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Tuesday, September 14, 2010

Interview with Professor Dennis Coates, Author of "World Cup Economics: What Americans Need to Know About a U.S. World Cup Bid"

Image credit: FIFA.
Dennis Coates, PhD, is a Professor of Economics at the University of Maryland - Baltimore County, or UMBC. He is the immediate Past President of the North American Association of Sports Economists, and is a member of the editorial board of the Journal of Sports Management, International Journal of Sports Finance, and Journal of Sports Economics. He regularly talks to national media as a commentator on sports economic issues, including appearances in the Washington Post, Business Week and Sports Illustrated. Professor Coates blogs regularly at The Sports Economist.

Professor Coates published a report in July 2010 entitled, "World Cup Economics: What Americans Need to Know About a U.S. World Cup Bid." He analyzed the economic aspects at sporting events such as the FIFA World Cup, the Olympics and the NFL Super Bowl. One of his most provocative findings was the following:

"Organizers for the 1994 World Cup claimed that the U.S. would see a positive impact of $4 billion, yet a post-Cup analysis by economists Robert Baade and Victor Matheson showed a cumulative loss of $5.6 billion to $9 billion. They arrived at this by comparing the gross domestic product in the host region during the World Cup with standard figures in non-Cup periods for the same regions. The average host city lost $712 million."
FIFA will announce the host countries for World Cup 2018 and World Cup 2022 on Dec. 2, 2010. I would encourage you to read the full 27-page report at the link referenced above. It was a well-written and researched report as you would expect from someone of Professor Coates' experience and expertise.

Professor Coates, welcome to World Football Commentaries. We are very pleased that you could join us.
(SA) Where did you grow up and did you play organized sports in your youth?

Professor Coates

I grew up in Western New York about 50 miles east of Buffalo. I played baseball as a kid in Little League, the only organized sport available at that time in my town. In high school, I played on the school varsity teams in football, basketball, and track.

(SA) What types of economic courses do you teach at UMBC?

Professor Coates

I teach public economics, microeconomic theory, econometrics and sports economics.

(SA) How did you become interested in the economic analysis of sports?

Professor Coates

I moved to UMBC in 1995. That fall, the Cleveland Browns were lured to Baltimore and became the Ravens. During that time there was a great deal of talk about how many jobs having the football team would generate and how much income would be created. The numbers being reported by the boosters struck me as implausible. I decided to look into them and have been doing sports economic research ever since.

(SA) What is your background in soccer? Did you ever play or coach?

Professor Coates

I never played soccer as a kid and I have never coached it. Both my kids played recreation league soccer. I first was really introduced to the game when I was in Mexico during the World Cup in 1974. Watching the games with people really excited by them and seeing great players like Johan Cruyff and Johnny Rep made the game far more interesting to me than the way it was played in rural New York at that time.

(SA) What were your motivations behind the World Cup economic analysis?

Professor Coates

I believe that decisions about how to use public resources should be based on the best, most accurate information possible. The World Cup Bid fails on all counts. The economic analysis is secretive, and past reports of similar type predictions have been widely discredited. Claims that no public resources will be used ring hollow. If that were really true, why would the Bid Committee feel it necessary to tout the economic impact of the games on communities? The bid is really nothing more than another lobbying organization trying to get the American people to give it some sort of assistance. Rest assured that FIFA and the local organizing committee stand to make millions of dollars. I believe that if the facilities of American cities are to be used for special events like the World Cup the American people should share in the real profits from the events, not in the bogus claims of economic impact based on self-serving and secret economic impact documents.

(SA) Before we discuss the past and present U.S. situation, let's talk about the 2006 World Cup held in Germany. Economist Wolfgang Maennig of Hamburg University studied the last German World Cup in detail. Your report stated that the German Organizing Committee earned €155 million euros (or $194 million USD at the exchange rate on June 23, 2006) in net revenue and that "evidence from Germany suggests World Cup travelers do not spend any differently than other travelers."

Could you please expand on that finding and how it might impact a future American World Cup?

Professor Coates

Important to understanding the impact of an event like the World Cup is an understanding of the event’s affect on the number of tourists and on the spending of tourists. If there is no change in the number of visitors, but World Cup visitors spend twice as much as other tourists, then one would expect to find an impact on the local economy. Similarly, if World Cup visitors’ spending patterns are the same as other tourists, but the Games entice an increase in total tourists, then one would find an impact from the event. The results from Germany suggest that visitors to Germany during the World Cup did not spend substantially more during their visit than would regular tourists who travel to Germany for reasons other than the World Cup. Additionally, the German data suggest that tourism was up a bit during the event but down before and after, meaning that there wasn’t much increase in total tourism during the entire year of the games.

