Cost Benefit Analysis of the 2022 FIFA World Cup - Department of ...

Cost benefit analysis of the 

2022 FIFA World Cup 

November 2010 

Report by Access Economics Pty Limited for 

Department of Resources, Energy and Tourism 

Commercial-in-Confidence

Cost benefit analysis of the 2022 FIFA World Cup 

Contents 

Key messages ..................................................................................................................................i 

Executive summary ........................................................................................................................ ii 

1 Background ......................................................................................................................... 1 

2 The FIFA World Cup ............................................................................................................ 4 

3 Framework of the analysis .................................................................................................. 8 

3.1 Some key preliminaries .......................................................................................................... 9 

4 Costs of the World Cup ..................................................................................................... 10 

4.1 Infrastructure ....................................................................................................................... 12 

4.2 Bidding costs ........................................................................................................................ 13 

4.3 Security ................................................................................................................................ 13 

4.4 Transport.............................................................................................................................. 14 

4.5 Costs to Government ........................................................................................................... 14 

4.6 LOC Budget .......................................................................................................................... 14 

4.7 Impacts on other sporting codes ......................................................................................... 16 

4.8 Broader impacts ................................................................................................................... 17 

4.9 Summary of the costs of staging the World Cup ................................................................. 18 

5 Benefits of the World Cup ................................................................................................ 19 

5.1 Tourism ................................................................................................................................ 20 

5.2 Tourism and sporting infrastructure legacy benefits ........................................................... 23 

5.3 FFA friendly matches............................................................................................................ 24 

5.4 Other benefits ...................................................................................................................... 25 

5.5 Ticket revenue ..................................................................................................................... 25 

5.6 Economic welfare impacts of staging the World Cup .......................................................... 26 

5.7 Broader impacts ................................................................................................................... 28 

5.8 Economic welfare and labour market assumptions ............................................................. 29 

5.9 Summary of the benefits of staging the World Cup ............................................................ 32 

6 Weighing up the impacts of the World Cup ..................................................................... 33 

6.1 Quantification of costs ......................................................................................................... 33 

6.2 Quantification of benefits .................................................................................................... 37 

6.3 Results summary .................................................................................................................. 38 

6.4 Key uncertainties ................................................................................................................. 39 

7 Risk analysis ...................................................................................................................... 40 

8 Concluding comments ...................................................................................................... 46 

Appendix A: Key analytical assumptions ..................................................................................... 47 

Appendix B: Key results ............................................................................................................... 49 

Appendix C: Net tourism impact of the World Cup .................................................................... 51 

Appendix D: Principles for assessing major events ..................................................................... 54 

Appendix E: The Access Economics CGE model .......................................................................... 57 

While every effort has been made to ensure the accuracy of this document and any attachments, the uncertain nature of economic data, forecasting 

and analysis means that Access Economics Pty Limited is unable to make any warranties in relation to the information contained herein. 

Access Economics Pty Limited, its employees and agents disclaim liability for any loss or damage which may arise as a consequence of any person 

relying on the information contained in this document and any attachments. 



Charts 

Chart 6.1 : Costs and benefits of hosting the World Cup — Scenario 1: All stadia ..................... 34 

Chart 6.2 : Costs of hosting the World Cup — Scenario 1: Full stadia ........................................ 34 

Chart 6.3 : Costs and benefits of hosting the World Cup — Scenario 1: All stadia ..................... 35 

Chart 6.4 : Costs of hosting the World Cup — Scenario 2: Partial stadia.................................... 35 

Chart 6.5 : Costs and benefits of hosting the World Cup — Scenario 3: Overlay costs .............. 36 

Chart 6.6 : Costs of hosting the World Cup — Scenario 3: Overlay costs ................................... 36 

Chart 6.7 : Benefits of hosting the World Cup ............................................................................ 37 

Chart 6.8 : Costs and benefits of hosting the 2022 World Cup ................................................... 38 

Tables 

Table 2.1 : Government guaranteesError! Bookmark not defined.Error! Bookmark not defined. 

Table 4.1 : FIFA World Cup scenarios .......................................................................................... 10 

Table 4.2 : Costs of the 2022 World Cup ..................................................................................... 11 

Table 4.3 : Estimated stadium infrastructure costs .................................................................... 12 

Table 4.4 : Budgeted expenditure of the 2006 World Cup Organising Committee .................... 15 

Table 4.5 : Quantified costs of the World Cup and Confederations Cup .................................... 18 

Table 5.1 : Benefits of the 2022 World Cup ................................................................................ 19 

Table 5.2 : Fixture allocation ....................................................................................................... 20 

Table 5.3 : Net tourism effect ..................................................................................................... 21 

Table 5.4 : World Cup ticket allocation ....................................................................................... 25 

Table 5.5 : Economic welfare benefits of staging the 2022 World Cup ...................................... 30 

Table 5.6 : Sensitivity of economic welfare benefits to labour market assumptions ................. 31 

Table 5.7 : Quantified benefits of the World Cup and Confederations Cup ............................... 32 

