Now that the football world cup is done and dusted, in today’s Finshots we decided to explore if hosting the world cup was a colossal waste of money for Qatar.
The Story
$200 billion.
That’s the kind of money Qatar is estimated to have spent in the run-up to the World Cup. They built massive expressways, subsea tunnels, state-of-the-art hospitals, swanky hotels, and upgraded their airports. The whole shebang!
For context, Russia spent just $16 billion in 2018. Brazil — about $20 billion in 2014. And South Africa sunk $7 billion in 2010 to get everything in order.
So the first question is — why on earth did Qatar spend over ten times the money other countries seem to have spent?
Well, it’s complicated. Because you see, even though there’s a lot of money in the World Cup, it doesn’t go to Qatar.
For instance, TV broadcasting rights were estimated at $2.64 billion. But that money didn’t go to Qatar. It went to FIFA. Okay, what about ticket sales? Well, that’s run by a company that’s 100% owned by FIFA, so Qatar doesn’t see a penny here also. Then there are the operational costs associated with running the tournament — about $1.7 billion. FIFA bears this cost but Qatar gets this money. However, the country has to set aside ~$450 million just for prizes. So this isn’t a money spinner either.
But what about the other not-so-obvious benefits of hosting the world cup? Like when tourists visit and spend money locally?
Well, Qatar expects the World Cup to give back $17 billion to its economy. That’s a decent sum of money. However, it pales in comparison to the $200 billion figure we quoted at the top.
So if this is it, why on earth did Qatar spend $200 billion to host the world cup?
Well, there’s a larger goal in mind here — Qatar’s grand national vision for 2030. During the 2008 financial crisis, Qatar woke up to the harsh realities of running an economy built on oil money. Some day they’re going to run out of reserves. Or perhaps countries will transition to cleaner fuels. So they needed to make the country more attractive. Take a leaf out of Saudi Arabia or UAE’s playbook and become a global destination. Spend big money on infrastructure and build out a future that’s more appealing to international visitors and businesses.
The hope is that an event of such mammoth proportions creates word of mouth and goodwill for years to come. It’s all a big fat marketing expense.
And unlike other hosts in the past, Qatar isn’t really depending on taxpayer money to fund all this. The country doesn’t tax salaried individuals and it’s relying on oil money to fund extravagant expenses. It doesn’t have to worry about people cribbing about wasted money either. And who knows? Maybe the gamble will pay off in the long run?
But wait…does that mean there's absolutely no utility in the present?
Well, the hotels and the added infrastructure will likely add some value for now. But there are a few expensive assets that definitely won't yield a lot of utility i.e. 7 brand-new stadiums built at a whopping cost of $6.5 billion.
Sure, Qataris love football. But if you’re thinking a Qatari football fan will be using the stadiums regularly, you’d be wrong. You see, Qatar has a primary football league called the Qatar Star League. And the most successful domestic team is Al-Sadd.
Would you care to guess what’s the average home crowd for their games in Doha?
1,500!!!
And the second-most popular team, Al-Rayyan, barely sees more than 1,000 people during its games. It’s kind of hard to imagine that these massive stadiums will find some use in such cases.
So the next best thing to do is tear down the stadiums. At least that way, they won’t have to keep shelling out money for maintaining it all.
Just look at South Africa which hosted the football world cup in 2010. One of the stadiums in Cape Town cost $250 million (if we assume today’s currency rates). But what happens after the glitz and glamour of the world cup ends? Someone still needs to maintain the stadium, no?
Well, between 2010 and 2020, Cape Town had to shell out over $2 million a year just to keep it running. You know — cut the grass, water it, ensure the lights work, and the seats don’t rust. But the income it made by holding sporting events was a measly $500,000.
Simply put, the stadium can’t generate enough revenue to pay for its maintenance. And the city had to dip into its coffers.
So stadiums are definitely a waste of money. But Qatar has plans to tear down atleast one stadium and there’s going to be some cost saving here. But the economics aside, there’s one final thing that we want to talk about here.
If a country’s governing body is reading this and wondering if they should bid for world cup hosting rights considering the economic waste, they’d probably say “No thanks.” But that may not be the most prudent thing to do.
Wait, what?
Well, we said ‘bid’. So here’s a little secret. A few economists looked at the numbers and found that if a country simply placed a bid for a tournament, it helped them nonetheless. They didn’t have to even win it. They didn’t have to lobby hard for it. The bid alone would get companies thinking, “Hey, this country is pretty serious about hosting a global tournament. Maybe this is going to become a global destination. Maybe we could set up shop here too.”
So yeah, the mantra is to bid for the world cup. But just don’t win the right to host it yeah?
Until then…
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