Erasmus University Rotterdam
Erasmus School of Economics
Master Thesis Entrepreneurship and Strategy Economics
The Economic Impact of Hosting the 2010 FIFA World Cup by South Africa:
Is hosting the FIFA World Cup worth bribing for?
Supervisor: dr. T.L.P.R. Peeters
Student: Rinse Luidinga
Student number: 358596
Date: 19 August 2015
Abstract
Hosting the FIFA World Cup is considered to be a valuable investment by the countries that bid for the sport mega-event. The economic impact of hosting the event is considered to be positive. This thesis examines two economic aspects that are affected by hosting the 2010 FIFA World Cup by South Africa. The estimated models find increased tourism during as well as after the event. During the World Cup 203,949 additional tourists travelled to South Africa. The legacy effects of the World Cup estimate that 345,484 additional tourists travelled to South Africa post-event. However, the expenditures of these additional tourists will not accumulate to the large investment for the event. The Random Effects model of the effects of the 2010 FIFA World Cup on South Africa’s international trade show a significant increase of South Africa’s exports both during as well as after the event. South Africa’s imports increased significantly in the years following the event.
Table of contents
Introduction 2
Literature review 9
Data 21
Methodology 29
Results 30
Discussion 46
Executive Summary 48
Limitations and future research 49
References 50
Introduction
Hosting sport events is often considered to be a valuable investment, but the long-term effects of hosting such events are often neglected. This research is focused on the legacy effects of hosting the FIFA[1] World Cup, specifically the World Cup hosted by South Africa. Governments are eager to be appointed as host in the so-called sport mega-events. Besides the Olympics, the World Cup for football is categorized as such. The number of candidates for hosting the FIFA World Cups shows the interest of countries in being the organizer of the sport mega-event. The country will be the center of sporting fans attention for two months. The economic benefits associated with hosting the World Cup manifest primarily in increased tourism. A second effect of being the host could be increased international trade. But to what extent is hosting the World Cup economic viable? Is hosting the World Cup a “sure-win” or is it an expensive mistake? Is the event even worth bribing for?
Background
The first FIFA World Cup was held in 1930 and only received bids for hosting the events from the places where the sport was most popular: Europe and Latin America. It took forty years before countries from other places started competing for the hosting-gig. Japan was the one that tried to get the event in 1970, but had to leave the event to Mexico. Sixteen years later, the United States and Canada started bidding, but again it was Mexico that was appointed as the host. 1994 was the first time that a country (the United States) hosted the event other than countries from Europe or Latin America. Asia hosted event in 2002, when South Korea and Japan were appointed as host countries. After South Africa (the first African bid) came in second after the voting round in 2006, FIFA decided that the 2010 FIFA World Cup should be held in an African country (FIFA, 2004).
Africa is considered the poorest continent of the world, meaning that hosting a sport mega-event is far from achievable for many of its countries. The five countries that bid on hosting the event are therefore several of the richer countries in Africa: Egypt, Libya, Morocco, Tunisia and South Africa. Libya and Tunisia had to withdraw their bids after the FIFA made clear that co-hosting was not allowed. The FIFA Executive committee (24 members) voted for a hosting country on May 15th 2004. South Africa was granted the event with 14 votes over 10 votes for Morocco and zero votes for Egypt. Local hero, Nelson Mandela flew all the way to Zurich to witness the appointment ceremony and showed a widespread smile while FIFA president Joseph S. Blatter announced South Africa as 2010’s World Cup host. “We accept with humility and without arrogance,” Mandela had said (FIFA, 2004). This statement alone reveals the government’s attitude for hosting the event.
The first consideration that one would make when considering potential hosts for the FIFA World Cup is their ability of financing the event. South Africa had shown a steady growth of GDP the two years preceding the appointment of the World Cup in 2004 (see graph 1). The other competing candidates had lower GDP (estimated in US Dollars) compared to South Africa.