Table 6.1 : World Cup costs ......................................................................................................... 33 

Table 6.2 : World Cup benefits .................................................................................................... 37 

Table 6.3 : Net benefits of hosting the 2022 World Cup............................................................. 39 

Table 7.1 : Key risks of hosting a World Cup ............................................................................... 41 

Table 7.2 : Sensitivity analysis of key inputs ............................................................................... 44 

Table 7.3 : Impact of additional labour market capacity ............................................................ 45 

Table A.1 : World Cup CBA key assumptions .............................................................................. 47 

Table C.2 : Net tourism effect ..................................................................................................... 53 



Figures 

Figure 4.1 : Stadia development scenarios ................................................................................. 11 

Figure 4.2 : FIFA financial platform ............................................................................................. 15 

Figure 5.1 : Macroeconomic expansionary effects ..................................................................... 30 

Figure 7.1 : Risk analysis framework ........................................................................................... 40 

Figure 7.2 : NPV of costs and benefits of the World Cup ............................................................ 43 

Figure C.1 : Host nation net tourism effect ................................................................................. 51 

Figure E.1 : Key components of AE-RGEM .................................................................................. 57 



Acronyms 

AFL Australian Football League 

ARU Australian Rugby Union 

BCA Business Club Australia 

CA Cricket Australia 

CBA Cost benefit analysis 

CGE Computable general equilibrium 

DRET Department of Resources, Energy and Tourism 

FIFA Fédération Internationale de Football Association 

FFA Football Federation Australia 

GDP Gross Domestic Product 

GNP Gross National Product 

GST Goods and Services Tax 

LOC Local Organising Committee 

NPV Net present value 

NRL National Rugby League 

PwC PricewaterhouseCoopers 

RWC Rugby World Cup 

TRA Tourism Research Australia 



Key messages 

■ This analysis examined the economic benefits and costs of Australia hosting the 2022 FIFA World 

Cup, with a focus on the direct financial aspects of the tournament. The study is intended to help 

governments better understand the nature and scale of the impacts of Australia hosting the 

event. 

■ Three distinct cost scenarios were examined, based on a different allocation of stadium 

infrastructure costs. 

� These stadium cost scenarios reflect underlying uncertainty regarding the nature and 

extent of stadium infrastructure commitments currently in the development ‘pipeline’, 

and therefore which stadium costs can be attributed to the tournament. In moving from 

scenarios 1 to 3, an increasing level of stadium development is not contingent on the 

tournament, therefore reducing the costs of the event. 

■ The headline estimates for staging the 2022 World Cup under the three scenarios are presented 

below. 

Scenario Net benefit Stadia costs 

Scenario 1 — Full stadia costs -$1,477 million $2,748 million 

Scenario 2 — Partial stadia costs -$305 million $1,137 million 

Scenario 3 — Overlay costs $266 million $346 million 

Note: Net benefit estimates expressed in net present value terms. Stadia costs are in real dollars 

(2010 prices). 

■ By far, the major cost factor for the tournament relates to the development of stadium 

infrastructure. (Under Scenario 2, for example, stadium related costs comprise around 55% of all 

costs.) The financial benefits of the tournament arise predominantly through international 

tourism. Accordingly, the main uncertainties relate to these two dominant cost and benefit 

drivers. 

� In particular, a key risk of staging the tournament concerns cost overruns for major 

infrastructure works (irrespective of the different stadium scenarios). For example, a 10% 

increase in infrastructure costs will lower the net benefit by $81 million for Scenario 2. 

■ While the 12-year tournament lead time adds considerable uncertainty to all benefit and cost 

elements, it also provides some important practical advantages. It potentially allows greater 

time and scope to put in place smarter, more integrated and cost effective solutions for 

tournament related developments, including in response to changing economic and market 

conditions. 

■ Hosting the World Cup will involve operational disruptions and financial costs to certain 

professional sports (the AFL, ARU, NRL and Cricket Australia) which use various stadia and 

facilities allocated for the event. The memorandum of understanding between the FFA and 

relevant sports will help frame ongoing discussions. These impacts are not expected to be large 

relative to other event costs but are potentially sensitive. The tournament’s long lead time will 

also provide greater opportunities to manage these commercial issues. 

■ Many cost estimates and development schedules adopted in the analysis are based on 

preliminary assessments — chiefly because of FIFA’s 12-year bidding timetable. Over time, more 

information regarding event costs and other key policy parameters will help provide greater 

surety to the estimates. 

Commercial-in-Confidence 

i


Executive summary 

The FIFA World Cup is the biggest sporting event in the world, attracting a wider audience and 

following than the Olympics. The 2006 World Cup in Germany had a total cumulative 

television audience of over 26 billion, and, while official estimates from the 2010 tournament 

in South Africa are yet to be released, FIFA has anticipated a similar television audience. 

