/ 11 June 2015

Was World Cup 2010 worth it?

Was World Cup 2010 Worth It?

Using legislation enacted to tackle criminal enterprises such as the Mafia for its investigation, the FBI is alleging that rampant corruption became “endemic” to international football association Fifa.

The recent claims of corruption related to South Africa’s hosting of the 2010 World Cup are not the first. Members of a construction cartel, found by competition authorities to have rigged bids and ramped up prices by several billion when building the stadiums that hosted the matches, have already paid R1.5-billion in fines as penance for their collusion.

Fifa’s awards of World Cup rights to Russia in 2018 and Qatar in 2022 may now have to be revisited. The organisation will get a new president at the end of the year, amid widespread calls for reform to make it more transparent and accountable.

The reform job should not be left to Fifa itself, observers say, with one likening this to letting Ponzi scheme crook Bernie Madoff reform the financial system.

International Olympic Committee president Thomas Bach this week warned that the reform of Fifa would be a painful process. The Economist wrote that the process would not be easy when “the reality is that Fifa’s structure nurtures corruption”.

Fifa reforms
Kenyan news site the Daily Nation implored sponsors to put pressure on the association, noting “exclusive, rich and powerful, Fifa cannot reform itself”. Australia has announced it will no longer bid for the 2023 Women’s World Cup, pending the outcome of Fifa reforms.

Transparency International, which has long called for Fifa reforms, has now urged the organisation to enlist independent oversight to do so.

Local reports have focused on the payment of $10-million to the Confederation of North, Central American and Caribbean Association Football under Jack Warner – alleged to have been a bribe in return for votes that helped South Africa win its bid to host the event. At the time the payments were made, in January 2008, this would have been worth R70-million – a negligible amount in the context of the billions of dollars flowing in and out of the event.

The available numbers allow for some retrospection about who benefited most and least from the 2010 event.

Fifa spent R13-billion on the 2010 World Cup, mainly in the form of prize money, a contribution to the local organising committee and television production costs, and the South African ­government spent R30-billion on preparations to host it.

Guarded finances
Fifa boss Sepp Blatter, in announcing last week he would be ­stepping down, also revealed that the nonprofit organisation would be subjecting itself to a reform process.

Although Fifa does publish its financial statements, it is so guarded that, for instance, Blatter’s salary has never been disclosed.

What Fifa did report in its 2010 financials is that the World Cup had brought in $3.9-billion in revenue – 60% of which was generated by awarding television rights for the event.

Fifa reported a $631-billion surplus for the four years ­spanning 2007 to 2010.

In this report, Fifa noted that in 2010 it was able to give its 209 members an extraordinary payment of $550 000 each; its six confederations got $5-million each. A further $100-million was donated by Fifa to the World Cup Legacy Trust to develop football in South Africa.

Fifa’s wage bill, as stated in its 2010 report, was $65-million. The association says that 70% of its expenditure goes to support football; the other 30% covers its administrative costs.

Government investment
In South Africa the national government invested more than R30-billion in preparing to host the event. An estimated R10-billion (according to Grant Thornton) more was spent at provincial and municipal level.

The bulk of South Africa’s World Cup spend went into upgrading and building stadiums across the country, which the competition authorities later found to have been subject to collusion and bid rigging.

The Competition Commission found the profit margins on the winning bids for the World Cup stadiums were far removed from industry norms and were closer to 17.5% than the average 3.5%, resulting in unfair profits.

A total of R1.5-billion was returned to the fiscus in the form of fines paid to the Competition Tribunal by the accused parties, including major firms such as Group Five, WBHO, Steffanutti Stocks, Aveng and Murray & Roberts.

The energy department was tasked with providing sufficient power supply during the tournament. This was achieved by strengthening the grids in all the host cities and even leasing generators where necessary.

When load-shedding began again in January this year, now-axed Eskom chief executive Tshediso Matona made it clear that the strain on the national grid was caused by a backlog in maintenance because of having to provide power at the time of the World Cup as well as during national elections.

