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From issue: Sports: Business, Integration and Social Change (Summer 2011)

AQ Feature

Brazil's Long To-Do List

Can Brazil build the massive infrastructure it needs to host the Olympics and the World Cup?

Read an article on World Cup preparations in Manaus, Brazil.

Never mind that the Brazilian government is trampling the homes and uprooting the communities of the poor in some inconveniently located favelas. Never mind that many of the million-plus residents of Rio de Janeiro’s shantytowns still find their lives controlled by violent drug gangs and that the crime rate in Rio ranks among the highest in the world. Never mind that 1.5 million Brazilians are scheduled to be relocated before 2014.

There’s a party to throw—actually two—and the world will be watching. Brazil will host soccer’s World Cup in 2014 and the Summer Olympic Games in 2016. Years ago, when Brazil convinced the International Federation of Association Football (FIFA) and the International Olympic Committee (IOC) that it had the best plan to host these mega-events, grand promises of new sporting venues and modern infrastructure were made.

If Brazil’s dreams for these games became reality, here’s what would have to happen: Brazil’s post-1994 economic boom would have to accelerate, and the country would grow from an emerging market into a developed economy. That would enable Brazil to afford the estimated $1 trillion in public works spending to pay for renovation and construction of 12 stadiums and a massive overhaul of the national transportation infrastructure. The projected work includes: building new roads; creating  a rapid-transit train between São Paulo and Rio, new subway lines in São Paulo (especially Line 4 from the airport to downtown), and new ports; and expanding 12 airports—not to mention building new hydroelectric plants and transmission lines to power it all. The investment and construction would generate hundreds of thousands of new jobs and investment opportunities would multiply.

That’s not all. The World Cup would attract tens of thousands of tourists to Brazil in 2014 and even more to the Summer Olympics in 2016. Staying for a week or more, the sports fans would pump millions into the economy by spending on meals, entertainment and accommodations.

To cap off this fantasy scenario, worldwide media attention would enable Brazil to brand itself once and for all on the global stage as a vibrant, rich, diverse, and sophisticated country—equal to any in the industrial north.

A lovely scenario, but one that neither the World Cup nor the Olympics has ever spawned and one that is even less likely to transpire in Brazil.

The Reality of World Sports Boondogles

The so-called host Organizing Committees of the Olympic Games (OCOGs) like to report that every city that has hosted the Olympics since 1984 has broken even. The problem is that the OCOG budgets refer only to the operating costs, not the capital costs. Those capital costs (the stadiums, the Olympic village, the media center, infrastructure, etc.) represent the greatest expenses but are not included in the OCOG reports. (The same underreporting of the actual costs is true for the World Cup as well, though the accounting categories differ.)

For the 2008 Beijing Olympics, the total budget exceeded $40 billion. In London (2012), the cost of hosting was initially projected to be $4 billion; it is now over $20 billion and counting. South Africa spent almost $12 billion to host the 2010 World Cup, while Merrill Lynch estimates that Qatar will spend over $65 billion to prepare for the 2022 world soccer competition.

An aerial view of Rio's Maracanã Stadium behind the statue of Christ the Redeemer. (Photo: Pedro Kirilos/LatinContent/Getty)
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Brazil’s projected budget for hosting the World Cup is $13.3 billion and $18 billion for the Olympics (not counting the projected amount of public and private investment that will be needed before). The problem is that based on recent games, the World Cup generates approximately $3.5 billion in revenue (with most going to FIFA) and the Summer Olympics generate around $5 billion (with most going to the IOC).1 Simple arithmetic says that the games will be net losers for the host country unless the host makes up the difference with increased income from tourism and investment during the games or—as a result of the games—in the future. The other way to make up for the cost is if the physical legacy from the games (sports venues and infrastructure) can be turned around to produce a future stream of benefits.

The prospects are not bright. Consider the following.