The FFA is currently bidding for Australia to host the 2022 FIFA World Cup and the Australian 

Government has committed $45.6 million in financial support (an earlier bid to host the 2018 

tournament has been formally withdrawn). If Australia is successful, the event has the 

potential to deliver considerable benefits to the community. But it will also involve a range of 

significant costs and risks, many of which will be directly borne by government. 

The FFA submitted its bid book to FIFA for consideration on 14 May 2010. The proposal 

includes 12 stadia across 10 host cities nationwide, and would see World Cup matches played 

across six states and territories. A successful Australian bid would see the World Cup held in 

an Asian Football Confederation member nation for only the second time in the tournament’s 

80 year history. 

This report, which was commissioned by the Department of Resources, Energy and Tourism, 

examines the economic benefits and costs of Australia hosting the 2022 World Cup. The 

analysis aims to inform ongoing policy decisions regarding the Commonwealth’s involvement 

in staging the tournament and accordingly takes a national ‘whole-of-economy’ focus. 

Framework of the analysis 

Mega events such as the FIFA World Cup typically confer a range of important economic 

benefits. These include additional tourism activity and improved infrastructure and transport 

systems. More indirect benefits are also potentially available through showcasing a city or 

country as a business and tourism destination and building a sense of community pride and 

cohesiveness. 

But there are also major costs and risks involved in hosting large events. These principally 

involve the actual costs of constructing necessary infrastructure and providing security, the 

real risks of significant cost overruns and underutilisation of facilities following the event. 

Further, costs can arise through displacement of non-event visitors and added inconvenience 

for residents during the period of the tournament. 

The analysis focuses on the direct financial aspects of the 2022 World Cup. Many important 

social costs and benefits have not been quantified. There are a range of practical and technical 

challenges to quantifying such impacts and, under agreed framework principles (see 

Appendix D), Access Economics considers these are best treated in a qualitative sense. Among 

other things, this approach avoids the potential overestimation of non-financial benefits — a 

common issue with event related analysis. It is also consistent with a conservative framework 

which allows relevant decision-makers to gauge the veracity of broader social impacts within 

the overall context and dimensions of market-based costs and benefits. 


ii


Impacts of the tournament 

Revenue and cost arrangements for the tournament 

Under the commercial arrangements of the tournament, most of the key revenues from the 

World Cup flow to FIFA. The arrangements guarantee FIFA exclusive rights to media, 

broadcasting, ticketing and relevant merchandise revenues. 

However, FIFA provide significant funding to the World Cup host nation as part of a ‘financial 

platform’. Under this platform, the primary source of funds is generated through ticket sales, 

which initially flow through to FIFA. Much of this revenue is then returned to fund the 

operations of the Local Organising Committee (LOC), which is established as a FIFA subsidiary. 

In previous tournaments, the LOC budget has been primarily funded by FIFA using this system 

of financial support. The analysis in this report assumes this arrangement will continue. 

LOC organisational and administrative expenditure in Australia in the lead up to the World Cup 

provides a considerable welfare gain for the Australian economy. However, expenditure by 

international visitors attending the event is the most tangible financial return from the 

tournament. The welfare gains for Australia through tourism are primarily accrued in the 

tournament year (2022) and far outweigh other benefits potentially generated from hosting 

the World Cup. 

Like other mega events, the costs of hosting the World Cup are considerable. A requirement 

of the World Cup bidding process is for bidding nations to sign various guarantees to FIFA that 

cover a range of commercial, legal and operational arrangements. These guarantees commit 

governments to substantial costs, such as providing necessary infrastructure, security and 

transport requirements. 

In particular, the host nation is required to provide 12 stadia to FIFA standards. These facilities 

are underwritten by a comprehensive suite of guarantees and transfer significant development 

risk onto government, especially as stadium infrastructure represents a significant share of 

overall tournament costs. 

Stadia development scenarios 

The Department has provided three scenarios in which to analyse costs associated with 

stadium construction (see Table i). 

Stadia development costs are separated into construction and overlay costs. Overlay costs 

refer to more temporary costs of preparing stadia to ensure they meet FIFA requirements — 

for example changing seating arrangements for a rectangular pitch — and are assumed to 

occur in the tournament year. All other (non-stadium) costs of staging the tournament are 

consistent across all three scenarios. 


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Scenario Details 

Table i: FIFA World Cup scenarios 

Scenario 1 — Full stadia costs All stadium construction, upgrade and overlay costs associated 

with the 12 stadia in the bid book allocated to the World Cup. 

Scenario 2 — Partial stadia costs Stadia costs incurred directly as a result of Australia hosting the 

World Cup, specifically upgrades to stadia in Townsville and 

Newcastle, and new stadia in Blacktown and Canberra. Includes 

all overlay and temporary costs for other stadia required to 

become FIFA compliant. 

Scenario 3 — Overlay costs Overlay costs for the 12 stadia nominated in the bid book. 

The three scenarios considered in the analysis reflect current uncertainty regarding how 

infrastructure costs can be attributed to the tournament. Under the FFA’s bid, a suite of 

12 stadia has been proposed: some of these are yet to be built, others will require substantial 

upgrade and refurbishment and all will require a level of overlay for the tournament. Almost 

all the major greenfield stadia contained in the bid are under some degree of active 

development consideration independent to the World Cup process (for example, Perth and 

Adelaide Oval). 

