Unprofessional Foul


December 7, 2010

Gotta Spend Money to Make [Less] Money

When I Grow Up, I Want to Be Converted to a Shopping Mall

The 2010 World Cup was a smashing success, except when it was a failure, which it also was.

Results of a survey conducted by South African Tourism and the National Department of Tourism, as well as the Office of Redundancy, were released yesterday. And it’s all good news.

At least that’s according to the headline from something called “Conference & Incentive Travel” that reads “FIFA World Cup 2010 Boosts South African Economy, Survey Reveals.” And really, why wouldn’t a publication dedicated to conference and business-related travel dig deep behind the numbers to see what they actually mean?

We can excuse them for their laziness, but shouldn’t the bar be a little higher for CNN?

Answer: no. From Turner’s newschild: “South Africa’s tourist industry happily blew its own vuvuzuela Monday, reporting a half-billion dollars in receipts from hosting this year’s FIFA World Cup matches.”

Never mind that the half-billion figure (specifically $529.6M or 3.6B rand) was well under the original projections for revenue. Almost nowhere in any of the media reports about the survey results does anyone bother to mention that the World Cup cost South Africa about $5.8B (roughly 40B rand) in infrastructure and other related spending.

Now, I’m not a high-rolling Wall Street wiz, but I’d venture to say that a -91% return isn’t really that great.

On the plus side, September tourism numbers from well after the Cup was over, are up almost 13% year-over-year.

And this is the tact that South African ministers started taking almost the moment that it became obvious that the country wasn’t going to come near it’s original projection for visitors and revenue during the Cup—that this was a long term project and the benefits would come over time.

This was a theme echoed by Tourism Minister Marthinus van Schalkwyk, the man presenting the report yesterday: “The tournament has positioned South Africa as a viable investment market and the spin-offs of improved perceptions abroad could have a long-lasting impact… The World Cup is not an end objective, it is just one building block in building the value of this industry in ensuring that it becomes an even more important subsector of our economy… This is an extremely positive vote of confidence in our destination, our capabilities, our facilities and our people,”

And to some extent, that’s a legit argument. Personally, when I now think of South Africa, I think, “Hey, they pulled it off without much problem.”

So eventually everything will work out. The end.

Okay, not really because the next thing I think is, “But it’s still pretty crime ridden.”

Despite the fact that September’s tourism numbers were up year-over year, overall they are still down from 2008. Compared to that year South Africa is still off 28% of international arrivals.

And compared to the previous “long haul destination” World Cup—2002 in Korea/Japan (Germany was easily accessible for many Europeans)—the numbers were also a bit of a disappointment, with South Africa only attracting 309,000 tourists to Korea/Japan’s 403,000.

Of course, some of the infrastructure spending (airports, roads, telecom, etc.) has long term benefits to the people of South Africa that don’t show up in a survey of hotel operators. Then again, they’ve also got massive modern stadia they paid a hefty price for that they don’t seem to have much use for and are already looking like they are too expensive to maintain.

None of this is to say that, maybe long term, the World Cup for South Africa does somehow net out positive. But spinning the numbers in the short term to make it seem an unqualified success mightn’t accurately reflect the immediate impact of the World Cup on South Africa. And, on the surface, spending almost $6B to get 300,000 visitors to show up for a month doesn’t seem like a good investment.

With that it mind, it becomes hard not to cringe when van Schalkwyk claims, “Looking back at the World Cup, as South Africans we can now say with a clear conscience, it has been worth every cent, it has been worth with every ounce of energy and it has been worth every minute of our time, undoubtedly.”

Undoubtedly? He does know that “every cent” totals up to $5.8B and that the numbers he released yesterday are a small fraction of that, doesn’t he?

Maybe the World Cup should go to kleptocracies and petrol-monarchies. If they’ve got billions to blow for a negative return, what should debtor or underdeveloped nations care?

About the Author

Precious Roy


  1. Isn’t deficit spending what made the US great? South Africa is on its way!

  2. South Africa’s tourist industry happily blew its own vuvuzuela Monday


  3. Wedel

    Didn’t read the links (I’m a third rate commenter). But if the spending can be classed as an investment and the tourist revenue was net to SA, you’d be looking at a simple rate of return of about 9%, which is fine. Think of a stock that you buy for $100 and it pays a $10 dividend each year (yes, this is a pre-recession example); that would be a 10% return per year. In this case, call it 4B in rev over 40B in investment – same 10%.
    However, if we are looking at the SA govt, the correct numerator is not the 4B in tourist money, it would be the tax receipts on that 4B tourist money to the SA govt, which will likely be substantially lower (don’t know tax rates in SA).
    Like I said, I didn’t check any of the numbers themselves – just using what I saw in the post – but it’s not a negative return (unless SA provided tax incentives and thus “brought in” negative tax receipts).

