It wasn’t quite a JFK moment, but pretty big anyway. Do you remember exactly what you were doing when FIFA announced that Qatar had won the rights to stage the 2022 World Cup?
I remember exactly where I was. Sitting in front of this computer, writing the headline “Qatar fails in World Cup bid.” The story had been written. All I had to do was press “send”, once FIFA’s dreadful leader Sepp Blatter announced the decision. We all pretty much knew 2022 would go to either Australia or the US.
But never mind that. Against all odds and expectations (including those in Qatar itself), Qatar won the 2022 World Cup rights. Ever since, there has been no shortage of conspiracy theories and sour grapes over exactly how the tiny Gulf state got to win the biggest prize in sport. Who paid who, and how much, is the general thrust of the many arguments.
Amidst the many theories, which will no doubt carry on for the next nine years, one not too insignificant point appears to have been overlooked. How much is this all going to cost? And is it going to end up an economic success?
Now would be a good time to start that debate, and the early signs are not encouraging. Depending who you believe, the cost of hosting the 2022 event will reach $130bn. Even the most conservative estimate, by Bank of America Merrill Lynch last week, puts the figure at $95bn. Around $4bn of that is on stadiums, but the figure rockets once you add in all the new facilities including upgrading the airport, building a new metro and masses of hotels in the middle of the desert. Qatar itself has told FIFA it will spend $100bn, which is the equivalent of 87 percent of its GDP.
Of course, no country in the history of World Cups has managed to stage the event without massively overrunning on costs. Brazil is now looking at spending $13.28bn on the 2014 World Cup, a 15 percent rise. Russia, which is hosting the 2018 World Cup, now estimates it will cost $40bn, double the estimate. What about South Africa? It spent close to $5bn, nearly four times what it first estimated.
There are two big warning signs here: the first is that Qatar’s tournament is already going to be the most expensive ever staged, largely because it is building almost everything from scratch. So already the risk is far higher. More worryingly, all the studies done of past events make grim reading. In 1994, the US predicted it would make a profit of $4bn. It ended up losing $9bn. South Africa lost money, though it’s not clear how much, while Germany in 2006 (where very little new investment was required on building stadiums or hotels) just about broke even.
How is Qatar going to recoup its $100bn? There are many flowery arguments about building a legacy, but that doesn’t translate into hard cash. Sure there will be a temporary construction boom and thousands of new jobs created. But as everyone knows, this comes to an end the day the World Cup ends. Yes there will be a retail boom, but again, it’s worth noting that in South Africa the total retail benefit was just 10 percent of what it expected.
The only people guaranteed to make money out of Qatar 2022 are Sepp Blatter and his gang, who will sell the media rights to the tournament for billions of dollars long before the first ball is kicked. FIFA controls its World Cups in a similar way that Bernie Ecclestone runs F1. Nobody in a 2km radius of any stadium can sell anything, unless the money goes to FIFA. The many thousands of private entrepreneurs looking forward to an oasis of opportunities had better think again.
So what is the solution? On current projections, I just don’t see how Qatar (or any World Cup host) can make a profit. The only way is to completely renegotiate the way all World Cup commercial, retail and broadcast rights are distributed, with host nations taking the lion’s share.
Otherwise, once again, the only winner will be FIFA.
Anil Bhoyrul is the Editorial Director of Arabian Business.