Brazil's World Cup: Who Gains and Who Loses?

GLOBAL CENTRE STAGE

In the end, world football fans will have been entertained, but Brazil will find itself with a massive clean-up from its football extravaganza and billions of dollars in debt, believes Andrew Zimbalist

Although Brazil has promoted its hosting of the World Cup as an affirmation of its status as a world political and economic power, it appears likely that the event will do more to harm its international image, its tourism and its economy than it will to boost them. More troubling is the fact that it appears to have opened some sore wounds for the Brazilian people who are now demanding better education, healthcare, social services and government accountability.

FIFA requires that each host country have eight modern stadiums with at least 40,000 capacity, one of which with 60,000 seats for the opening match and another with 80,000 capacity for the final contest. Hoping to expose 12 of its cities to the world, Brazil committed to having 12 venues with a minimum 40,000 capacity.

In 2009, the Brazilian Football Confederation initially estimated the 12 stadiums being refitted or built for the World Cup would cost about $1.1 billion. The total stadium budget eventually rose to over $4.7 billion.1 Nine of the stadiums were new and of these seven were built on the site of existing stadiums that were demolished.2

Estimates for the total cost (including all infrastructure, security and operations) of the World Cup for Brazil run from $15 billion to $20 billion. (Of course, these estimates, like others concerning the cost of hosting mega events, are affected by what auxiliary, infrastructural investments are deemed to be directly related to the event. The more tangentially related investments are included, the higher the costs go).

White Elephants

White elephants seem inevitable. four stadiums were built in cities with no football team in the first division of Brazil’s soccer leagues. In Manaus, there is a second division team with an average attendance of around 1,500. Manaus now has a new stadium with a capacity of 42,374, at a cost of $265 million. New stadiums were also built in Cuiabá, Brasilia and Natal, all with lower division teams and low attendance. The Mane Garrincha Stadium in Brasilia cost a reported $900 million to build and has a capacity over 70,000.3 In Fortaleza, Recife and Salvador they do have football teams in the first division, but the teams average around 15,000 attendance per game, with an average ticket price of $10. Recife already had three large, multi-purpose stadiums. The populations in these cities do not come close to having the purchasing power to pay ticket prices high enough to maintain those stadiums, let alone to service the construction debt.

The Mane Garrincha Stadium was initially budgeted at $300 million. An official audit of the stadium completed in May 2014 found that the tripling of the costs owes in large measure to construction company payoffs and price gouging. For example, the 140-page auditor’s report states that the transportation of prefabricated grandstands was supposed to cost just $14,700, but the construction company billed the government $1.5 million. The auditors found $2.3 million in overcharges for materials that were listed multiple times on invoices. The report estimates that one-third of the $900 million cost was due to fraudulent billing.

Meanwhile, an Associated Press report found ‘skyrocketing campaign contributions by the very companies involved in the most Cup projects.’ And Renato Rainha, an arbiter at Brasilia’s Audit Court, stated: “These donations are making corruption in this country even worse and making it increasingly difficult to fight. These politicians are working for those who financed campaigns.”4

In São Paulo, the venerable Morumbi stadium5 was excluded from the World Cup by FIFA because it lacked technical capabilities. The local organising committee for the World Cup decided to build a new stadium in order to meet FIFA’s requirements. After its overview visit to Brazil in May 2011, FIFA required enhancements to the new facility’s design. The enhanced design carried an estimated price tag of $650 million, a 30 percent increase in the total cost.

At the famous Maracanã Stadium in Rio, which was originally built for the 1950 World Cup, there was a $200 million renovation for the Pan American Games in 2007. That renovation was not suitable in FIFA’s judgement, so subsequent to the Pan American Games, Maracanã was partly demolished and then rebuilt for over $500 million. Part of the rebuild threatened the demolition of an indigenous cultural museum, a school and gymnasium to allow for a parking garage.

Seven hundred families had been displaced from favela (slum) adjacent to Maracanã. The first 100 were removed at gun point and resettled two hours away in a western suburb of Rio. The remaining families protested and sued, and eventually received better treatment.

These white elephants not only cost hundreds of millions of dollars to build, they cost millions of dollars annually to operate and maintain.

Rising Prices

The massive sports facility and infrastructure expenditures are taking place against a backdrop of sharp income inequality, a relatively low level of economic development, poor social services, increasing prices and rising expectations. At $11,300, Brazil’s per capita income is approximately one-fifth that in the United States. Measured by the Gini Coefficient, Brazil’s income distribution is roughly 40 percent more unequal than in the United States. Approximately 20 percent of Brazil’s 200 million-plus people live in poverty. Brazilian GDP, which grew at close to six percent per year during 2000-2010, slowed to a two percent rate during 2011-2013. Meanwhile, inflation accelerated from 3-4 percent during 2000-2010 to around six percent during 2011-2013, and as the World Cup approached in 2014, prices rose at a faster rate.

