good if you own a restaurant across the street from the stadium, but it’s not going to make a huge difference in a city’s budget.

Which brings us to the main plus about the World Cup, according to Matheson: If enough stadiums are already in place that you don’t have to spend a ton of money to build new venues, then even a small windfall is free money, and nothing to turn up your nose at. That’s likely to be the case for the 2026 Cup — but wasn’t for, to pick one example, the 2014 Cup in Brazil, with predictably tragic results.

The lesson, then, is the same for the World Cup as for all sports megaevents: Don’t believe the hype about economic impact, but if you keep your costs low enough, you might see a modest bump in local revenue. That’s a less dramatic way of saying it than Sportico’s “World Cup’s Duration, International Draw Make Event Economically Worthwhile For Host Cities” —  cough bus parking lots cough — but it’s also less likely to result in excited city officials blowing billions of dollars in fits of exuberance.

Share this post:

14 comments on “World Cup could bring hundreds of millions in spending to U.S., but that’s not actually that great: an explainer

  1. Maybe Orlando winning the hosting rights to a few World Cup games might result in a decent enough windfall AND achieve its long-held goal of being a premier destination for tour…

    Lol sorry, I can’t finish the rest of that sentence with a straight face.

  2. Here is reality . What gets better ratings and more coverage in New York. World Cup or the Yankees? Answer of course is the Yankees. MLS gets even less discussion and viewers then the New Jersey Devils .

  3. Here is something I wonder about. To what extent does tourism lead to eventual permanent growth. Meaning if more people visit a city does that city in turn have an easier time getting companies and people to relocate there. When I was in my early 20s I got a call from a headhunter (this was the late 90s and headhunters literally cold called people to find candidates – sigh the good old days) looking for people who would move to Vermont. I had never been to Vermont and so I had no interest in even thinking about it. On the flip side I was a Browns fan from a young age despite not being from Cleveland and then I went out several times for Browns games and took a liking to the area so when a job opportunity came up I jumped on it. Now I know that’s a rare case but Vegas has seen a lot of growth in non-tourist businesses which one can reasonably assume wouldn’t have happened if Vegas didn’t have so many tourists visiting there for so many years. On the flip side you have New Orleans which remains one of the poorest cities in the country despite its tourism. So I am not sure but I was wondering if there was any research in this area?

    1. There have been a bunch of studies of whether per-capita income goes up more in cities with pro sports teams, going back to Baade’s 30-city study back in the 1980s — it in fact doesn’t go up, and you would think it would if there was a tourism knock-on effect.

      1. My question wasn’t just about sports. I am pretty sure this wouldn’t be a quantifiable study. I am just curious about migratory patterns in general and what drives the individual or corporate decisions. Like how does a city get on a company’s radar for location decisions. Like Amazon picked DC for his second headquarters essentially because he was already there a lot.

        1. Good roads, a skilled workforce, and good schools for the execs to send their kids to. That’s what I’ve seen in relocation surveys, anyway.

          1. Some of these Southern cities that have grown over the years don’t have great school systems. When UPS moved its headquarters from Greenwich, CT to Atlanta, Greenwich High was one of the top public high schools in the US. When I look at the lists of top school systems in the US, Massachusetts, Illinois, and a lot of other northern areas dominate the rankings but its the southern cities that are experiencing growth

    2. It’s a great question, Aqib. Certainly tourism (of any kind) can be a driver for growth. We likely all know one or two people who said “I came here for a visit/job interview/conference five years ago and thought I’ve got to find a way to move here permanently”.

      It does happen. I would just point out that the substitution effect still applies in these cases… if I hadn’t taken the job I took that brought me to my current location, someone else would have taken the job. Possibly a local, in which case that person would not have left town/become employed elsewhere, or possibly a different transplant from another community.

      Unless you are independently wealthy (no luck on that count…), moving somewhere just because you like the scenery or setting is not an option. There must be an economic reason to be there, in other words. And if that reason exists, whether or not a professional sports team or tourist attraction is present would be very much secondary in my view.

      On the flip side, prime destinations tend to see the independently wealthy flock in, driving up housing and other costs and leaving ordinary working people (including those who work in the service industries the wealthy very much need) unable to afford to live there any longer. If you find a beautiful destination city it will almost certainly have a housing crisis of some description (even in the so called bedroom communities surrounding).

      1. A friend of mine did study migratory patterns among young professionals and found many move before lining up a job and then find a job when they get wherever. You don’t have to be independently wealthy to decide you want to live somewhere, especially when you’re in the phase of life where you can couch surf for a bit. When you are more senior in your career you might have more issues in terms of being able to secure positions at your level but when you are at the entry/mid levels you can have those jobs anywhere. Like if you are in banking your can be a credit officer or a branch employee anywhere in North America, if you’re an Executive VP you pretty much have to be at a headquarters. I don’t know how old you are but I’m 45 and over the last 30 years I have seen some cities boom and others shrink. Atlanta/Charlotte/Austin etc have boomed the Rust Belt collapsed and even New England states have contracted. I’m wondering if there is some trend we can see other than weather

  4. Actually a few weeks ago, Quebec’s government said no to funding games of the World Cup in Montreal. Up to 3 qualifying round games for a few hundred millions to the FIFA. Not worth it. Especially since FIFA asks no other events (like Grand Prix or festivals) take place at the same time in the city.

  5. Hmmm.

    Holy Cross. Worcester, Massachusetts, right? Home to Polar Park. The most expensive Triple A stadium built to date, economic and other benefits not withstanding …..

    Speaking of Polar Park and now turned sports economist cheerleader Andrew Zimbalist, were Andy and Victor Matheson forced to self-isolate in the same home together during the pandemic? Wow, life comes at you fast when you’re mentioned in the same breath as Mr. Zimbalist.

    CSL and PMC, excuse me Sportico, sound like brothers in arms in the same industry. Neil, has Sportico asked you to be an article source for them? Given the Forbes July 8, 2020 article, Editor-in Chief Scot Soshnick stated, “That said -Sportico reporters don’t – and won’t stay in lanes because there are none. Whether it’s story ideas or sources, the incessant back-and-forth on our Slack channel is a testament to the collaborative over the individual. In the end, our community wins.”

    Hmmm. I wonder who Sportico’s community is?

    1. Pretty sure Andy lives way over in Northampton. Though if he has kids, it’s possible Victor has refereed one of their soccer matches.

      And yes, John Wall Street interviewed me once for a story, but it was in his pre-Sportico days, I believe.

    2. Slack channel directive, per Scott Soshnick.

      Avoid using these sports economists as sources: Nola Agha, Rick Eckstein, Brad Humphreys, Michael Leeds, Joel Maxcy, Roger Noll, Allen Sanderson, John Solow and Neil deMause (esp).

Leave a Comment

Your email address will not be published. Required fields are marked *

*
*

801,373 Spambots Blocked by Simple Comments