  4. The politicians and economists will keep spinning these numbers until it’s about 5 years out and then nobody will care anymore that the eleventy billion dollars invested returned about a 10% return on the investment of which much of which will never be used again (see stadia). Also, those stadia will have little to no value at that time creating a negative return on that particular investment.

    And, FIFA won’t care either.

  5. bergkampesdios

    There’s lots of books written (i.e Major League Losers) about the fallacy of using sports stadia as a means to revitalize blighted urban areas. To paraphrase, they are useful as part of a grander scheme (tax abatement, police, etc.), but invariably fail if assumed to be self-sufficient. You can easily extrapolate the argument to blighted nations as well.
    Wedel – you may have gotten 10% in your first year on the investment, but you don’t have a market to sell back your $40B stock. Your stuck with it. And I bet you don’t get anywhere near 10% from here on out given it’s a depreciating asset (see inability to maintain).

  6. Wedel

    @TFA: There are so many things wrong with the underlying analysis (not yours PR, just the negative return part) of SA looking at only those two numbers and claiming victory, that it’s fool’s errand to critique same.
    They’ll need to see if new roads, new water supply, new electrical supply, etc. have the effect of raising the quality of life before they can claim it’s worth every cent. That’s when infrastructure makes a difference, not 12 minutes after the last team bus pulls out.

  7. Wedel

    @Berg: Agreed; overly simplified example to illustrate that it wasn’t a -91% return.

  8. Precious Roy

    Wedel: I was doing a simple arithmetic return, which is: P2-P1/P1
    With P1 (the total expenditures) being $5.8B and P2 (what they said they ultimately made) being $630M. Plug that in and you get -91%.
    And I’m with Berg (also worth reading is “Field of Schemes”), you’re not selling your stadia and your roads to Zambia, so this isn’t like a dividend. You’re not liquidating that $5.8B and getting it back out.
    Now, I should have been way more explicit that I didn’t intend for that to be a rigorous Cost-Benefit analysis. Although I did hint that there is one to be done (but, as you suggested, much later in time). Like I said, there is value in having better roads, for example. South Africans can move more goods and services between some places faster and that increases productivity. There is definite value in that. What it is, I’m not that good of an economist to figure out (and even during a CBA class I took, shit like shawdow pricing and the like tended to confuse me more than help me).
    The point was to illustrate that, prima facie, this doesn’t really look like a wise expenditure of money.

  9. Shiny new stadia improve the quality of life! They add to the cultural fabric of society! Monorail!
    Snake oil salesmen are they all.

  10. This entire post was a pretext for PR to use the phrase “prima facie”

  11. Precious Roy

    Close. I did it so TFA could make a Lyle Lanley reference.

  12. Keith

    Saw me playin football and they told me to stop
    Quit these pretentious things and just punch the clock
    These days my pitch, I feel it has no purpose
    But in tourist season feelings swim to the surface
    Cause on the surface the hotel lights shine
    They’re calling at me come and find your kind
    Sometimes I wonder if the World Cup’s to small
    That we can never get away from the sprawl
    Livin in the sprawl the dead stadia rise like mountains beyond mountains an there’s no end in sight
    I need the darkness someone please cut the lights!

  13. Tno

    I was going to comment, but how do I follow a poem?(!)

  14. Tno

    A very first rate comment poem… We don’t like your parts round here.

  15. Keith

    Tno: this the first of my repurposed lyric series you’ve seen?

  16. Look at that fuckin’ hipster.
    On a related note, can any of you Philly U fans shed some light on how the new stadium is doing as far as the revitalization of Chester goes?

  17. Keith

    @Goat: Nah, I only caught onto them b/c they were mentioned in a Webcomic, and then didn’t really start listening to them until Neon Bible was out. Hell, I’ve only seen them live at the Garden.
    Seriously, though, I’ve never seen a band “shrink” such a large space like they did to the Garden in my life.

  18. Yeah, and that webcomic was probably Achewood. You fucking hipster.

  19. I’ve got nothing against hipsters (unless they also happen to favor ManU)–just more of a commentary on how out of touch I am musically.

  20. Keith

    @LE: Worse. Questionable Content.
    Though I HAVE referenced Achewood in these here comments before. And shall again at some point.

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