The 2010 Fifa World Cup Legacy Trust (not to be confused with the Diaspora Legacy Programme, to which the alleged $10-million bribe was diverted) was also formed following the World Cup to support a variety of charitable initiatives in South Africa.

Fifa contributed $100-million to the trust, $80-million of which was meant to be invested directly in social community projects.

The remaining $20-million was paid to the South African Football Association before the tournament to cover World Cup preparations and the construction of the association’s headquarters.

For the first project financed by the trust, Fifa purchased 35 team buses and 52 vehicles, which were handed over to Safa on December 13 2010 for its regional teams.

Legacy trust
Joe Carrim, the manager of the legacy trust, told the Mail & Guardian this week that it was formally established on April 13 2013. That was when funds (of R450-million, only half of the reported legacy contribution) were transferred. The trust has already awarded tranches of funding to beneficiaries following three phases of applications. Asked how many phases are planned, Carrim said it will be “ongoing until the money is finished”.

He added: “The interest accrued on the funds is R88-million, expenditure on grants is R118-million, and the current balance is R410-million.”

The 2010 Fifa World Cup Country Report, published by the department of sport and recreation and released in 2013, said the government had initially set aside R8.4-billion for stadium construction.

“However, due to cost escalations this amount was readjusted to R13.5-billion.

“The host cities, together with their respective provinces, also made financial contributions totalling R2.1-billion towards the stadium construction,” the report said.

Small price
The R30-billion would have accounted for roughly 7% of the government’s consolidated national expenditure for the 2007-2008 fiscal year alone.

It was a small price, some say, for both the measurable and immeasurable benefits. “It was manageable in the broader context of government finance,” said Stanlib chief economist Kevin Lings.

That South Africa would fund the event through long-term debt had been a concern at first, but the country’s debt-to-gross domestic product ratio dropped from 34.6% in 2006 to about 28% in 2008-2009, and all financing took place through the usual annual budgetary allocations since 2006, the government said.

South Africa’s World Cup legacy includes costly stadiums that run at an annual loss. (David Harrison, M&G)

For South Africa’s economy, a direct benefit of hosting the tournament was that it added 0.4% to national economic growth, translating into R38-billion that year, as estimated by the finance minister, Pravin Gordhan. This occurred at a time when the rest of the world had fallen into recession.

The sport department’s report claims the investment in 10 “excellent stadiums” alone created 66 000 new construction jobs, generating R7.4-billion in wages, with R2.2-billion going to low-income households and therefore helping reduce poverty. The second-largest spend went to transport infrastructure – such as the upgrading of roads and the building of the Gautrain – and R1.5-billion was budgeted for event broadcasting and telecommunications.

Marketing gains
“No doubt these things cost a lot at the time,” said Lings. “The immediate tangible benefit is the boost to GDP, but you are pretty much laying out that much so this is not a major gain to you at the time. The real benefits are the marketing gains and how you utilise it going forward, capitalise on it.”

A boost to tourism was a key benefit, Lings said (see below).

Mike Schussler, director at Economists.co.za, said: “I’ll say now what I said then. Physically, we won’t make our money back. But it was a good marketing exercise, it put us at the centre of the world stage and was good for tourism.”

Gillian Saunders, head of advisory services at Grant Thornton, agreed. “It offered a platform for a huge amount of marketing,” she said.

The sport department reported that 3.1-million spectators attended the 64 matches during the tournament.

Worldwide viewership
According to findings by TNS Research Surveys, 32-billion viewers worldwide watched the World Cup on television.

The two minutes a game spent promoting South Africa amounted to an estimated R1.5-million worth of advertising.

“There is a marketing reason to do this,” Schussler said. “Although now we are stuffing it up … It now seems we paid to lose money.”

Lings said South Africa benefited because critical infrastructure, some long overdue, was invested in.

