The World Cup trophy is a shade over a foot tall and made of 11 pounds of 18-karat gold. But its hefty dollar value is nothing compared to what's been spent on soccer's quadrennial championships, which begin in Brazil this week. In spite of billions that have been poured in to Brazil's infrastructure, it's not ready. Similarly, the Sochi Olympics' price tag would have funded a small country; and $2 billion is on offer to buy the Los Angeles Clippers. Are teams and sports frenzies worth the cost? Andrew Zimbalist analyzes sports economics (at Smith College and in his new book, "The Sabermetric Revolution") to see whether all the dollars make sense.
FOR THE RECORD:
Sports: Due to a transcription error, a revenue growth figure in the "Patt Morrison Asks" column featuring sports economist Andrew Zimbalist was incorrect. In order to justify the $2-billion price tag for the Los Angeles Clippers, the team's revenues would need to increase by $370 million, not $730 million. —
Brazilians are protesting, "We need food, not football." With $11.5 billion spent, some venues and infrastructure aren't close to ready. In this instance, sports has economic consequences and they're not all good.
I'm not sure there's much of a benefit at all. Brazil started on a program in the favelas and shantytowns that looked like it might be socially progressive, but not anymore. This is an underdeveloped country that has a woeful public health system and deficient education system. They've made promises about improving those things, but they fell so far behind, and there's so much corruption in the contracting, they don't have the money to do some of the projects that might have been positive.
Instead you have things like building a soccer stadium of 43,200 capacity in the city of Manaus in the Amazon [that after the World Cup will still have] a minor league soccer team that draws 1,000 to 1,500 fans. It's understandable why millions of Brazilians feel they're wasting their money. And it's going to require a lot of money to maintain these facilities; [otherwise] they let them go to seed, as they did in Athens [after the 2004 Olympics].
Didn't South Africa pull off the World Cup in spite of a lot of doubts and criticism?
The South African experience doesn't seem to have been very positive economically. Rugby is the main sport there. They built stadiums in cities where they don't have soccer teams. They drew far less people than they thought. There's no clear evidence of an uptick in tourism as a result of the World Cup. There wasn't a lot of violence, but a number of communities were relocated, a lot of people are quite angry about it. It's too generous to call that a success story.
Qatar may lose the 2022 World Cup over bribery allegations; the Sochi Games construction was brazenly corrupt; the Salt Lake Olympics bribery scandal rocked the IOC. Is this damaging the events themselves?
Fundamentally, some [voting] representatives of FIFA and the IOC are coming from countries [that] are quite poor, and these people are susceptible to getting bribed. It's a problem; these are monopoly organizations.
Why is that a problem?
The IOC and FIFA have both overplayed their hands. It's happened at the IOC before.
In the late 1970s they couldn't get anybody to bid to host the 1984 Olympics. Finally, Los Angeles did. But the city charter was amended to state they would not spend public money on them. Peter Ueberroth designed a sponsorship strategy to raise enough money, and he got the IOC to agree he wouldn't have to build any major facilities, so he was able to pull it off. Los Angeles '84 reenergized cities and got them interested in hosting the Olympics again.
The IOC and FIFA have to be careful because if they take too much advantage of their monopoly, getting countries and cities to bid against each other, they end up creating economic chaos and economic loss, social protests, and that's the situation they face right now. There's going to have to be some reform.
How much do cheating and other scandals damage a sport itself?
People love their sports. They're ultimately willing to look the other way if they're convinced the organizing body is genuinely trying to control the problem. Baseball has been trying to do that [with steroids]. The IOC cleaned up a little bit [after Salt Lake]. FIFA still has a major problem, but I suspect they'll figure out a way to make it look like they're working hard at it.
The IOC's Anita DeFrantz quoted another IOC member to me, saying cities' bid documents are "the most amazing fiction you'll ever read."
[For 2016], Rio is building a golf course. They started too late. An environmental group protested that they didn't apply for the permissions they needed, and [a prosecutor might make] them stop constructing the golf course. So it's unclear how they're going to have a golf course now. And there are much worse problems than that.
