Is Hosting a World Cup Like Sporting a Chanel Bag?

Destitute spots hosting high-profile sporting events can at least burnish their international reputations even if they are hemorrhaging money, right? Well, probably not.
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A month after the 2010 FIFA World Cup in South Africa, it is reasonable to ask whether hosting the games was a success. Given the amount of money the South African government had to spend before and after winning the World Cup bid, there should be an economic benefit to match.

Unfortunately, the only economic benefit from the World Cup has been captured by FIFA. There are doubts that the games boosted the local economy by very much, nor will have a significant impact on that country's growth. Why would it? Human and physical capital that could have been allocated toward production were instead diverted to creating FIFA-approved soccer stadiums.

Sounds a lot like South Africa spent a whole lot of money on a nation's equivalent to Chanel's latest "it" bag.

Economists doubt that major sporting events improve the hosting country's economy. Research from the Sport Industry Research Centre at Sheffield Hallam University summarizes that some benefits may include a short-term boost in tourism, which is measurable; pressure to improve aging facilities, which is visible; or enhance the country's image, which is neither. Enhancing image is clearly non-pecuniary, making this benefit very difficult to measure. Still, given the lack of strong statistical evidence in favor of events improving GDP growth or local economies, we must place most of the benefit on this intangible benefit.

But when the host country does not have abundant capital, is putting so much effort and money into hosting major events that smart? Based on the most recent numbers from the CIA Factbook, 50 percent of South Africa's population is below the poverty line. While this number may have shrunk by 2010, how would the country's impoverished citizens agree to such an "extravagant" luxury that only wealthy countries can truly enjoy?

One natural conclusion is that national image matters.

Take China's 2008 Olympic Games, which cost $40 billion. The country saw this as an opportunity to showcase itself; it even replaced many of its public washrooms and encouraged its citizens to be on their best behavior. What was China trying to portray? As TV journalist Cao Jingxing states, the Beijing Olympics "was to be a landmark for the acceptance of China by the international community." Unfortunately though, some are even skeptical of the non-pecuniary benefits, as artist and activist Ai Wei Wei asks: "Is it possible for such a society to win international recognition and approval when liberty and freedom of expression are lacking?"

These major events often benefit wealthy countries the most, as those who are wealthy have the time and money to enjoy the games; it's no surprise that the professional sporting industry is most developed in the U.S. So when major events seem to provide few monetary (or non-monetary) benefits, what (or who) is pressuring these poorer countries to host?

The incentive likely comes from the desire of poorer countries to achieve social status. By hosting a costly major event, the poor country aspires to signal to the world of their status, much like a hip-hop artist's focus on luxury goods and other forms of conspicuous consumption (i.e. visible consumption).

Does this costly signal actually change how the world sees the host nation? A study by the University of Toronto's Feng Chi and I suggests that these efforts may be futile.

We take a look at BeautifulPeople.com's recent "beauty contest" involving all of the 2010 FIFA World Cup athletes and find that players from poorer countries — as defined by GDP per capita — are persistently viewed as being more ugly. Meanwhile, coming from a wealthy country yields a premium in social status. Despite recent criticism, perceived attractiveness does provide an appropriate measure of social status, albeit crude. Social status is, by definition, a ranking of individuals based on any number of factors; perceived attractiveness achieves this property.

Therefore, if poor countries stand to gain the most from improving their social status — in the same way that U.S. research shows that blacks and Hispanics care more about conspicuous consumption than whites — then we may empathize with their incentive to host major events.

But ignoring the country's economic needs for frivolous spending will only hurt the host's future economy and move it to a future state where it is even hungrier for status.

As there is an economic theory for virtually everything, it is not surprising a theory has shown that conspicuous consumption can prevent the disadvantaged from escaping poverty.

Poor (and developing) countries should understand that they do not benefit from hosting major sporting events, even as a country like the U.S. may benefit. It must be especially disappointing when the so-called "upper class" ignore their status signalling efforts. As the recent movie The Joneses illustrates, no good comes of "keeping up with the Joneses" unless you are a Jones.

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