It’s not the host but FIFA which stands to gain the most

For a while now, governments have started to develop cold feet when it comes to bidding for the tournament. This is a fear which goes beyond the FIFA World Cup. The costs, after all, are significant and multi-fold.

FIFA’s former presidents Sepp Blatter (right) and Joao Havelange. The governing body scoops up the largest chunk of the revenue, leaving peanuts for the host nation. This is the legacy of Havelange, carried forward by Blatter. Even though the regime has changed in name now, it is unlikely that FIFA will behave like anything but a spoilt customer in a refurbished five-star hotel.   -  Getty Images

People take photographs of a giant ball with the logo of the World Cup 2018 near Red Square with the St. Basil's Cathedral in the background, in Moscow, Russia. The costs of hosting the World Cup have risen because, post-1974, FIFA started to resemble a global corporation.   -  AP

It arrived last October, as inevitable as the World Cup itself. The news of burgeoning costs is a staple of the pre-tournament news cycle; we learnt this time that Russia had raised the budget for this summer’s showpiece event by over $600 million. Over 70 per cent of the total expenditure for the 2018 World Cup has been financed by public spending. Plans to cut the budget by about $500 million, announced in 2015, are now plaintive reminders of the exceptional costs involved — experts claim the spending will go up to $11 billion.

That seems a heavy price to pay for a month-long spectacle, particularly for a country which has lost much of its economic power since the collapse of the Soviet Union. Although Russia has a long tradition of football, no less than nine new stadiums have been built for the World Cup. More importantly, the returns on World Cup spending remain obscure — they are perennially defined in terms of greater interest from corporates and tourists, and the long-term gains birthed by refurbished infrastructure. Nobody ever puts a number on it.

Of course, for a while now, governments have started to develop cold feet when it comes to bidding for the tournament. This is a fear which goes beyond the FIFA World Cup. The costs, after all, are significant and multifold.

In the early years of the World Cup, the majority of the budget was set aside for building a single stadium which would reflect the significance of hosting the marquee event. Uruguay’s El Centenario or the Maracana in Brazil were built in anticipation of the tournament. The initial World Cups were not supposed to be global spectacles, with their impact limited to the host and its neighbours. But paeans for universalism were sung even before the first World Cup. The tournament’s inception was preceded by FIFA’s decision to invite each of its 41 members. No discrimination was meted out to professionals, allowing them to be part of the same team as amateurs.

But more importantly, the revenue was to be split between FIFA and the host.

This would seem like an anachronism today as the governing body scoops up the largest chunk of the revenue, leaving peanuts for the hosting nation. This is the legacy of Joao Havelange, carried forward by Sepp Blatter. Even though the regime has changed in name now, it is unlikely that FIFA will behave like anything but a spoilt customer in a refurbished five-star hotel.

The costs of hosting the World Cup have risen because, post-1974, FIFA started to resemble a global corporation. Gone were the days of living on a shoestring budget, led by Europeans who swore by amateurism. Under President Havelange, with Adidas’ Horst Dassler and the British marketing entrepreneur Patrick Nally in tow, a new plan was set in place to boost FIFA’s revenues.

Geographical influence

To adequately reflect its global reach — a consequence of the numerous newly independent countries that had joined the fold — the administration sought sponsors who could be mentioned in the same breath as FIFA, when it came to their geographical influence. So, the companies who chose to associate themselves with the World Cup went on to gain greater influence as football took them to places hitherto untouched. With only one brand selected for a specific product, the competitors of the sponsors were put at a disadvantage.

FIFA, meanwhile, was now in total charge of the TV rights and stadium space.

Its advertisers helped bridge some of the costs too, by providing services in their area of expertise which would have had to be paid for additionally in the past. As the World Cup grew in size from 16 teams to 24, and later 32, the business grew as well. Dassler set up a marketing company, the Switzerland-based International Sport and Leisure (ISL), in the 1980s to carry out Havelange’s mandate.

The exponential growth in television sets worldwide contributed to the unprecedented rise in revenues. The comparison between the World Cups held in Mexico in 1970 and 1986 drive the difference home. At the first tournament, a British sponsor by the name of John Stephens took up about a quarter of the advertising inside the Azteca Stadium. By 1986, FIFA’s advertisers had taken charge. Although the new model brought rising costs for the host — consequently, hiked ticket prices and dropping attendances — the head of the local organising committee Guillermo Canedo remained unfazed.

“People have TV,” was his terse response. Occassionally, FIFA ran into rough waters. When the World Cup travelled to France in 1998, public health fears ensured that Budweiser, the official beer sponsor, was not allowed to sell alcohol at the venues. But this was a rare exception. By the time Brazil hosted the tournament, a law was signed by the country’s government to ensure Budweiser could carry out its operations.

Financial imperatives

This is the reality which Russia will inhabit this summer. It will have to roll the red carpet out, even as it pays a heavy mortgage on it. The 1982 tournament in Spain is infamously remembered for the $3 million FIFA spent on its officials during the tournament, more than the expenditure on travels and accommodation made by all the teams combined. The financial imperatives for a host have gone too far ahead now for even FIFA to keep up, but so have the governing body’s revenues. The shock when ISL went bankrupt in 2001 seems like a minor blip now. A loss of $116 million eventually proved to be just a dip into the deep pockets of FIFA.

The legacy of expensive World Cups is not a prosperous host but a rich governing body with its shiny home in Zurich — a building built from the huge revenue earned in Havelange’s time. Blatter’s elevation to the presidency in 1998 was an endorsement for his predecessor’s style of politics, thereby ensuring that a heavy spend on development projects in poorer countries continued without checks or balances. It was a small price to pay for political support.

With no change in sight, it is no surprise that the obsession with hosting the World Cup is wearing thin. The costs are so huge that the United States has joined hands with Canada and Mexico to bid for the 2026 tournament, with only Morocco for competition.

Even before the World Cup has begun, Russia has started counting the costs which will be required to maintain its infrastructure. As the last two hosts, South Africa and Brazil, realised, public spending in the tournament’s aftermath turns out to be significant. The business will continue to boom around the World Cup, but it is FIFA which stands to gain the most from the spectacle.