The World Cup is done. Now what?

It sucks that the World Cup is over because I actually have to work now (maybe I’m exaggerating a bit). This World Cup has been nothing short of spectacular and it was arguably one of the most surprising World Cups in recent history. The usual teams like Italy, Netherlands, and the USA didn’t even make the World Cup this year. Piling on to that, a good majority of the heavyweight favorites such as Brazil, Spain, Germany, Portugal, and Argentina were eliminated by the quarter finals. It was fantastic to see nations like Russia, England, Croatia, and Belgium step up to the plate and go against the status quo. More importantly, it was great to see Croatia, a nation of 4.5 million people, draw one of the loudest crowds in FIFA World Cup Final history against a heavily favored France team that has been there before. Going into the next World Cup, there are a lot of unanswered questions-

Will France continue the trend of World Cup Champions being eliminated in the knockout stages for the 4th consecutive World Cup in 2022? (Italy in 2010, Spain in 2014, and Germany in 2018)

FIFA just announced that the 2022 World Cup hosted by Qatar will not be played in the summer months of June and July. It will be played in December due to extreme temperatures and player safety. How weird will it be to watch the World Cup in DECEMBER?

Will Croatia remain a force to be reckoned with after 4 long years?

The fact that we are here talking about events that will take place 4 years from today just goes to show that the sports industry is one of the most established and successful industries that we have ever seen. Besides industry experts and stakeholders, you’ll never see average people passionately speculating gas prices 4 years from today, or get excited about their insurance premiums 4 years from today. However, you will see kids and adults walking around a neighborhood with a soccer ball or basketball talking about how Ronaldo and Messi might not play the next World Cup in 4 years. Let’s face it, the sports industry is way sexier than insurance or oil and gas, but it is also a business at the end of the day. Here is how the money that FIFA made throughout the World Cup festivities was distributed according to Total Sportek-

FIFA WORLD CUP 2018 PRIZE MONEY BREAKDOWN

Preparation Fee for 32 qualified teams- $1.5 million each

Group Stage (16 eliminated teams)- $8 million each 

Round of 16 (8 eliminated teams)- $12 million each

Quarterfinal (4 losing sides)- $16 million each

Fourth Place Team- $22 million 

Third Place Team- $24 million

Runners-up- $28 million 

Winner- $38 million 

Player Insurance fee- $134 million 

Player by player payments to parent clubs-  $209 million 

To simplify the data above, each team would walk away with a minimum guaranteed amount of $8 million just for participating in the tournament. Out of the 32 teams that participated in the Group Stage, 16 teams were knocked out before the tournament progressed to the “Round of 16”. Each one of these 16 teams that got knocked out received $8 million each. Out of the remaining 16 teams that made it to the “Round of 16”, 8 teams proceeded to the quarter finals and the other 8 teams went fishing. The 8 teams that went fishing received $12 million each. In a “Top 8” quarter final, 4 teams lost and walked away with $16 million each. Out of the top 4 teams remaining, 4th place England received $22 million, 3rd place Belgium received $24 million, 2nd place Croatia received $28 million, and the winner, France, received $38 million. This sums up to a whopping $400 million that FIFA allocated to teams in prize money!

FIFA paid $209 million to the clubs that released its players for the World Cup. For example, Lionel Messi plays for F.C. Barcelona but he plays for the Argentinian National Team in the World Cup. A portion of that $209 million will go to F.C. Barcelona for releasing Leo Messi and allowing him to play for the Argentinian National Team during the World Cup. This rule applies to each and every player on a World Cup national team that plays for a club.

FIFA also paid $134 million throughout the tournament in insurance premiums for any injuries that players go through. Basically, FIFA just wasted $134 million to legally insure Neymar’s world-class flopping skills-

Here is a more precise breakdown of how FIFA has allocated its prize money over the last 5 World Cups-

In 2014, FIFA World Cup’s total revenue included $2.4 billion in TV rights, $1.5 billion in sponsorship and commercial activities, and $550 million in ticket sales. The costs included $576 million in prize money and insurance payments for clubs, $370 million in TV production, $470 million to help organize the 2014 World Cup and, another $100 million was handed to Brazilian FA as “Legacy” payment. This results in an overall profit of $2.6 billion for FIFA from the 2014 World Cup in Brazil-

However in 2018, FIFA has made an estimated $6 billion in revenue, up 25% from 2014. With as many as 3.2 billion viewers of the tournament in 2018, broadcast revenue increased to $3 billion. Ladies and gentlemen, this is the business aspect of the sports industry that the average fan doesn’t know about. According to CNBC, Brazil spent an estimated $15 billion to build stadiums and transportation, among other infrastructure, for the 2014 World Cup. The most expensive of the stadiums, Mane Garrincha Stadium, cost $550 million and only served a handful of events in the months after the tournament. And now, it is being used as a parking lot for…buses.