First, in Brazil’s roaring economy, the kind of capital investment that is being demanded for the games risks both inflation and low-quality construction. Economic stimulus spending can be helpful to an economy with high unemployment and excess capacity. In such circumstances, expansionary fiscal policy can indeed create jobs, lift demand for goods and services, and promote economic growth. Brazil’s economy, however, is experiencing strong economic growth (7.5 percent in 2010) and record low unemployment (around 6 percent in April 2011). When governments undertake major, long-term infrastructure investment programs under these conditions, economic theory warns of overheating the economy. This appears to be what Brazil is experiencing with rising inflation, currently at over 6 percent per year (despite tight monetary policy). There is so much building going on that construction workers are fully employed. According to one recent report, 80 percent of São Paulo’s construction projects are being delayed because there aren’t enough qualified workers to proceed. When large capital projects, such as those for the World Cup and Olympics, are under severe time pressure, it forces construction to go forward without a properly skilled work force,
auguring potential problems down the road in the form of shoddy work, low-quality materials and wage inflation.

And project costs inevitably balloon.

Second, planners should not count their tourism eggs before they hatch. While many tourists will be attracted to a sports mega-event, there will be others who would normally travel but are frightened away by the anticipated crowds and higher prices. It is extremely difficult to determine how much “crowding out” actually takes place when an area hosts the Olympic Games. However, a 1999 study by Philip Porter, “Mega-Sports Investments: A Critique of Impact Analysis,” found that gate arrivals at the Atlanta airport during the 1996 Summer Games were identical to gate arrivals in the same months in 1995 and 1997, implying that quite a few tourists to Atlanta were crowded out by the 1996 Games.2

In late 2004, Athens tourism officials estimated a 10 percent drop in summer tourism due to the Olympics. The Utah Skier Survey found that nearly 50 percent of nonresidents planned to stay away from Utah in 2002 due to the expectation of more crowds and higher prices. The Beijing Tourism Bureau projected that the number of visitors to the city in August 2008 during the Olympics would not be greater than in August 2007.

Whether or not tourism increases after the Games is also questionable. Did prospective tourists become more aware of Beijing after the 2008 Games, and, if so, did they become more or less interested in visiting the city after the stories surfaced about the city’s pervasive and penetrating pollution? While it is always difficult to untangle the impact of the economic crisis, in the case of Beijing, tourism numbers after the 2008 Games do not look encouraging.3

If the 2014 World Cup and the 2016 Olympics are executed without a hitch, if there is no violence, no whiff of corruption, no reports of long traffic delays, and if the weather is appealing, then more tourists may be inclined to visit Brazil than previously. But these are big ifs. Keep in mind that Brazil is hardly a secret as an international tourist destination. Rio, for example, is the most visited city in the southern hemisphere, receiving over 2.8 million tourists annually. And in the worst-case scenario, any misstep or catastrophe that occurs during the games while the world is watching, could alter the mostly attractive image that Brazil enjoys today.

Third, there is the issue of physical legacy and white elephants. Land is scarce and will only grow scarcer over time. With each sports facility taking up 15 to 20 acres of urban real estate, that land will not be available for other, perhaps more productive, use for several decades. Think of Beijing’s Bird’s Nest, Water Cube or Velodrome—all beautiful monuments to the sporting events they hosted, but now largely unused—and with hefty maintenance costs.

While the Sydney OCOG in 2000 reported that it broke even, the Australian state auditor estimated that the Games’ true long-term cost was $2.2 billion. In part, this was because it is now costing $30 million a year to operate the 90,000-seat Olympic Stadium. The story was little different for the 2004 Games in Athens, where maintenance costs of the Olympics facilities by 2005 were about $124 million per year, and there appears to be little to no local interest in the two Olympic soccer stadiums.

According to a 2010 analysis in the Wall Street Journal, 21 of the 22 stadiums erected for the 2004 Summer Games in Athens were unoccupied in 2010. The article reported: “The vacant venues, several of which dominate parts of the city’s renovated Aegean coastline, have become some of the most visible reminders of Greece’s age of excessive spending. Sites range from a softball stadium and
kayaking facility to a beach volleyball stadium and a sailing marina. As Greece sifts through the wreckage wrought by its enormous public debt, the Games are once again unifying this nation—this time as a target of criticism.”4

A 1999 retrospective study by Jon Teigland on the long-term economic impact of the 1994 Winter Olympic Games in Lillehammer, Norway, found little long-term benefit. Despite extremely optimistic predictions from local and national authorities about the impact of the Lillehammer Games on local tourism, within a few years, 40 percent of the hotels built in and around Lillehammer for the Games had gone bankrupt. Two large alpine skiing facilities built for the Games had been sold for less than $1 to prevent bankruptcy.

