Is the World Cup bid a giant boondoggle?

Discussion in 'USA Men: News & Analysis' started by sidefootsitter, Sep 8, 2010.

  1. soccerdisciple

    Mar 8, 2004
    The author is just one economics professor full of theories, which no one can prove or disprove. He sounds like those nay sayers who spot something popular and say something outrageous to promote themselves, get press and attention. Or, maybe he is right and the reason people fight intensely to have the WC in their country is because they are stupid and want to go into debt or do not understand economic theory like this professor, who is probably a baseball fan that dislikes soccer.
     
  2. Beau Dure

    Beau Dure Member+

    May 31, 2000
    Vienna, VA
    He actually has similar comments about Camden Yards, the Baltimore Orioles' ballpark.

    He did indeed respond to my e-mail. The full discussion is here:

    http://www.sportsmyriad.com/2010/09/world-cup-economics-and-skepticism/
     
  3. Baysider

    Baysider Member+

    Jul 16, 2004
    Santa Monica
    Club:
    Los Angeles Galaxy
    OK, did a quick read of the paper.

    They estimate separate equations for 13 metropolitan areas associated with world cup games. Change in real personal income was a function of lagged change in personal income, average (contemporaneous) growth across 73 cities, lagged share of income (size variable), wage and tax variables, an annual trend and oil shock dummies.

    For each city, they calculate the difference between the actual growth rate and the predicted growth rate and then using the level of personal income convert the difference to a dollar amount.

    Estimates (in millions)

    LA -3,540
    NY -3,500
    SF -1,058
    DC -793
    SJ -747
    Newark - 651
    Orlando -359
    Ft Worth -181
    Detroit -53
    Boston +151
    Bergen +153
    Dallas +330
    Chicago +993


    Total -9,225

    There's some issues with specification, and as Stan points out, personal income is maybe not the best measure, but the other big issue, as Stan also pointed out, is omitted variables.

    We're only dealing with 13 cities, which is a pretty small number, and LA and NY are driving the total.

    So I did some quick checking for LA. Employment (#employed) was indeed down in 1994. But while I was looking for hotel occupancy rate data I came across an interesting comment. Hotel occupancy rates in Pasadena were unusually high which was attributed to the world cup and disaster workers. Disaster workers? Oh, yeah. LA had a BIG EARTHQUAKE in 1994.

    So the study attributes all of the decline in income in LA in 1994 to the world cup and none of it to the earthquake. I would expect that the true attribution would be the other way around.

    I have no idea what happened in New York or the other cities at the time, although the other California cities may have been affected by general concerns of earthquakes and California.

    From the guy Beau interviewed:

    This is making two statements, both of which are not really correct. The first statement is assuming that the same results are seen across cities, which was not the case. LA and Boston, for example, did not have the same unaccounted for events but they also did not show the same effects.

    The second statement says that the unknown influences have no impact once averaged across cities. If there were a lot of cities, and they were of similar sizes, this would be true. However, we're dealing with a small number of cities of unequal sizes.
     
  4. Baysider

    Baysider Member+

    Jul 16, 2004
    Santa Monica
    Club:
    Los Angeles Galaxy
    The problem is that if you take this approach you give up on rational discourse (OK, it's BigSoccer, I know).

    People are ignorant about economic theory and especially how economic numbers are used and misused. The numbers used to promote the world cup probably are crap. That's just the way the world works, so it is a useful thing to be critical of those numbers. Although, I don't think that justifies coming up with alternative numbers that are equally bad.

    My hunch, and that's what it is since I haven't taken a careful look at the data, is that this is all small potatoes. The US economy is huge and so attracting a few visitors to watch soccer games isn't going to move the economy one way or the other.
     
  5. Bruce S

    Bruce S Member+

    Sep 10, 1999
    bingo
     
  6. Potowmack

    Potowmack Member+

    Apr 2, 2010
    Washington, DC
    Club:
    DC United
    Nat'l Team:
    United States
    The thing is, if/when the US gets a WC, even the worst-case economic scenario would likely involve the event being a couple of billion in the red. That's a lot of money for me and you, sure, but it's a drop in the bucket in terms of the US economy.

    But, for countries like South Africa, the money spent to host the WC could have been spent much, much better on things like housing for the poor, useful infrastructure projects (shiny new stadiums and the parking lots around them don't count) and education. Whatever money came into the country from foreign tourism for the WC is just a one-time injection of cash. The things I listed would have had a permanent and long-term positive effect on the country's economy.

    I doubt FIFA really cares that letting a country like South Africa host the WC leads to tax money being spent in ways that are less than optimal. But if you let South Africa (or Brazil) host a WC, you have to be aware that public money is going to be spent on what is nothing more than a game, rather than sober and serious things that such relatively poor countries desperately need.
     
  7. Dignan

    Dignan Member+

    Nov 29, 1999
    Granada
    Club:
    FC Dallas
    Nat'l Team:
    United States
    My friend who owns an empty lot across the street from Fair Park and the Cotton Bowl in Dallas made some cash in 94, selling parking spaces during the games.