(SA) According to Baade and Matheson (referenced above in the introduction), the 1994 World Cup bid report was more than $13 billion off the announced gain of $4 billion? How was this possible?

Professor Coates

Economic impact reports are predictions based on assumptions and on an economic model. The less realistic are the assumptions, the less accurate are the predictions. Assumptions can reflect information or circumstances or they can be built into the economic model. For example, the consultant may assume that there are 2 million visitors who attend the games. However, it may be that in a typical year there are 1.8 million tourists. The games, then, produce only 200,000 additional tourists. The consultant should use 200,000 as the extent of tourism connected to the event because that is the number above a normal year. Frequently, the report would use the 2 million tourists figure and vastly overstate the influence of the event. As another example, spending by the tourists is assumed to circulate through the economy having a multiplied effect. Obviously, if you multiply by 3 the effect will be larger than if you multiply by 1. Often, the economic impact reports use far larger multipliers than may be appropriate. The ways in which the impact report could generate vastly larger predictions than post-event analysis indicates really occurred are very numerous and the subject of several published research papers.

(SA) Who is AECOM and what role do they play in this discussion?

Professor Coates

AECOM is the consulting firm that did the economic impact report for the Bid Committee.

(SA) At the time of this interview, the U.S. Bid Committee has not made their economic impact report public which claimed a projected economic impact of USD $5 billion. What happened when you requested a copy of the report?

Professor Coates

My first request was to someone from AECOM. That person told me that the report was the property of the Bid Committee and that I would have to contact them about getting a copy. I emailed the contact person given to me by AECOM stating that I wanted to get a copy of the report. That person responded to my email asking why I wanted it. I said in another email that my goal was to evaluate the methodology and assumptions. I got no response to that or to subsequent emails.

(SA) Has Sunil Gulati or anyone else at high levels associated with the U.S. bid made any attempt to contact you either to challenge your findings or to engage in a constructive debate?

Professor Coates


(SA) A FIFA inspection committee visited the Baltimore/Washington, D.C. regions on their recent U.S. visit. Has anyone from FIFA contacted you yet about your report and/or have you provided it to them?

Professor Coates

No. My report has been reported on in the press and is available for free download on the Internet.

(SA) Former President William Jefferson Clinton is the Honorary Chairman of the U.S. World Cup Bid Committee. Reuters quoted Mr. Clinton on May 17, 2010 about the potential economic stimulus of another American-held World Cup:

"That means that if we get the (World Cup) there will be an economic stimulus estimated between $400-$600 million per host city... Hosting another World Cup in the United States where about 12 percent of the population is foreign born will ensure high attendance for every match played because we will have lots of fans for every team that shows up."

You made the following statement in your report and noted that the U.S. Bid Committee's estimate was based upon the value of the dollar in 2009 and not in 2018 or 2022:

"'The impact of the World Cup is so small, relative to the national economy, that it is swamped by the aggregate influence of measurement and rounding errors. Such an impact is hardly 'of vast significance.' "
Professor Coates

President Clinton’s remark comes straight from the Bid Committee’s secret economic impact report as it is described in the Bid Committee website and press release. As such, the accuracy is impossible to assess directly. However, it is easy to look to independent evaluations of other World Cups to find that none of them produced the economic stimulus claimed in the report.

(SA) Your report cited a figure from the U.S. Bid Committee website that a future World Cup would create 65,000 to 100,000 new jobs. You stated in your report that the U.S. Bureau of Labor Statistics projects employment in 2018 to be 166,205,600 jobs. "If the World Cup creates 100,000 new jobs, it will have contributed 0.060 percent to total employment in 2018."

What types of jobs will a future World Cup create especially since the U.S. already has a sizable infrastructure of world-class stadiums and event management resources that have already successively handled three FIFA World Cups (1994 for the men, and 1999 and 2003 for the women)?

Professor Coates

The jobs that would be created would largely be temporary service sector jobs on the days of the events. For example, vendors in the stadiums would get an extra day of vending for each game held in that location. Police and other public safety workers would work a bit extra on the days of the events. Long-term, high paying jobs will not be created.

(SA) Outside of Professor Gulati and President Clinton, can you tell us who are some of the other members from the U.S. Bid Committee?

Professor Coates

The Bid Committee membership is listed on their website. Rather than list names, I would note that most are connected to soccer organizations either as players, executives or owners of Major League Soccer clubs. In other words, the goal is to have the taxpayers of the United States provide a giant marketing campaign for the soccer business in the US. I believe the US has more pressing priorities than building up the private soccer industry.

