Why Hosting the World Cup Is a Losing Proposition for South Africa

Organizers of the 2010 World Cup, which started Friday, are making the same error that backers of big sporting events always do -- overpromising and underdelivering.

In 2008, the South African governmentsaid the global soccer tournament would create an estimated 695,000 jobs and have a gross impact of 93 billion rand ($12 billion U.S.) on South Africa's economy. The government also estimated that the games would grow the country's gross domestic product by 0.3% to 0.5%. "[T]he indirect spin-offs from improved perceptions abroad could have an even greater, longer-lasting impact, not only on South Africa and its development but on the continent as a whole. A successful World Cup will help change the perceptions that a large number of foreign investors hold of Africa " the government wrote on its web site.

That's quite a bit to expect from a soccer tournament. Economistsare skeptical that the World Cup will meet those lofty expectations and history shows that it will most likely not. Indeed, FIFA,which sponsors the tournament, doubted that South Africa would be able to pull the games off and even created a contingency plan that would entail moving this year's World Cup to the United States.

Great Expectations

As of April, the government has spent 30.3 billion rand ($3.94 billion) and local cities and provinces have spent another 9 billion rand ($1.17 billion) -- far in excess of the 17.4 billion rand ($2.27 billion) the country expected to spend in 2007. Even worse, the total number of tourists expected has fallen short. Government estimates for World Cup visitors were slashed to 373 000, from 483 000.

Countries are often disappointed when major events like the World Cup or the Olympics fail to deliver on their high expectations. In fact, such mega-events consistently fail to deliver on the economic benefits that were expected during the bidding process when everyone is so excited to host the games.

"You've got this image of people descending on a country and that's going to provide a significant economic boost to the country," Rob Baade, policy adviser on economic issues for the Heartland Institute, a public policy think tank,and chairman of the economics department at Lake Forest College, told ABC News. "The reality is something quite different."

A Losing Record

Big sporting events bring big budget-busting headaches. At the Olympics in Vancouver in 2010, security costs were originally estimated at $165 million. They eventually hit about $1 billion, according to the New York Times. And that was just the security budget. The two-week long competition saddled taxpayers with nearly $1 billion in debt after the torch was extinguished. The 2004 Athens Olympics cost nearly $11 billion at current exchange rates, about double initial estimates, and is being blamed for which some people say laid the foundation of the current economic crisis that is gripping the nation. Researchers also have failed to find any evidence that having a professional sports team boosts the local economy.

As the Sunday Times of South Africa noted, the same pattern is holding true for the World Cup. Among the paper's findings were that the construction of the 10 World Cup stadiums cost more than 10 times the estimated price when South Africa bid for the games in 2003. The World Cup's economic benefits have also been inflated, the paper says.

Could South Africa Eventually Win?

London-based economist Razia Khan of Standard Chartereda financial research firmargues the World Cup has given South Africa a cushion against the worldwide economic slowdown. The studies that show little or no impact from sports may not be applicable to South Africa where unemployment is an astounding 25%, Khan writes.

"Build an additional stadium in Germany, which already has plenty, and diminishing returns will eventually set in," she writes. "Job creation, even if driven by a short-term spike in public expenditure, still yields a high social return."

But at what price? South Africa's economy, Africa's largest, has its fair share of problems. There is a huge gap between rich and poor. President Jacob Zuma is mired in scandal. Earlier this year, rumors surfaced that Zuma had fathered his 20th child with a woman who was neither his fiancee nor one of his three other wives. His mistress was Sonono Khoza, 39, daughter of Irvin Khoza, the chief organizer of the World Cup and a friend of Zuma's.

"Daunting economic problems remain from the apartheid era - especially poverty, lack of economic empowerment among the disadvantaged groups, and a shortage of public transportation," according to the CIA Factbook. "More than one-quarter of South Africa's population currently receives social grants."

Unfortunately, political leaders blinded by the allure of the false promise that come with these events will ignore the lessons of South Africa, Greece and Vancouver and continue to bid on events with costs beyond their means in the guide of tryingto solve their economic ills.