Record World Cup costs put Qatar in losing game

Secretary-General Hassan Al-Thawadi (3rd L) of Qatar's Supreme Committee for Delivery and Legacy, the nation's 2022 World Cup organising committee, speaks during a news conference to announce the start of work on the Al-Khor Stadium in Al-Khor June 21, 2014.

Secretary-General Hassan Al-Thawadi (3rd L) of Qatar’s Supreme Committee for Delivery and Legacy, the nation’s 2022 World Cup organising committee, speaks during a news conference to announce the start of work on the Al-Khor Stadium in Al-Khor June 21, 2014.

They call football the beautiful game – but hosting the World Cup is not exactly a pretty prospect when it comes to a nation’s economy.

Brazil stumped up more than $11.5 billion to host this year’s FIFA tournament, with some estimates putting the figure closer to $14 billion.

But the country’s economy – just like its national team – has seen only limited success. Brazil will get a maximum uptick in gross domestic product of just 0.2 percentage points in 2014 – if it is lucky – but this will be cancelled out by greater inflation, according to credit insurance firm Euler Hermes.

When it comes to the 2022 World Cup in Qatar, the numbers are in a completely different league.

The cost of building stadiums and hotels in the tiny Gulf state is forecast at $16 billion. But due to a relative lack of facilities, the additional infrastructure required could push total costs to an astonishing $200 billion. That’s 50 times what South Africa spent in preparing to host the 2010 tournament, and 10 times what Russia has earmarked for 2018.

‘Loss-making venture’

Needless to say, Qatar has very little chance of turning a profit in its controversial plan to host the 2022 World Cup, according to commentators.

James Dorsey, author of a blog and related book entitled The Turbulent World of Middle East Soccer, says making money is just a “secondary driver” for Qatar.

“It’s not about economic viability for Qatar,” he said. “The 2022 World Cup is likely to [be] in narrow commercial terms a loss-making venture for Qatar, but then the primary gains it is seeking are primarily non-commercial.” The organizing committee of the Qatar World Cup did not respond to requests for comment.

Qatar can certainly afford to spend more than recent World Cup hosts. With the average income topping $100,000, the Gulf state ranks as the world’s richest country per capita.

“Qatar as a rich country can get over an investment like the World Cup,” said German sports consultant Dr Peter Rohlmann of PR Marketing. “The huge economical and financial power of Qatar cannot be compared to countries like Brazil or South Africa.”

With money not an object, Qatar has other aims in hosting the competition. International relations is the key motivation for hosting the tournament, Dorsey said. “Qatar’s sponsorship is not primarily about economics, it’s about soft power as a defense and security strategy,” he said.

Broader PR and tourism goals may also play a part, according to Rohlmann. “Awareness and reputation to the global audience and may be a little push to the tourism industry,” he said.

Megaprojects

Yet while Qatar’s bill for hosting the World Cup looks almost otherworldly, the breakdown of costs points to its wider aims of economic diversification.

Early estimates of the total spending stood at about $65 billion, but according to Deloitte the total bill in preparing for the World Cup could reach $200 billion.

Yet just a fraction of this is for direct costs relating to the World Cup, with the majority being allocated to projects that may go ahead independently of the football competition.

Qatar’s World Cup bid cited several ‘megaprojects’ including the construction of transport routes and entire cities, many of which will probably end up be built regardless of whether Qatar actually hosts the competition.

“The World Cup… sets deadlines for the completion of infrastructure much of which was on the books irrespective of the awarding of the World Cup,” said Dorsey.

Some have called for Qatar to be stripped of the right to host the World Cup, due to corruption allegations surrounding its bid and the poor working conditions for workers.

The corruption allegations center on the Qatari former member of FIFA’s executive committee, Mohamed bin Hammam, who allegedly operated a slush fund to make payments in exchange for votes for his country. Qatar’s World Cup organizing committee has denied any wrongdoing.

According to Jean-Michel Saliba of Bank of America Merrill Lynch, the impact of Qatar losing the World Cup would amount to about $16 billion – the amount earmarked for stadiums and hotels – and have “negative equity implications.”

The broader, much more expensive pipeline of infrastructure projects “could face delays” if Qatar loses the rights to host the competition, but will probably still happen, Saliba added.

“This pipeline would likely lose execution focus and face potential delays, in case Qatar is stripped from hosting the World Cup. A breakdown of the ongoing and planned projects nevertheless suggests the pipeline would eventually proceed forward in some shape or form,” Saliba wrote in a research note.

Such megaprojects include the massive Lusail City development, valued at $45 billion, and rail network worth $15 billion, as well as a metro system scheduled for delivery after the World Cup.

Lessons from Brazil

With such vast sums of money at stake, Qatar is looking to Brazil for lessons. The World Cup organizing committee, which goes by the rather grandiose name ‘Supreme Committee for Delivery and Legacy’ – reportedly sent 140 observers to Brazil to learn from the event. Delegates included representatives of construction firms, utility services and security forces, according to media reports.

Dorsey said such an exercise is valuable, but pointed out that Brazil and Qatar are very different places.

“There are more contrasts in political, social and economic terms than similarities… As a result, most lessons to be learnt from the Brazilian experience are in many ways less relevant to Qatar,” he said.

“Perhaps the most can be learnt is on the narrow technical issues of delivering infrastructure in timely and proper passion. Another lesson is that host countries run reputational risk from the moment a World Cup is awarded. That is evident in both the Brazilian case with the problems of delivery and the protests and in Qatar with the question marks about the integrity of its bid and the labor issue.”

Big events don’t pay

One lesson that Qatar will presumably be less concerned about is the difficulty in getting a solid return-on-investment from hosting big events.

Sports extravaganzas like the Olympics and World Cup typically cost host nations billions to stage, and always – always – go over budget. The previous World Cup in South Africa resulted in a massive shortfall, for example, with a reported return of just one-tenth on the $4bn it cost to put on.

Many fear the World Cup in Brazil will have a similarly poor return on investment. There have been several street protests over the high costs, with many skeptical of government claims that the tournament would boost the economy by $13.6bn, with 1 million new jobs.

The São Paulo Federation of Commerce estimated that the lost output as a result of the competition could reach $14 billion – about as much as it cost in the first place, according to the Economist. And a poll by the Pew Research Center found that 61 percent of respondents felt hosting the World Cup would be a bad thing for Brazil.

Moody’s Investors Service, meanwhile, said the tournament in Brazil will have a negligible effect on Brazil’s fragile economy.

“Some hope hosting the World Cup will help lift Brazil out of economic slowdown, but the associated economic activity ultimately pales before the country’s $2.2 trillion economy,” said Barbara Mattos, a senior analyst at Moody’s, in March.

“The 32-day event will provide short-lived sales increases that are unlikely to materially affect earnings and disruptions associated with traffic, crowding and lost work days will take a toll on business,” she added.

But with Qatar, questions over the business impact of the World Cup are taking a back seat. By the end of this month, a FIFA committee is due to report back on corruption allegations surrounding the Gulf state’s bid to host the World Cup.

For Qatar, any success in the World Cup currently hinges on ethics, rather than economics.

 
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