IOC and FIFA: Monopoly power makes pricey games

Brazil is slated to spend at least $11 billion — and perhaps up to $20 billion — on hosting the World Cup, which begins June 12. It built or renovated 12 stadiums, each a minimum capacity of 40,000. Several are in cities without first-division soccer teams — which is to say, cities outside Brazil’s major leagues. Sochi, Russia, just dropped more than $50 billion on the Winter Olympics, outspending Beijing’s lavish $40 billion-plus on the 2008 Summer Games. What’s going on?

First, both the International Olympic Committee and FIFA, the World Cup’s parent organization, are monopolies. They hold what are essentially auctions among all the interested cities or countries in the world to see which is most worthy to host the competition. One seller, many buyers — there’s bound to be overbidding, especially when the local interests promoting the events are construction companies and unions, insurance agencies, architectural firms, investment banks, and so on. They all stand to gain handsomely.

Second, over the last decade several developing countries have thrust themselves into the bidding wars. The stated reason is that the BRICS countries (Brazil, Russia, India, China, and South Africa) are ready to throw their coming-out parties, signaling to the world that they are strong, growing, and open for business. The problem is that these countries lack modern transportation, communications, and energy infrastructure. To meet the exacting standards set by the IOC and FIFA, these countries must pledge to do a lot of building.

Is it all worth it? Probably not. The World Cup in Brazil, counting all ticket sales, international TV rights, corporate sponsorships, and side revenue, should generate around $4 billion. Roughly half of that will stay in Brazil. Add another $400 million to $500 million from foreign tourist spending, and you don’t have a very favorable income statement. Costs exceed revenues by at least $8 billion.

There would have to be a lot of tourism gains going forward to balance these books. But will tourism to Brazil increase in the future? News coverage of pollution, impossible congestion, and other woes won’t help, and the evidence from past Olympics and World Cups is not encouraging.

What is to be done? Rotate the right to host across continents, clean up government, learn from the best-run events (such as Barcelona 1992 or Los Angeles 1984). But with worldwide monopolies calling the shots, there are no easy fixes.

Andrew Zimbalist, a professor of economics at Smith College, is the author of “The Sabermetric Revolution.” He is currently writing a book on the economics of the World Cup and Olympics.