The three scenarios considered reflect the likelihood of those stadium works being developed 

irrespective of Australia staging the World Cup in 2022. Moving from scenarios 1 to 3, a 

greater level of stadium development is essentially pre-committed and not contingent on the 

tournament, therefore reducing the cost of the event. 

Analytical findings 

The three stadia cost scenarios have a substantial bearing on the net financial impacts of 

hosting the 2022 FIFA World Cup. Staging the event is expected to result in a net cost under 

Scenario 1 and 2, and provide a net benefit under Scenario 3 (based on the allocation of stadia 

costs outlined in Table ii above). 

■ Scenario 1 (full stadia costs) results in a net cost of $1.5 billion. 

■ Scenario 2 (partial stadia costs) results in a net cost of $305 million. 

■ Scenario 3 (overlay costs) provides a net benefit of $266 million. 

The significant differences between each scenario are driven by the allocation of stadia costs, 

with all other aspects of the tournament common to each scenario. For example, the 

significant difference between Scenario 1 and 2 (which both involve a net financial cost) is due 

to around $1.6 billion of stadium construction being allocated away from the tournament. 

Scenario 3 provides a net gain of $266 million from hosting the tournament. This is due to all 

permanent stadium construction costs being allocated to the baseline, with only overlay costs 

of $346.2 million allocated specifically to the World Cup. 

Stadium infrastructure and security costs account for the majority of costs under each 

scenario, with security being the major cost component under Scenario 3. Stadium costs vary 

from $2.7 billion under Scenario 1 to $346.2 million under Scenario 3. 


iv


The benefits of the tournament arise predominantly through international tourism. The event 

is expected to attract large numbers of overseas spectators, as well as officials and the teams 

themselves. The welfare gain from the direct expenditures from these arrivals is projected to 

be $726 million in net present value terms (estimation of the welfare gain from direct 

expenditures from overseas parties is discussed below). 

The next largest benefit is generated from the LOC, which is largely funded by FIFA. LOC 

expenditures in Australia for the 2022 World Cup are estimated to have a total welfare gain of 

around $173 million. 

Table ii below details the key costs and benefits of staging the World Cup. On a per capita 

basis, hosting the 2022 World Cup would involve a financial cost of around $66 per person 

under Scenario 1 and provide a benefit of around $12 under Scenario 3. 

Benefit / Cost Scenario 1 

Full stadia 

Table ii: Net benefits of hosting the 2022 World Cup 

Scenario 2 

Partial stadia 

Scenario 3 

Overlay costs 

NPV NPV NPV 

Benefits $ million $ million $ million 

Tourism 

(incl. legacy) 

Comments 

726.1 726.1 726.1 Major benefit but uncertainty 

regarding number of tourists, 

expenditure and length of stay 

LOC expenditure 172.7 172.7 172.7 LOC budget estimate provided by 

FFA 

Television 

broadcasting 

Other World Cup 

related 

45.9 45.9 45.9 FIFA broadcast partner expenditure 

in Australia 

113.9 113.9 113.9 Consumer surplus, GST revenue 

from international ticket sales and 

LOC operating surplus 

Total Benefits 1,058.7 1,058.7 1,058.7 

Costs 

Bidding 45.6 45.6 45.6 Australian Government contribution 

Infrastructure 

1,947.8 775.8 204.1 Based on FFA’s Infrastructure 

Consortium estimates 

Transport 49.8 49.8 49.8 Based on transport assessment 

report by Arup 

Security 

333.2 333.2 333.2 Estimates provided by Attorney 

General’s Department 

Cost to Government 97.1 97.1 97.1 Host city agreements and 

government guarantees 

Other 

62.5 62.5 62.5 Training facilities and costs incurred 

by other sports 

Total Costs 2,535.9 1,364.0 792.3 

Net Benefit -1,477.2 -305.3 266.4 

Benefit per person ($) -66.0 -13.6 11.9 

Note: Per capita estimates based on a population of 22.38 million as at July 2010, Australian Bureau of Statistics. 


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Other potential impacts 

Hosting a major event also generates important benefits that are difficult to quantify and 

therefore need to be considered in a more qualitative sense. 

Major events are generally seen to confer a positive ‘halo’ effect on the residents of the city 

and/or nation in which the event is held. These effects are generally attributed to several 

factors, including national pride and general public enthusiasm — and can be usefully 

categorised as feelings of wellbeing. Importantly, such effects can be experienced broadly 

across the community and do not necessarily depend on individuals attending the event. 

Further benefits potentially generated by a major event involve a greater likelihood to winning 

other events and demonstrating the advantages of conducting business and trade in a 

particular locality. While these effects can represent legitimate positive spillovers from events, 

it is important to recognise that their magnitude can be overstated and any effects are 

extremely difficult to verify after the event. 