    Also, my other friend who was interning for FIFA in Dallas in 94, got free tickets personally from Sepp Blatter to some games, with the money he saved he bought season tickets to the Dallas Stars.

    Proof positive that the World Cup makes a difference.
     
  8. england66

    england66 Member+

    Jan 6, 2004
    dallas, texas

    A bunch of people who didn't own the vacant lots also sold parking to the games...then scarpered with the cash when the cops and tow trucks showed up...
     
  9. Grumpy in LA

    Grumpy in LA Bringing It Since 1807™

    Sep 10, 2007
    Chicago
    Club:
    Los Angeles Galaxy
    Nat'l Team:
    United States
    Yup, that's pretty problematic. But since FIFA's economic impact analyses are entirely opaque as to methodology, it's hard to have any more faith in those. I really don't know if we have any idea what the net of effect of a 2022 World Cup would be on the US economy.
    That does seem more likely, doesn't it?

    This is one of the things that drives me nuts about Blatter's and Warner's increasingly frequent blabbing about "colonialism" and "racism." It's always been a cheap attempt to foreclose debate, and I'm increasingly starting to suspect that it's also an attempt to rationalize moving as much of FIFA business as possible to countries where economic transparency isn't required and where FIFA can more effectively bully and/or bribe local officials. Europe is getting 2018 because there are a lot of powerful UEFA members who want their own opportunity to graft off a World Cup. But I wouldn't be surprised if 2022 simply were to go to whatever nation allowed the relevant FIFA officials their best chance to skim off money starting the day the bid is awarded.
     
  10. Marko72

    Marko72 Member+

    Aug 30, 2005
    New York
    "Independent businessmen." LOL
     
  11. Mutiny RIP

    Mutiny RIP Member

    Apr 15, 2006
    Bradenton, FL
    Club:
    FC Tampa Bay Rowdies
    Nat'l Team:
    United States
    Interesting theory, and plausible given the track record of Batter and Warner.

    Regardless, it really annoys me when very privileged and wealthy people like Blatter and Warner start to lecture the rest of us about colonialism and racism. If they really care so much about racism and colonialism, they should give their immense wealth to the victims of racial and colonial oppression.
     
  12. Grumpy in LA

    Grumpy in LA Bringing It Since 1807™

    Sep 10, 2007
    Chicago
    Club:
    Los Angeles Galaxy
    Nat'l Team:
    United States
    Ditto.

    If nothing else, they could start by giving back their immense wealth to the victims of their own cronyism and malfeasance.

    Right after we get flying pigs, chocolate air, and hot women who give me their numbers.
     
  13. sidefootsitter

    sidefootsitter Member+

    Oct 14, 2004
    Eh, that depends on how you account for that variable.

    Some businesses were temporarily out but a lot of the repair work was performed following the quake and was paid either by the state of California, the property insurers or the federal aid.

    So, hypothetically, additional money flowed into the state - SoCal specifically - from other locations but their overall effect would have been fairly negligible, given the size of the economy overall with perhaps a possible exception to wherever these insurance agencies were incorporated.

    Then again, maybe the professor does account for it in his "oil shock syndrome" adjustments.

    That doesn't mean his calculations are precise or that the WC committee's are even intending to be.

    Additionally, I loathe how Beau Dure plays gotcha with the guy on trivial matters.

    The guy conceded rather prematurely that a public figure like Clinton or Kissinger has no personal incentive/benefit to participate in the planning of the event, ignoring the positive effects of the exposure that every political figure craves.

    I won't touch the overall problem with even the generic economic calculations since one group of economists will claim the positive growth of the national GDP at this moment while the other will laugh in their faces and assert that a 12% federal budget deficit (in relation to the national GDP) should mean a hugely negative GDP decline (can't charge a car on your credit card and declare it income ... at best, it's a depreciating asset with offsetting liabilities). And if the alleged the best and the brightest can't agree on that ...
     
  14. Beau Dure

    Beau Dure Member+

    May 31, 2000
    Vienna, VA
    Some were trivial, some weren't. Coates' chief argument -- basically, his only answer to anything substantive -- is the study suggesting the World Cup was an economic failure because personal incomes in the host cities came up less than expected. I find it astonishing that hosting a couple of soccer games would account for all of the variance in personal income over a given period of time.

    I fully understand questioning the economic impact of a World Cup and asking whether it's worth the security bill (or, in other countries, the stadium construction). I don't understand blaming the World Cup for lost income. The security bill isn't THAT much.

    He implied the Bid Committee members were all out for financial gain. I don't see how Brad Pitt and Spike Lee get any richer off the deal. But admittedly, this is one of the more trivial points. (Strange, then, that you mention it so specifically.)

    If your point is that economists never agree on anything, you may be right. I can only dissect the logic, and I've found a few problems. That's not to say they can't be resolved, but so far, I haven't seen them answered. You're welcome to give it a shot.
     
  15. Dignan

    Dignan Member+

    Nov 29, 1999
    Granada
    Club:
    FC Dallas
    Nat'l Team:
    United States
    Interesting, I must remember that next time.
     