Do big sports events skew the cities' culture?
It's a bit different in every city and country, but basically there's a lot of energy and excitement before the Olympic Games; you get thousands of people volunteering, so the spirit during the Games is very positive. But then it deflates and things go back pretty much to the way they were. It's hard to find evidence to support permanent uplifting.
The $2 billion price tag for the Clippers has been met with a huge eye-roll.
Does it make sense financially? The answer is no. NBA franchises [realistically] sell for approximately 4.5 times their projected revenue, and the Clippers last year had about $130 million in revenue. They would have to have their revenues grow by $730 million to justify the price he paid. They're not going to do that. There are enough billionaires around to buy the 120 sports teams in the United States, but not all billionaires are as sports-crazed as [Steve] Ballmer. Most billionaires won't throw away money; he's buying himself a very expensive toy.
Does this kind of private money put an end to cities like L.A. trying to keep or entice teams with incentives like tax breaks?
I don't think Ballmer throwing his money around is going to impact that. The factors causing cities to be cautious are, one, cities are broke, and two, there's increasing information about why the traditional stadium deal doesn't work financially for cities.
If [the tax breaks] are borrowed money, it has to be paid back. The debt service means the city can't spend that money on other public services or reducing taxes. Those things offset any positive influence on job creation that the construction of the stadium had.
Independently, scholarly studies say stadiums or arenas by themselves, under traditional financing packages, are not economic engines — they don't produce jobs, they don't raise per capita incomes. The evidence allows for a particular deal that's favorable to the city that could be mildly positive. [But] the evidence is that you don't go into this expecting it's going to be a positive driver of development.
So how does Los Angeles look vis-a-vis an NFL team?
The issue is going to be whether L.A. or some suburb is willing to put up money to build a stadium, or whether a combination of public money and an individual who's going to buy the team would put up that money.
Part of the problem with the LA Live plan was that the stadium was going to be owned by AEG, and AEG was not going to be the primary owner of the team. The NFL wouldn't do that.
The NFL wants not only a stadium that takes up 10 or 15 acres but another 10 or 15 acres of parking lots for tailgating. So you're taking up 25 to 35 acres of developable real estate and using it 10 to 15 times a year. It's silly. If you think the pleasure of having an NFL team is worth it, go ahead, but if you think you're going to help the local economy, then you are being sorely misled.
The Dodger TV deal is lucrative, but it has cut out a lot of fans.
I think [team owners] Stan Kasten and Mark Walter are quite concerned about it. Baseball needs a mass base. It needs people who are watching on TV, going to the stadium, talking about it at work, at cocktail parties. Television is an advertising vehicle for all of that, and if you're not [widely available] on television, then people lose that connection.
The deals Time Warner signed with the Dodgers and the Lakers are apparently very bad deals for Time Warner. Their bet was that they were going to be able to sell the Dodger station to all the households in greater Los Angeles, and they've only sold it to 30%.
What's the remedy?
One possibility is to move to a system that has more pay-per-view in it, or a system that has tiers and people would only buy the tiers they were interested in. Or you can have more government regulation to control prices. I don't think there are simple solutions, and technology is changing rapidly. The whole nature of delivering video entertainment has to be reconceived.
Knowing what you know, do you enjoy sports?
Yes. I don't generally watch college sports because I think they operate too far from the moral and educational pretenses that they're supposed to operate under. There's too much hypocrisy and nonsense in college sports.
But professional sports acknowledge that they're a business, and it's easier for me to enjoy that. I follow baseball more closely because I played the sport, and I do consulting for the baseball industry [among others]. I don't enjoy football as much primarily because of the violence. And I find watching basketball on TV is kind of tedious; it seems most [games] are decided in the last couple of minutes. Soccer is a little slow for me to watch on TV, like hockey. I enjoy watching all of them live.
I tend to root for teams when I like the owners, and I tend to root for the underdogs. If I lived in a town where I thought the owner had exploited the city, I'm pretty sure I would not follow that team. I live in Massachusetts, and I think the owners of the Red Sox and Patriots are exemplary. They paid for their own stadiums, they are good public citizens.
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