For example, benefits from trade gains rely on assumptions as to whether any benefit is truly 

incremental due to the World Cup being held in Australia versus another country, or whether it 

is a benefit that is merely brought forward. 

While these effects are no less important than the other quantifiable benefits discussed above, 

they are certainly less tangible. Including them in a cost benefit analysis (CBA) would require 

explicit quantification of the community wellbeing generated. Given the difficulty in assigning 

an economic value to these benefits, they have not been included in the analysis and would 

need to be considered alongside the market based costs and benefits. 

Uncertainties and risks 

Given the scale of the tournament, its national footprint and the costs involved, the decision to 

bid for the World Cup and the extent of government involvement are major policy issues. 

Importantly, these decisions should be made on the basis of robust up-to-date information. 

As part of preparing the bid, the FFA commissioned a number of specialist studies into the 

major infrastructure and operational requirements to stage the tournament in 2022. Many of 

these cost estimates have been adopted as part of this analysis. While these are based on 

recent specialised assessments, and represent the best available information at the time of 

writing, they are still greatly reliant on a range of assumptions and limitations. This 

uncertainty most heavily concerns the costs associated with stadium infrastructure, security 

and transport. 

In particular, security and stadium infrastructure costs are expected to have the greatest 

potential to increase the net cost of hosting the tournament. While the security costs were 

developed based on the current environment, how security is viewed and enforced over the 

next decade or so is dependent on many international factors and may change substantially. 

The cost of stadium construction is highly likely to change over time and cost estimates should 

be updated to reflect changes. There is also the possibility that stadium configurations may 

change or that there are changes to the actual suite of stadia proposed for the tournament. 

Such changes will have both cost and revenue implications. 


vi


At a higher level, the Australian economy will look very different in 2022 (just as it looked 

different 12 years ago in 1998). This adds to the uncertainty regarding the likely costs of 

hosting the tournament and the benefits which would potentially accrue across the economy 

as it is very difficult to project prevailing macroeconomic and labour market conditions this far 

ahead. 

However, the long lead time, which is a result of FIFA’s joint bid process, does have some 

advantages in that it can potentially allow greater time and scope to put in place smarter and 

more integrated solutions to be developed. Where possible, information should be updated 

over time by reflecting the current economic and social environment. 

Sensitivity analysis 

As noted, the main uncertainties of the analysis concern the largest benefit and cost drivers of 

the event — namely, the level of expected tourism revenues and overall stadium development 

costs. Table iii shows the sensitivity of these estimates to the overall analysis. 

For the 2022 World Cup, a 10% increase in the cost of stadium construction would lead to a 

$198 million decrease in the overall net result to negative $1,675 million under Scenario 1. 

The variance from the same percentage cost increase is less pronounced under Scenarios 2 

and 3 due to a smaller construction cost component, with the net benefit lowered by 

$81 million and $24 million respectively. 

Should tourism revenue be 10% greater than projected, this would increase the overall 

outcome by around $72.6 million across all scenarios, resulting in a net cost of $1,405 million 

under Scenario 1 to a net gain of $339 million under Scenario 3. 

Expenditure / Benefit 

item 

Table iii: Sensitivity analysis of hosting the 2022 World Cup 

Scenario 1 

Full stadia 

Scenario 2 



Scenario 3 

Overlay costs 

NPV Variance NPV Variance NPV Variance 

$million $million $million $million $million $million 

Base Case -1,477.2 -305.3 266.4 

+10% construction costs -1,675.3 -198.1 -386.2 -80.9 242.7 -23.7 

-10% construction costs -1,279.2 198.1 -224.4 80.9 290.1 23.7 

+10% tourism revenue -1,404.6 72.6 -232.7 72.6 339.0 72.6 

-10% tourism revenue -1,549.9 -72.6 -377.9 -72.6 193.8 -72.6 

+10% transport & security -1,514.5 -37.3 -377.9 -37.3 193.8 -37.3 

-10% transport & security -1,440.0 37.3 -268.0 37.3 303.7 37.3 

Long run labour supply -797.2 680.0 374.7 680.0 946.4 680.0 

Note: NPV estimates use a real discount rate of 4.5%. The long run labour supply sensitivity test relaxes the full 

employment assumption and shows the economic impact in which spare capacity in the labour market can respond 

to increased demand generated by the tournament. 

Another important analytical parameter is the full employment assumption adopted in the 

GE modelling. The labour supply condition has a large bearing on the economy’s ability to 

respond to increased demand from the World Cup through increased employment, and 

therefore the extent to which economic welfare can increase. Department of Finance and 

Deregulation guidelines state a full employment condition is to be taken when examining the 

general equilibrium impacts of policy proposals. Such a condition, which is consistent with the 

vii


conservative approach adopted in the analysis, ensures that any expansionary impacts are 

more constrained than if there was excess capacity in labour and other factor markets. 