  16. whitecloud

    whitecloud Member+

    Jan 25, 2009
    Gulf Shores, AL
    Club:
    Orlando City SC
    Nat'l Team:
    United States
    GOAL! 4: DP in the States. A Spike Lee joint starring Brad Pitt as a retread at the end of a successful career who signs as a designated player in Kansas City with one last shot at glory.
     
  17. Baysider

    Baysider Member+

    Jul 16, 2004
    Santa Monica
    Club:
    Los Angeles Galaxy
    I agree, the aid money is going to be negligible given the size of the economy. The big problem is the disruption in business that the earthquake caused.

    "Oil shocks" refers to changes in the price of oil, so that's a separate thing.

    The problem isn't even that they didn't account for the earthquake, it's that they can't by it's very nature. This is basically an event study. You had a one-time event in 1994 and so you attribute everything unusual in 1994 to that event. LA had two one-time events in 1994 and you can't disentangle them using this methodology. LA has to be dropped from the sample.

    The important thing for an event study is that there is a big enough sample so that the idiosyncratic shocks cancel out. Do the conclusions survive taking a few data points out of the sample? Here they clearly don't. 13 data points is just too small to draw the kind of conclusions they want. Adding the effects together and pretending that it means anything is just silly.

    Doesn't justify the FIFA study; I'd probably be just as critical of it. But the whole thing is what gives economists a bad name. Each side knows what answer they want and they'll make stuff up knowing that nobody really wants to work through the data.
     
  18. sidefootsitter

    sidefootsitter Member+

    Oct 14, 2004
    But what businesses were still disrupted in June-July from a January earthquake?

    There were a few apartment buildings that had to be leveled in the Northridge area. To my knowledge, everything from retail to manufacturing resumed soon thereafter, with the tourism suffering a mere blimp during that winter.

    Now, the Valley and a bunch of old buildings in the city were in dire shape but a lot of those owners were compensated by the insurance and the federal aid.

    One could make an argument that many property owners suffered in excess of the compensations and thus had to forfeit personal consumption in order to restore their properties to the livable/mandated standards but these trends should have been flatlining over the four months that elapsed between the quake and the WC.

    So, there's always a garbage-in-garbage-out equivocation that one has to make with these estimates.
     
  19. Stan Collins

    Stan Collins Member+

    Feb 26, 1999
    Silver Spring, MD
    Economists like to joke that the most efficient way of collecting twelve opinions is by asking ten economists, but that doesn't excuse slapping a PhD's imprimatur on what would be (if it is what it appears) undergrad statistics sloppily performed.
     


  20. Well, the thread started with the comparison of what the difference was between a predicted outcome by economists and the real numbers, which resulted in a 9 billion loss.

    One thing is certain, people are lousy future predictors and the worst are economists, so to use the difference between a prediction and the real number as an argument is in that light silly.
     
  21. Beau Dure

    Beau Dure Member+

    May 31, 2000
    Vienna, VA
    But a "loss" of what? And how much is attributed to the Cup?

    I see a correlation but not a causation. There's another correlation suggesting economies bounce back stronger:
    http://www.americanprogress.org/kf/worldcuppdf.pdf
     


  22. I assume of gross national income, and indeed without analyzing that "suck out of their thumb" number it is a bit silly ( again) to point the finger at the WC.
     
  23. Adam Zebrowski

    Adam Zebrowski New Member

    May 28, 1999
    in the grand scheme of the american economy, a world cup is a rain shower..

    for greece, or spain, or any non prime time economy, the big event can ruin them for years...

    usa just prints money...

    europe has to worry about the rest of euro land coming to their aid
     
  24. Stan Collins

    Stan Collins Member+

    Feb 26, 1999
    Silver Spring, MD
    Actually, there's no correlation here either. A correlation has to contain enough data points to show two things go together reliably. This one had 13 data points, and 4 of those--nearly a third--didn't show the purported trend.
     
  25. SombraAla

    SombraAla Member+

    Apr 2, 2006
    Waldo (Kansas City)
    Club:
    Sporting Kansas City
    Nat'l Team:
    United States
    If the US and the hosting cities cannot figure out a way to make money off of a WC then we have utterly failed as a capitalist society.

    I mean, seriously. You have a captive audience... how does one not manage to make money off the deal? Even if you say that the incoming tourism displaces the existing expected tourism, why wouldn't those inn keepers be selling rooms at a premium during the WC whereas they would be going for a normal rate otherwise? (I also maintain that any displaced tourism will just result in a 'bounce' later when the potential tourists decide that they could go to the US the year after the WC)

    Heck, why wouldn't restaurants, grocery stores... even fast food places not raise prices for the event period? Sure, it'd piss some of the locals off, but if they just stock-up on food before the price hikes occur then they wouldn't be that much worse off.

    Cities could raise taxes on hotels, car rentals and raise mass-transit fares for the event (keep monthly rates the same to satisfy the locals).

    I also consider the fact that, even if a city pays for a new stadium or infrastructure, the do end up getting the added benefit of keeping that stadium/infrastructure after the WC is gone. Sure, if this was SA and nobody is going to really need such stadia for anything then it's a loss, but I'd say that one of the reasons I hope the US & KC gets a WC is that it'll force KC into investing into its lacking mass-transit system.
     

Share This Page