In general, the long-term effects on tourism in the Lillehammer area were a fraction of the impact forecasted by planners. Even the Games themselves were something of a letdown for the hospitality industry in Lillehammer  concluded Teigland, “February 1994 became a major disappointment for many hotels in the host region.”

Getting to Work

For now, though, the biggest concern for Brazil is beginning and finishing the myriad construction projects that were part of its World Cup and Olympics bid proposals. The obstacles are severe: they include labor shortages, bureaucratic encumbrances, political corruption, legal entrapments, insufficient funds, incompetence, and inadequate infrastructure.

As Brazil’s Sports Minister Orlando Silva warns, “We need to begin to control people’s expectations. The idea that we are going to make up for 30 years without [having made] investment in infrastructure was probably never realistic.”

Consider the Following

 

  • The São Paulo stadium that is slated to host the World Cup’s opening match has not even had its groundbreaking. FIFA has expressed its dismay.
  • Today—even without the flood of sports fans—visitors returning home from São Paulo by air are recommended to leave their hotels five hours before their flights because traffic snarls along the 15-mile road to the airport cause interminable delays, which are then compounded by massive lines at airline counters. Latin Trade magazine ranked the São Paulo airport the worst among 26 major airports in Latin America, and conditions have only deteriorated as airline traffic has soared along with Brazil’s economic boom.
  • The armed forces, which control airports, are renowned as one of the most dysfunctional government agencies in the country. One-third of its engineers are under suspension for corruption charges. Of the $3.3 billion that Brazil budgeted to upgrade the nation’s airports, reportedly only 2 percent has been spent so far. President Dilma Rousseff has given up on the plan to create a new terminal at the São Paulo airport before the World Cup and instead says that Brazil will rely on temporary, warehouse-like modules to accommodate the additional travelers during the World Cup and the Olympics. Among other things, this is precisely the outcome countries need to avoid when hosting mega-sporting events— spending millions of dollars on structures that have no legacy or lasting benefit for the country’s development.
  • The railroad line that was supposed to connect downtown São Paulo to the airport is hopelessly behind schedule and is no longer expected to be ready for the coming competitions.

Entangled political systems often look to events like the Olympics and the hard construction deadlines as a way to break through the red tape of the decision-
making process.

It’s a nice thought when it works. When the obstacles are too great to overcome, however, the costs can be high. Brazil’s legendary soccer star, Pelé, has warned that the country is at risk of embarrassing itself before the world.

Brazilians may have been dancing in the streets when FIFA awarded the 2014 World Cup to the country, but there is a difficult road ahead. FIFA reports that more than 2.6 billion viewers watched the 2006 World Cup. Potentially, that’s a mountain of negative public relations if President Rousseff cannot unlock Brazil’s bureaucratic gridlock and harness its people’s energy to prepare the country.

Brazil may never recoup directly its massive investments for hosting the 2014 World Cup and the 2016 Olympics. By avoiding the temptations of gigantism in its construction projects, focusing on infrastructure improvements that will serve the country’s economic development, making full use of existing sports facilities, and involving local communities in the planning process, however, Brazil can maximize the likelihood that these mega-events will not create a financial and political burden going forward.

After all, it is unthinkable that the country of Carnaval would let the world down by throwing a bad party, not just for the world, but most importantly for its own people.

ENDNOTES:

1. For information on the 2010 World Cup see:  http://bleacherreport.com/articles/406843-money-makes-the-world-cup-go-roun (last accessed  May 4, 2011) for information on the Olympics see: http://www.olympic.org/Documents/IOC_Marketing/OLYMPIC_MARKETING_FACT_FI... and  http://www.olympic.org/Documents/marketing_fact_file_en.pdf  (last accessed May 5 2011)
2. Philip Porter, “Mega-Sports Events as Municipal Investments: A Critique of Impact Analysis.” In Sports Economics: Current Research, ed. J. Fizel, E. Gustafson,and L. Hadley (Westport, CT: Prager, 1999)
3. See: http://www.ft.com/cms/s/0/6a0fd5ae-dd77-11dd-930e-000077b07658.html#axzz... (Last accessed May 4, 2011)
4. Christopher Rhoads, “Post Olympics, Facilities Left to Rot in Athens,” Wall Street Journal, June 19, 2010
5. Jon Teigland, “Mega-events and Impacts on Tourism; the Predictions and realities of the Lillehammer Olympics,” Impact Assessment and Project Appraisal 17 (1999): 305-317.

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