Relaxing the long run labour supply assumption improves the net result by around $680 million 

across all three scenarios. It results in a net tournament cost of $797 million under Scenario 1, 

and a net positive result of $374.7 million and $946.4 million for Scenarios 2 and 3 

respectively. 

Professional sporting codes 

Hosting the World Cup will affect other professional sports in Australia, predominantly the AFL, 

NRL, ARU and Cricket Australia (CA), due to restricted access to major sporting venues and 

changes to normal operating schedules. While these impacts are not large relative to other 

cost components, they are potentially sensitive. 

To an extent, the nature of discussions between other professional sports and the FFA seen to 

date has some positive dimensions. Firstly, it is a direct expression of the dynamic and viable 

state of professional sport in Australia. Secondly, the keen interest shown by codes in securing 

key stadium access as a result of the tournament suggests future utilisation of stadium 

infrastructure will be healthy. 

The affected professional sports have entered into a memorandum of understanding (MOU) 

with the FFA that will be used as a basis for ongoing commercial discussions, including any 

compensation, should Australia succeed in winning the right to host the 2022 World Cup. A 

fundamental principle of the MOU is that the respective codes will not be any worse off as a 

result of Australia hosting the World Cup and Confederations Cup. 

It is important to note that no final decision or compensation has been agreed to between the 

FFA and any of the four affected sports and, as such, there is considerable uncertainty 

surrounding the respective costs. Following limited discussions with relevant bodies, an 

estimate of $50 million has been adopted in the analysis. 

Concluding comments 

Hosting a tournament the scale of the FIFA World Cup requires a significant commitment from 

government to meet the requirements set out by the governing body. 

Given the World Cup will not be held for 12 years, there is considerable uncertainty 

surrounding not only the overall costs of the tournament but which costs will be borne by 

State or Commonwealth governments. Once a host nation for the World Cup is selected, 

government (and thus taxpayers) would bear significant risk of either tournament cost 

overruns or that benefits are lower than expectations. It should be noted that upside potential 

also exists (that is, costs are lower and revenues higher than expected) but this is less likely 

and indeed has not been the general experience with staging mega sporting events. 

The fundamental conclusion drawn from this analysis is that, except under the most 

favourable cost conditions, the expected financial benefits from tourism, team and media 

spending are not sufficient to outweigh the significant costs of stadium construction and 

operational services required to host the event. These financial estimates would need to be 


viii


considered in conjunction with the broader social and cultural benefits which the tournament 

is likely to yield. 

An important procedural aspect given high levels of uncertainty is to clearly establish 

responsibility for all costs of staging the event. This would include costs to be borne by the 

LOC and especially between States and the Commonwealth. Host city agreements are entered 

into by the States involved, but may present considerable risks for the Commonwealth — for 

instance, to meet any funding shortfall from the States or LOC. 

Should Australia’s bid succeed, the general environment and relationship with FIFA will change 

as the bilateral engagement will no longer occur in the context of a competitive bid process. It 

is understood that a more inclusive process between FIFA and the host country will emerge in 

which there is likely to be some scope to modify or refine aspects of tournament commitments 

according to changing circumstances. Indeed, there is greater potential for such revisions 

given the long lead time for the tournament. Where this occurs, there may well be material 

cost and risk implications for government and any such proposals should be carefully 

scrutinised. 

Access Economics 

November 2010 


ix


1 Background 

Access Economics was engaged by the Department of Resources, Energy and Tourism to 

examine the costs and benefits of Australia hosting the 2022 FIFA World Cup. The Australian 

Government previously committed $45.6 million to the Football Federation of Australia (FFA) 

to proceed with a bid to host either the 2018 or 2022 FIFA World Cup. In June 2010, the FFA 

formally withdrew its bid to host the 2018 tournament and is only progressing its bid for the 

right to host the 2022 FIFA World Cup. 

This report is based on a broad framework and methodology for assessing the costs and 

benefits of hosting major events which is the subject of a separate companion report. An 

outline of this approach is provided in Appendix D. 

Policy context 

Australian governments have helped facilitate a range of high-profile sports and cultural 

events. The potential for events to generate considerable economic and social flow-on 

benefits across the community provides a legitimate basis for government support. This 

facilitation typically comes in a variety of forms from direct financial support for bid 

preparation, marketing campaigns and infrastructure to the provision of security, public 

transport requirements and improvements to civic amenities. 

Given this range of involvement, and as a matter of good public policy, it is important that 

major events are subject to a rigorous assessment of their overall costs and benefits. 

It should be recognised that bidding for the World Cup is not strictly a decision for the 

Australian Government but for the FFA. In practice, however, given the scale of the event, 

high levels of government sponsorship are necessary. Indeed, FIFA require a comprehensive 

range of formal guarantees be provided by national governments to support bids by respective 

football associations. The decision to bid can therefore be best considered a joint decision 

between the FFA and government. 

This raises a series of complex issues concerning how the costs and risks associated with 

managing the bid and potentially staging the tournament are allocated between private 

parties like the FFA and different levels of government. The broad costs and benefits 

associated with hosting the World Cup are outlined in Box 1. 

