Last week, news broke that Arrowhead Stadium will be one of the US cities to host matches for the 2026 FIFA Men’s World Cup.
As an economist and someone who loves Kansas City, I was disappointed by the news.
While politicians and bureaucrats are quick to tout the benefits of hosted mega-events like the World Cup, economists are more pessimistic on the matter. Despite the very clear claims about job creation and increased spending, the costs of hosting such events are often hard to see and are much greater. Even worse, the supposed benefits often don’t pay off.
For example, a study of the economic impact of the 2002 FIFA World Cup in Japan and South Korea found that the two nations lost between $5.5 and $9.3 billion, despite estimates that they would gain $4 billion. So an NFL study by a Boston consulting group estimating a potential profit of $620 million for Kansas City doesn’t excite me much.
In his textbook The Economics of Sport, Michael Leeds summarizes the outcome of “mega-events” such as the World Cup, and the pattern is clear: revenue forecasts and job gains are consistently over-optimistic.
For example, the 2006 World Cup in Germany was expected to create 60,000 new jobs. net actual job creation? zero.
Why is the World Cup always disappointing? Believe it or not, a French economist of the nineteenth century gives us one compelling answer. In 1850, Frederic Bastiat wrote an article that sheds light on a common error known as the “broken window fallacy”. He did it using like.
Imagine a neighborhood vandal breaking the window of a local store. The store owner must now hire a $100 glass maker to replace the window. While you may feel bad about the shopkeeper, some may suggest there is a positive side. The shop owner spends the money which provides employment to the glass maker, who uses his new money to buy other things. When a glassmaker uses his new income to buy things, he creates more jobs and more income for others. The economy is improving. Or is it?
Bastiat points out that this way of thinking is wrong. Although the glass maker receives the money, the shop owner loses his fortune. Perhaps that fortune was saved for a new suit. Or maybe the bank he kept his money in now has fewer deposits to offer as loans.
It’s hard to know how to use $100, and that’s exactly the problem. The benefit to the glass maker is seen. It’s hard to see a tailor who can’t sell a suit or a lender who can’t get a bank loan.
The same problem exists in the World Cup. Cities must use the resources obtained from taxpayers to win the World Cup bid. The aforementioned NFL report puts the cost per city in the hundreds of millions, despite claims by Kansas City Mayor Quinton Lucas. The current cost is $50 million in the restoration of Arrowhead Stadium. But if history is anything to go by, this could be a huge understatement.
What the Kansas City taxpayers were going to use their money for isn’t something we can easily tell. But it’s easy to see how hotels, for example, can benefit from the World Cup.
But, like the shopkeeper, taxpayers are no better off spending the World Cup. This spending has a price. And as studies show, this price is often overlooked in pursuit of placebo benefits.
Peter Jacobsen is Assistant Professor of Economics at the University of Ottawa and the Guartney Professor of Economic Education and Research at the Guartney Institute.