“We did see infrastructure spending that did add to GDP – that’s like saying I baked a cake and added value when no one is eating the cake,” Schussler said.

‘Critical infrastructure’
Durban’s Moses Mabhida Stadium made a reported loss of R34.6-million in 2013 and the Cape Town Stadium makes a loss of about R40-million each year.

Saunders challenged the perception that the stadiums are not well used. Globally, “use of between 24 to 36 times a year is considered good for a Wembley Arena [and the like] … although not necessarily for Premier Soccer League stadiums”.

She said that prominent musicians who have performed in South Africa since 2010 may not have come had the stadiums not been in place, because they offer the size and quality that make such events lucrative.

Lings said: “Most of the infrastructure was well needed and critical. I think the money, the whole thing, becomes very beneficial over time.”

Keen to host a World Cup? Here’s how you must bow and scrape

A Fifa World Cup requires the host country to bend over backwards to meet Fifa’s requirements, ranging from tax exemptions to exchange controls and even the price of hotel rooms. And South Africa was certainly no different after winning the bid to host the 2010 championship. Fifa’s legal status as a nonprofit entity allows it tax breaks in its resident country of Switzerland – already a low-tax jurisdiction.

And in the countries where World Cups have been hosted, Fifa and its “family” are known to enjoy full or partial tax exemptions.

In South Africa, revenue laws had to be amended to allow for the exemptions. In response to media reports at the time that South Africa would lose millions in income tax, the South African Revenue Service said the event was not a profit-making exercise.

That might be so for South Africa but certainly not for Fifa, which made a $631-million surplus, largely generated by the sales of television, marketing and hospitality rights.

This was helped by a government guarantee to protect Fifa’s intellectual property rights (and those of its sponsors and partners) and to prevent ambush marketing by declaring the 2010 football World Cup a protected event in terms of section 75A of the Merchandise Marks Act, effected by a notice in the Government Gazette.

In total, seven pieces of legislation covering and protecting the intellectual property rights of the 2010 Fifa World Cup trademark were drafted and regulations prohibiting the use of certain words, devices, letters, emblems and numerals relating to the 2010 Fifa World Cup trademark were published.

The department of tourism also undertook to ensure that hotel prices for the Fifa delegation and commercial affiliates, broadcasters and media teams would be frozen from January 1 2010 and that the prices would be 20% less than the frozen prices.

In addition, Fifa personnel were exempted from having to obtain work permits, and were guaranteed visas and priority immigration procedure treatment.

Exchange controls were relaxed to ensure that there were no restrictions on the import and export of all foreign currencies to and from the country.

This enabled the unrestricted exchange and conversion of currencies for those involved in hosting, or attending, the tournament.

SA tourism soared after the World Cup

The 2010 Fifa World Cup elicited a great deal of expectation about what it could do for tourism in South Africa. For the period May 1 to July 11 2010, 2.4-million international visitors were processed, compared with 1.1-million in 2009. The department of sport reported that each visitor spent on average R11 800, bringing in a cumulative R3.64-billion, with the highest percentage (31%) being on shopping.

“Undoubtedly tourism has benefited,” said Gillian Saunders, head of advisory services at Grant Thornton. “Everyone in tourism would welcome such an event again.”

Gauteng’s provincial economic impact report following the event noted that expectations of a greater influx of foreign tourists weren’t met, “as evidenced by the number of unoccupied beds in hotels”.

But Lings said there is no doubt the World Cup contributed to record tourism inflows, although the numbers never quite reached the level expected. “We were hosting the tournament amid a global recession,” he said.

But the event has continued to benefit the country’s tourism after the fact. “We know you don’t get the instant benefit [but] get repeat tourism, very evident in numbers,” Lings said.

Statistics South Africa’s numbers show a steady increase in tourist arrivals since the World Cup.

Over the busy December period in 2010 tourist arrivals peaked around 100 000, and in December 2012 the figure breached the 120 000 mark. In December 2014, more than 150 000 tourist arrivals were recorded.