While a decision to bid is ultimately a yes or no proposition, various options are possible for 

structuring a (compliant) bid. These can have material implications for costs and revenues. 

For example, there is an array of options regarding host cities and venues, including whether 

to develop new facilities or upgrade existing arenas. Essentially, a bid could be prepared to be 

relatively cheaper or more expensive and these options will each have different community 

welfare outcomes. Importantly, they may also affect the probability of a successful bid. 


1


Box 1: Costs and benefits of hosting the World Cup 

Benefits Costs 

Quantitative impacts 

Tourism 

Around 700,000 tourists expected to travel to 

Australia for the tournament 

LOC spending 

Funding used to organise the event which 

provides a welfare gain for Australia 

Other World Cup related expenditure 

Broadcasting and communications for the 

tournament funded by FIFA partners 

Infrastructure legacy 

Improved stadium and training facilities 

Tourism legacy 

A successful tournament and positive image of 

Australia is expected to increase tourism in the 

years following the event 

Qualitative impacts 

National pride 

An increase in community spirit and national 

pride 

Reputation enhancing 

A successful tournament would enhance 

Australia’s reputation for hosting major events 

and may lead to other events big awarded to 

Australia in the future 

Bidding 

Stadia 

PricewaterhouseCoopers World Cup Business Case 

$45.6 million committed by the 

Commonwealth Government 

Construction and overlay cost of new and 

redeveloped stadia 

Transport and security 

Additional transport facilities and security 

measures to meet increased demand from 

international tourists and domestic 

spectators 

Government guarantees 

Costs to ensure efficient administration of 

the tournament borne by Government 

Impact on professional sports 

Other sporting codes which currently use 

World Cup stadia will be required to use 

alternative venues 

To assist its bid, the FFA appointed PricewaterhouseCoopers (PwC) to undertake an economic 

assessment of staging the World Cup and to develop a preliminary business case analysis to 

assist governments consider their involvement in the bid. This analysis was based on various 

specialist assessments also commissioned by the FFA to examine the major infrastructure and 

operational requirements for the event. 

The PwC analysis, together with its related specialist assessments, represents the most up-todate 

information on many of the core aspects of staging the World Cup. Accordingly, it has 

been a large source of information for this study. 


2


Structure of the report 

Chapter 2 provides a brief description of the FIFA World Cup bidding process and operational 

characteristics. The framework of analysis, including the principles adopted for the study and 

methodology, are set out in Chapter 3. 

Chapters 4 and 5 detail the costs and benefits involved in staging the World Cup. Chapter 6 

contains the overall outcomes of the study, including an analysis of key uncertainties. 

Chapter 7 includes a discussion on key risks faced in hosting the World Cup and a sensitivity 

analysis of key assumptions. Some general conclusions are drawn in Chapter 8. 


3


2 The FIFA World Cup 

Outline of the World Cup event 

The first World Cup was held in Uruguay in 1930, and has been held every four years since, 

with the exceptions of 1942 and 1946, due to World War II. The tournament is now 

considered to be the largest sporting event in the world, attracting a larger audience than the 

Olympics. 

The 2010 World Cup was recently hosted by South Africa. A total of 200 nations entered 

qualifying events for the tournament, with 31 qualification places available (the host nation for 

each tournament is guaranteed a place in the finals). Australia qualified for the tournament 

and was one of 19 countries that also qualified to compete in the 2006 World Cup. 

The broad structure of the tournament is shown in Box 2. 

Box 2: World Cup tournament 

■ The tournament involves 64 matches over 4 weeks. 

� There are 32 national teams that contest the tournament, split into 8 groups of 

4 teams in the early stage Group Matches. This stage comprises 48 matches, with 

the final matches in each group played simultaneously. 

■ Following the group stage, 16 teams (the two top teams in each group) proceed to the 

knock-out stage of the tournament. This stage is an elimination tournament where 

teams play each other in one-off matches. The subsequent rounds of the tournament 

include: 

� Round of 16 — winners of each group play the runner-up of another group 

� Quarter-finals 

� Semi-finals 

� Third-place match (contested by the losing semi-finalists) 

� World Cup final 

Confederations Cup tournament 

■ Host countries will also stage the FIFA Confederations Cup a year before the respective 

World Cup. A principal aim of staging this much smaller event is to test the required 

infrastructure before the World Cup. 

■ The tournament is contested between the host country, the winner of the previous 

World Cup and winners of the six FIFA confederation championships. 

■ The tournament involves 16 matches over 2 weeks. 

� The 8 competing nations are split into 2 groups of 4 teams for the Group Matches. 

This stage comprises 12 matches, with the final matches in the group played 

simultaneously. 

■ Following the group stage, the two top teams in each group proceed to the semi-finals 

of the tournament. The winners proceed to the Confederations Cup final and a 

third-place playoff is contested between the losing semi-finalists. 