Graph 1: GDP (Current US$) of the three candidates of the 2010 FIFA World Cup
Their ability to finance the event would possibly make South Africa the most viable host for the event, but the FIFA Executive committee also assesses other aspects. This is where the reasons why South Africa is chosen as a host country gets a bit alarming. When looking at the report that FIFA put out on the considerations of their candidates, Morocco turns out to be at least as viable a candidate as South Africa (see table 1 on the next page) (FIFA, 2004). South Africa excels in its effort to build the stadiums and the factors of general country infrastructure, according to the FIFA inspection group. Notable is the fact that South Africa ranks lowest for important factors like Safety and Security, Ticket Policy and Budget. Morocco is the only candidate that has a sufficient budget for the event. However, it has the lowest number of potential stadiums. The only two aspects were Egypt fell short on compared to the other candidates are the number of stadiums and budget for hosting the World Cup. Remarkably, it is the only country that has a descent ticket policy, meaning that it does not need revision.
This report on the considerations for choosing the host country for the 2010 FIFA World Cup therefore cannot give conclusive arguments for why South Africa is chosen over Morocco. The question arises what gave South Africa the slight edge in the end. The public opinion tends to speculate about corruptive behavior around FIFA’s higher executives. The following section will address this issue.
Table 1: Formatted results of FIFA Inspection Group for the 2010 FIFA World Cup
South Africa / Morocco / EgyptCountry Commitment
Government Commitment / + / + + / +
Public Enthusiasm / + / +/- / +
Football
Stadiums / 13 / 9 / 10
- Ready
- Under renovation
- To be renovated
- Under Construction
- To be Build / 3
-
5
-
5 / -
-
3
2
4 / -
1
2
3
4
Stadiums not build if not appointed the World Cup / 1 (at least) / 3 / 2
Training facilities / + + / - / +
Standard of national football / + / + / ++
General Country Infrastructure
Transportation / + / +/- / +/-
Telecommunications / + / +/- / +/-
Hotels / + / + / +
Safety and security / - / + / +
Medical centers / + / - / +/-
Finance
Budget for the 2010 FIFA World Cup / - / + / -
Ticketing / - / - / +
Corruption and Bidding for FIFA World Cup
Regretfully, the bidding schemes of FIFA concerning the hosts of World Cups have been subject to corruption accusations. First the bidding round on the appointment of Qatar as host was accused of being corrupted by FIFA Executives receiving bribes. In 2015, South Africa was also accused of bribing FIFA to be 2010’s host. The research conducted in this thesis is focused on the economic impact of hosting the World Cup and not how the event got appointed. However, the subjects are intertwined on such a high level, that this section will address some of the accusations.
The US general-attorney, dedicated to the case of FIFA’s corruptions, claims that bribes were paid in order to influence the appointment of the 2010’s World Cup, according to the Financial Times (Scannell, Aglionby, Moore, & Garrahan, 2015). Former football executive Austin “Jack” Warner is the whistleblower on the scandal surrounding FIFA. “Not even death will stop the avalanche that is coming,” he has said (Schipani, Aglionby, & Moore, 2015). The estimated value of the bribe by the media is $ 10,000,000. South Africa is believed to have donated the money generously to support football in the Caribbean (Harding, 2015). The bribe is relatively small compared the billion dollar costs of the event, but for the sake of argument, the alleged payments will be taken into account when calculating the costs of the World Cup.
The only nice aspect of the accusation of FIFA’s corruption in appointing the FIFA World Cup host is that it underlines the fact that countries want to host a World Cup. The candidate countries are clearly convinced that hosting a WC will be beneficiary for their country. They believe that being the host of the World Cup will support their economic development. The following section will further explain the reasoning of host-countries on bidding for the mega-event.