(SA) Your report cited a BBC figure that South African organizers earned over USD $3 billion for hosting the 2010 World Cup. Compared to all of the infrastructure costs experienced by South Africa (the construction of five new stadiums, improvements to other venues along with new transportation projects), they still made a handsome profit. In your opinion, who will benefit the most and the least from a future American World Cup?
Professor Coates

FIFA and the Bid Committee or local organizing committee will profit handsomely. The average American citizen, even those from host cities, will get little or nothing of lasting value.

(SA) Let's talk about future costs. You made an interesting statement:

"An expense that FIFA and the US Bid Committee will definitely not be highlighting is the extortion by foreign soccer clubs demanding money from towns seeking to host them for training."

'Extortion' seems like a strong word. Could you please elaborate?

Professor Coates

FIFA and the Bid Committee give the impression that there are no costs to local communities from this event. When a foreign team is able to use its power as one of very few teams to be seeking a base of operations to extract large concessions from that local community, I think that is equivalent to extortion.

(SA) You spoke about "opportunity costs" in your report. Could you please explain that economic concept and how it relates to a future American World Cup?

Professor Coates

Opportunity cost is the idea that there are alternative uses of resources, in this case alternatives besides the spending to host the World Cup, and that those too are valuable. The most valuable of these alternatives is the opportunity cost of the World Cup. This relates to hosting a future World Cup in a simple and straight forward way. Any money spent to put on the World Cup could have been used for some other purpose. If it is local tax revenues, that money could have been used to pay for re-paving the streets or modernizing the sewer system or as salaries for police and firemen, all uses which generate benefits for the community. Of all those alternatives, one is more valuable, generates greater benefits, than the rest. That amount of benefit given up is the opportunity cost of using the funds to put on the World Cup. Rational use of resources dictates devoting them to the World Cup only if the benefits from doing so exceed the benefits from using the funds in their next best use. My contention is that we need to think far more carefully about the benefits of hosting the World Cup and about the benefits of using the resources in alternative ways.

(SA) You referenced the costs for security at American Super Bowls and past international sporting events in the U.S. Given the existing infrastructure, will event management, public safety and security be the biggest expenses during a future American World Cup?

Professor Coates

Because the infrastructure exists, the stadiums and transportation systems are all in place, security and safety would likely be the largest costs.
(SA) If I may quote the conclusion of your report:

"The existing evidence of negative economic impact from other World Cups, combined with the self-interested motivation of the Bid Committee members and the lack of disclosure of the economic impact study all point to the conclusion that the US taxpayers are better off saying no to an expensive and secretive World Cup bid."

And a quote by the American baseball legend, Lawrence "Yogi" Berra:

"It's tough to make predictions, especially about the future."

Despite your pain-staking analysis and research, are you giving a red card to the U.S. bid without proper analysis of their own report or direct discussions with those entrusted with the future projections?

Professor Coates

No, I don’t think so. I would be happy to have the Bid Committee report so that a proper analysis of it could be done. All the Bid Committee has to do is make it public. The fact that they will not do so suggests it is not in their best interest for people to see what they did to reach their conclusions. I don’t feel a need to have direct discussions with the Bid Committee or its consultants. Their analysis and conclusions should be able to stand on their own without need for direct discussions.

In reference to the Yogi Berra quote, the Bid Committee report is an attempt to predict the future without even the courtesy of letting the American public see the tea leaves in the cup. My guess, based on having read many such reports, is that it is based on equally sound science as the fortune-teller’s prediction from the tea leaves. By contrast, my prediction and the grounds on which it is based are all in the public record and largely available to anyone with an Internet connection. So, while my prediction may be wrong, it is possible to understand how I reach my conclusions.

To continue with the contrast of the predictions, think of the Bid Committee economic impact report like the annual predictions from psychics reported on in tabloids. It is easy enough to compare the psychics’ predictions to events at the end of the year, and the predictions rarely stand up well to that scrutiny. Economic impact reports predicting large impacts on local economies have been evaluated for comparison to actual events by numerous and varied researchers. The conclusion of those researchers is that the economic impact reports, like the psychics, miss the mark by a wide margin.

Professor Coates, thank you very much for your participation in this enlightening discussion.

About the Interviewer
Steve Amoia
is a freelance writer, editor and translator from Washington, D.C. He is the founder, editor and writer of World Football Commentaries. He has written for AC Cugini Scuola Calcio (Italian soccer school), Football Media, Italian Soccer Serie A, Keeper Skool and Soccerlens.

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