So far in 2018, Russia has spent an estimated $12 billion to make the World Cup a reality. However, the ROI (return on investment) has been a $26-$31 billion contribution to the national economy which is equivalent to 220,000 new jobs. As far as the Zurich based federation, FIFA, is concerned, think of it as a multinational firm that looks for tax exemptions in each of its international headquarters. For example, Germany reportedly offered FIFA an estimated $272 million in tax exemptions when it hosted the 2006 World Cup.

The Bidding Process and how FIFA Benefits From It

FIFA is not only one of the most popular organizations in the world, it is also one of the most profitable. Think of FIFA as a commodity or a trampoline that everybody wants in their backyard at least once in their lifetime. There’s a select few countries that have the resources, infrastructure, and capital to place bids every 4 or 5 World Cups to bring the event back to their country, but that’s not the case for most countries. In order to host the FIFA World Cup, there are massive bidding wars between countries which are nothing but extensive revenue streams for FIFA. For the 2022 World Cup, Qatar outbid the United States making it the first ever Middle Eastern country to host the World Cup (primarily because it is the richest country in the world in terms of GDP due to its massive oil and gas industry). However, the United States, Mexico, and Canada will host the World Cup in 2026. Bidding wars for the World Cup aren’t simply limited to countries, however. FIFA collects additional revenue from bids for television and highlights rights as well. In a bidding war between ESPN and Twenty-First Century Fox, FOX outbid Disney’s ESPN and paid $400 million to FIFA for television rights through the 2022 World Cup. Facebook, Twitter, and Snapchat are all offering millions of dollars to FOX for highlight rights. FIFA not only receives tax exemptions from each host country every 4 years for the event, it also has an infrastructure cost for each World Cup of…$0! As you can imagine, hosting an event of this magnitude would require world-class facilities and infrastructure. However, FIFA spends NOTHING on infrastructure because the host countries take care of that FOR FIFA as a enticing part of the bid to host the World Cup. Isn’t that just the most brilliant low risk, high reward investment? There are bids being placed to host your event, you are paying nothing for infrastructure, and then you get tax exemptions on top of that to display your product in front of the entire world. It’s just more proof that FIFA is indeed the Illuminati. Everybody wins in this process as FIFA keeps collecting more revenue, the host countries get an opportunity to boost their economies due to increased interest of investors, and tourism surges dramatically as a result.

FIFA’s Business Strategy In A Nutshell

From a business perspective, FIFA is a revenue churning machine. Its expenses are very minimal, and its revenue potential is higher than Snoop Dogg. FIFA makes 98% of its revenue by selling television rights, marketing rights, licensing rights, and tickets. Although revenue for the 2018 World Cup ticket sales has not been reported yet, over 4.9 million tickets were requested by the end of sales phase 2. Additionally, FIFA has a healthy and sustainable balance sheet as 65% of their total assets are in cash, or cash equivalents. According to Investopedia, FIFA’s expenses are limited to paying the local committee for organizing and conducting the World Cup, prize money to the participating nations, and accounts for the travel/accommodation of players, staff, and match officials. In addition, it makes available for the host country a FIFA World Cup legacy fund to be used in the future for development of the game in the country. With relatively cheap inputs in players, personnel, and ready infrastructure (created by the host country), FIFA manages a revenue of about $6 billion after concluding the 2018 World Cup.

The Bottom Line

Watching sports is always fun, but the chain of events that take place in the back end are just as intriguing. FIFA is primarily an entertainment business, but it is a business at the end of the day. Yeah, FIFA has had major issues with bribery and human rights over the recent years, but its demand has never plummeted. If anything, demand of its product has increased every year and every World Cup. When a 114 year old organization has been operated by only 9 leaders over that stretch, there is a high probability of personal interest conflicting with the organization’s willingness to operate ethically. However, it never fails to gives people something to get excited about, something to look forward to, something to take pride in. It unites people, it unites countries, and as a result, it unites the world. And yes, everyone involved makes a lot of money. It’s a win-win and that’s the beauty of it.