Organizers’ reasons for hosting sport events
A large amount of countries bid for hosting a World Cup, but what are their reasons behind the decision to bid for the event. Bidding countries speak out their expectations on economic and social benefits regarding to being the host of a mega-sport event in the media. Meanwhile, the bidding process is often viewed as a competition amongst countries. Prestige is therefore one of the main motives. However, another trend is visible over the last decade. Developing countries are competing along with the developed countries. Apparently, hosting a sport event is experienced as a successful development strategy. This strategy can also be attributed as a motivation for South Africa, which is part of the BRICS (Brazil, Russia, India, China, South Africa) countries. These countries, which are characterized by their emerging economies, are especially present on the bidding processes of sport mega-events. After the 2010 FIFA World Cup in South Africa, Brazil has taken on the 2014 FIFA World Cup, as well as the 2016 Olympic Games. Russia hosted the Winter Olympics in 2014 and is appointed as the host for the FIFA World Cup 2018. India has yet to host a mega-event, but the country hosted the Commonwealth Games in 2010, which is considered as a major-event. China was granted the Olympics in 2008 and has won the bidding round for the 2022 Winter Olympics. The trend of emerging economies putting themselves in the spotlight of sport enthusiasts is clearly observable.
Another motive is not economic or social, but rather sport-related. The sports results of national teams can be poor. For instance, South Africa was ranked 38th in the FIFA World Ranking by the end of 2004 (FIFA, 2015). They did not qualify for the 2006 World Cup in Germany. This is unacceptable for a nation where football is one of the most popular sports. The situation for South Africa was even worse, because they also did not qualify for the event in 1998 and 2002. Hosting the World Cup ensures the national teams of competing and thus might be their only way into the event.
FIFA’s promised benefits of hosting the FIFA World Cup
FIFA’s perspective on the benefits of hosting the World Cup is mainly economic. They advertizes their FIFA World Cup as the most popular sporting event in the world. They advocate that all member associations have the potential for hosting any of FIFA’s World Cups[2]. FIFA promotes its events as a catalyst for new and improved facilities to support the development of national football. They ensure higher quality of development programs for the country’s elite game, talent identification and grassroots. Furthermore, FIFA is assuring the bid countries more cooperation with stakeholders and media, as well as an increase in civic pride (FIFA, 2015). Basically, FIFA is promoting economic benefits and social benefits. The last two benefits are even more far-fetched. FIFA will help break down the social barriers to participation and high performance of women and young people. Secondly, they will use successful players as role models to encourage other (emerging) football players and health (FIFA, 2015). FIFA is thus convinced that hosting one of their events only yields benefits for the organizer. They call winning the bid the ultimate goal. Interestingly, regarding this thesis is the following statement by FIFA, which catches FIFA ensuring economic benefits both during the event as in the long run. “The sustainable benefits generated for the host member association and country - well before, during and long after the event.”
Research Structure
There are papers estimating predictions for the South Africa World Cup, but there is not an extensive research base on post-event literature. The objective of this thesis is to give a conclusive outcome on what the economic impact for South Africa is by hosting the world’s biggest football event, the FIFA World Cup. What is the economic impact of hosting the 2010 FIFA World Cup for South Africa? More specifically, the research analyses whether South Africa has made a mistake or not in hosting the 2010 FIFA World Cup when looking at increased tourism and increases in international trade, that can be specifically contributed to the World Cup. The panel data enables a research based on individual regression for every country. Therefore, I have chosen to use a method described by Pesaran and Smith, which looks at the significance of the coefficients of all the different regressions (Pesaran & Smith, 1995). This method is used for the tourism models. Additionally, the research will cover the effect of hosting the World Cup on South Africa’s exports and imports. The export and import data is bilateral. These models are estimated using Random Effects models and Fixed Effects models. The most efficient model between these two estimation methods is chosen by conducting a Hausman Test. The Pesaran-Smith method could not be used for this analysis, because the bilateral exports and bilateral imports are measured annually. The dataset therefore does not have enough time periods for the Pesaran-Smith method to give accurate results. In both cases, the World Cup is analyzed by incorporating specific dummies to indicate the time period during the 2010 FIFA World Cup. Another dummy called legacy is constructed to capture the period after the World Cup, which gives an insight in the lasting effects of the World Cup.