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The Economics of Sports: Effective Partnerships in the Run-up to the 2018 FIFA World Cup

May 29, 2017, 18:18 UTC+3
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The World Cup 2018 investments will amount to ca. RUB 640 billion of government and private money. The investments into sports, hotel, and transportation infrastructure are expected to pay off in the long term. However, the return on investment highly depends on how efficiently the infrastructure will be managed after the World Cup. The experience of the Sochi Olympics has shown that a sporting event of such a scale may have a strong positive effect on the economy and society.

Large-scale tournaments often become a challenge or even a burden for the hosting country or city.

  • They involve significant expenses that may be hard to accurately forecast in the beginning. According to a research by Oxford University, the total costs of the Olympic Games since 1960 have exceeded the initial estimates by 156%, with nearly 50% of the Games falling beyond the original budget.

Such events usually have a delayed positive effect.

  • For instance, Sochi has become the most popular resort for the Russians over the past three years following the Olympic Games. With its urban and sports infrastructure upgraded, Sochi is now a versatile all year round resort. In 2016 alone, the city hosted 6.5 million tourists, which is more than in the USSR era.
  • The Olympic Games sports infrastructure is in active use: over the past three years, the city saw 343 national and international sporting events, and the Olympic facilities are also used as training camps for Russia's national teams in different sports.

The total investment in WC 2018 is RUB 638.84 billion, with over 50% allocated from the federal budget, RUB 196 billion from private investors, and RUB 92 billion from the regions of Russia.

  • The WC spending includes sports infrastructure (12 stadiums and 64 training centres), accommodation (the plan is to build over 60 hotels), and transportation (airports, railway stations, and roads to be constructed or renovated). A wide range of other projects, from healthcare (new medical centres) to innovative security technologies, is also being financed.
  • Russia’s WC expenses are comparable to those of Brazil in preparation for WC 2014. The aggregate short-term effect of the previous WC was USD 1 billion. The long-term effect is estimated at USD 13–14 billion.

Early forecasts say Russia may also anticipate an initial benefit of up to USD 1 billion.

  • In particular, foreign visitors are much relied upon, with the expected tourist flow of up to 1 million people.
  • This may be more than a one-off effect: the World Cup will open Russia up for tourists.

The key point is whether the country will be able to capitalise on the WC infrastructure in the long run. A major challenge is using the new stadiums.

  • Brazil's negative experience, with most of the stadiums abandoned, including the iconic Maracana, should be taken into account.
  • Experts believe the seven new stadiums (in Volgograd, Yekaterinburg, Kaliningrad, Nizhny Novgorod, Rostov-on-Don, Samara, and Saransk) will break even in 2022. However, this requires efficient unlocking of the stadiums' commercial potential, which is mainly unusual for today's sports business in Russia.
  • The idea is that after the WC the stadiums will be maintained by the regions. The maintenance costs may be quite a challenge for the local budgets. The spectators’ interest in the national football is still not high enough. In some cities, local clubs play in lower divisions, and it would be unwise to expect any significant profit from the audience there.
  • The stadiums should be commercialised by hosting other entertainment or public events and offering restaurant, sports club, sports museum and other recreational services.
  • At the same time, development of local professional teams is essential. The WC sports infrastructure will provide fundamentally new training opportunities.

An essential component of sports economy is income from broadcasting large sporting events.

  • It is mass media that generate most profit for FIFA, the association that organises WC tournaments. There is good reason the right to host WCs is given to countries that need to set up a modern football infrastructure (Brazil, Russia, or Qatar). Mass media relay every single detail of the tournament to billions of spectators no matter where the WC takes place.
  • Hence, the price for WC broadcasting rights is steadily going up. This trend was observed during the WCs in Germany and Brazil, and the situation is the same in Russia. The national TV channels have refused to purchase the Confederations Cup broadcasting rights for USD 120 million requested by FIFA.
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