Housing prices spiked even faster. What is appealing gentrification to some is unaffordable housing to others. It is a pattern familiar to mega events as land becomes scarcer and demand often rises. According to the Knight Frank Global House Price Index, the rate of increase of home prices in Brazil during 2012 was the third highest in the world. The rate of increase in Rio is even higher, jumping 58.3 percent (in real terms) between August 2010 and June 2013.6

Violent Protests

During FIFA’s 2013 Confederation Cup warm up to the World Cup, over a million Brazilians spontaneously poured onto the streets. Many of the 2013 protests turned violent. The protests continued well after the Confederations Cup and into 2014. During the last week of February 2014, a demonstration in Sao Paulo of over 1000 people protesting the ‘waste’ of $15 - $20 billion7 on hosting the World Cup turned violent as the protesters ‘went on a rampage, smashing bank windows and setting up roadblocks with garbage set on fire.’ Military police put down the protest and arrested over 230 people.8

Toward the end of March 2014, less than 80 days before the start of the World Cup, the head of Rio’s police pacification (of the favelas) programme was shot, as part of a wave of violence against police. The popular movement seemed to confirm FIFA secretary general Jerome Valcke’s observation: “Less democracy is sometimes better for organising a World Cup.”9

In the final days before the opening match, worker strikes broke out across the country, affecting police, teachers and transit workers in Sao Paulo. Political groups threatened disruptive demonstrations and the government sat down to reach compromise with all of these groups. A poll of the Pew Research Center in June 2014 found only 34 percent of Brazilians felt the World Cup would have a positive impact on the country and 72 percent were dissatisfied with the nation’s direction.10

More Sore Points

Nor has Brazil’s international embarrassment – the ever-present uncompleted projects, the deaths of at least nine construction workers, the crane collapse at the stadium construction site in Sao Paulo, the decertification of Rio’s drug laboratory by the World Anti-Doping Association (necessitating the shipment of samples to Lausanne, Switzerland), and the critical comments of FIFA executives to the effect that the preparations in Brazil were the worst they had ever seen – helped to dampen the people’s protest.

Protest passions were also stoked by the forced relocation of entire favelas. Estimates are that 250,000 people living near construction sites were displaced. According to Clean Games, a transparency organisation created to monitor the World Cup and Olympics, no government body communicated with the displaced.11

A key part of the initial Brazilian World Cup plan was that former President Lula promised the stadiums would be financed with private funds. Brazil’s lackadaisical preparation was evident here as well. There had not been sufficient diligence on the potential sources of private funding and, ultimately, they were not forthcoming. Nearly all the stadium financing was paid for with public funds – another sore point for Brazil’s World Cup detractors.12

What did Brazil gain from its massive investment? Brazil will earn approximately $500 million from tourist spending, though much of this may replace spending from discouraged tourists who decide to vacation elsewhere to avoid the high prices, congestion and rowdy crowds of the Cup.

The infrastructure investments were highly specialised to serve the Games and will do little to promote development or ease the lives of the population.

Brazil’s image as a tourist or trade destination is more likely to be tarnished, than burnished.

In the end, world football fans will have been entertained, but Brazil will find itself with a massive clean-up from its football extravaganza and billions of dollars in debt.

Go to Content Page

Author

Andrew Zimbalist

Andrew Zimbalist is Robert A Woods Professor of Economics, Smith College, Northampton, Massachusetts. He has written extensively on the economics of sports and consulted widely in the industry.

  • +

    References

    1 M. Bastos and R. Mattos, "Esportes," Folha de Sao Paulo, Sao Paulo, May 19, 2011

    2 Ibid.

    3 Tariq Panja, "Brazil's Flamengo Won't Make 'Stupid' Deal to Return to Maranca," www.bloomberg.com, June 18, 2013.

    4 Bradley Brooks, "High Cost, Corruption Claims Mar Brazil World Cup," Associated Press, May 12, 2014.

    5 The capacity of Morumbi stadium is over 80,000 and is the home field of Brazil’s first division team, Sao Paulo FC. The stadium was built in 1952.

    6 Aragao & Maennig, op. cit., p. 18.

    7 As of June 2013, the projected costs on infrastructure and stadiums for the 2014 World Cup were as follows:

    $5.8 billion for transportation

    $2.9 billion for stadiums

    $2.8 billion for ports and airports

    $2.3 billion for security and health

    $1.9 billion for telecommunications and energy

    $900 million for new hotels in host cities

    These items total to $16.6 billion and do not include future cost overruns and operational expenses during the games. It seems that in the end $20 billion will be a conservative number. Sports Business Journal, June 17-23, 2013, p. 19.

    8 Cited in Sports Business Daily Global, Febraruy 24, 2014.

    9 Quoted in Marina Amaral & Natalia Viana, “Why Are Brazilians Protesting the World Cup?” The Nation, June 21, 2013.

    10 Ricardo Sennes, "Will Brazil Get What It Expects from the World Cup?” Atlantic Council Policy Brief, June 2014.

    11 Ricardo Sennes, "Will Brazil Get What It Expects from the World Cup?” Atlantic Council Policy Brief, June 2014.

    12 Tom Vickery, "Can Brazil Protests Be Traced Back to a 2003 FIFA Decision?” BBC News, June 24, 2013.

Back to Top

Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

Search