4


The bidding process 

The bidding process is being held simultaneously for both the 2018 and 2022 tournaments. At 

the deadline for registration in March 2009, Australia’s bid was one of nine preliminary bids for 

the 2018 tournament, with an additional two nations entering bids for just the 2022 

tournament. Australia initially bid for both tournaments, however, the FFA formally withdrew 

its bid to host the 2018 World Cup in order to focus its efforts on the bid for 2022. 

In an attempt to ensure tournaments are shared amongst the continents, the last two host 

confederations are ineligible to host each tournament. Given South Africa hosted the event in 

2010 and Brazil will be the host nation in 2014, this makes African nations ineligible for 2018, 

and South American nations ineligible for both. 

Of the bidders, four are from the Asian confederation, one from North America, and four from 

Europe (two of the European bids are joint bids by two nations). The North American and 

European countries have submitted bids for both tournaments, with the Asian confederation 

countries bidding to host the 2022 tournament. Only one bidder from any confederation may 

host either tournament — for example, if a European bid is selected for 2018 then only the 

Asian and North American nations are eligible for 2022. All bidders were required to submit 

full details of their bids to FIFA by 14 May 2010. 

The broad structure of the tournament and key dates are shown in Box 3. 

Staging the event 

The host country of the World Cup hosts two football tournaments — the FIFA World Cup and 

the Confederations Cup. The FIFA Confederations Cup takes place the year before the World 

Cup. For the 2006 World Cup, Germany became the first host nation to host both events in 

their amalgamated form. This was continued in South Africa and future host nations will 

follow this structure. 

The FIFA Confederations Cup is a tournament involving the host nation, the champion team 

from the previous FIFA World Cup, and the champion team from each of FIFA’s six continental 

membership confederation tournaments. 

With the tie-in to the host country of the World Cup, the Confederations Cup provides 

opportunity for a smaller-scale testing of venues, transport and other infrastructure. 

For the World Cup itself, the Local Organising Committee (LOC) is responsible for delivering all 

infrastructure required for the event, including stadiums and training venues, hotels, media 

centres, ticketing and transportation. Sponsorship is not an LOC responsibility, and is arranged 

by FIFA. 

Because of the intensive nature of the tournament and a need to hold more than one match 

per day in the earlier stages of the tournament, host nations are required to use multiple cities 

for matches. The 2006 World Cup in Germany used 12 stadiums, while the 2010 World Cup in 

South Africa used 10 stadiums in nine cities. 


5



6



7


3 Framework of the analysis 

Cost benefit analysis (CBA) is a tool used to determine whether or not the full economic costs 

of a policy change are outweighed by its full economic benefits — that is, whether the policy 

has a net benefit for society. Ideally, a CBA examines all the monetary and non-monetary (or 

intangible) costs and benefits of a policy or project to society. This includes its economic, 

social and environmental impacts. 

The broad stages of a cost benefit analysis generally comprise: 

1. Defining the scope and objectives 

The first stage of the CBA requires an investigation of the project and its context 

including an outline of key objectives and beneficiaries. 

2. Defining the baseline scenario and counterfactual cases 

A CBA only measures the incremental benefits and costs of the ‘policy change’ scenario 

which occur over and above the ‘business as usual’ scenario. Thus, to review the 

potential benefits and costs of a project, in this case the World Cup, it is necessary to 

specify the counterfactual case, that is, Australia not hosting the World Cup. This 

examines what could be expected to occur in the absence of the project and compares 

this to the potential incremental impacts of the project itself. 

3. Specifying the various costs and benefits of different scenarios 

Understanding of the chain of causation of the project is necessary. The benefits 

expected to flow from the project, its costs and viable project options should all be 

examined. As noted, only costs and benefits additional to the business-as-usual case 

should be included in the analysis. 

Given the high level of uncertainty surrounding stadium redevelopments over the next 

12 years and the allocation of costs to the World Cup or the ‘business as usual’ scenario, 

the Department has provided three scenarios with which to analyse costs associated 

with stadium construction. 

The three scenarios considered reflect the likelihood of stadium works being developed 

irrespective of Australia staging the World Cup in 2022. The scenarios are discussed 

further in Chapter 4. 

4. Quantifying the various costs and benefits, where possible 

This is arguably the most fundamental and challenging part of a CBA. Monetary values 

need to be assigned to costs and benefits where they exist in the year in which the 

revenue or cost will be borne. 

5. Discounting past and future costs and benefits to net present values 

The costs and benefits of projects often accrue over a number of years. Thus, the 

valuation of costs and benefits should take into account the time in which they occur. A 

net present value approach is utilised to discount future benefits and costs to a present 

value. Choosing an appropriate discount rate can be challenging and must often 

account for the specifics of a project. 


8


6. Conducting sensitivity tests for uncertainties 

Future costs and benefits are typically subject to uncertainty. For estimates with a high 

degree of uncertainty, information relating to the margin for error should be provided 

and a sensitivity analysis conducted. A sensitivity analysis generally substitutes different 

estimates for key variables (including the discount rate and major benefit and cost 

factors) and calculates the impact of these on the overall outcome. Decision-makers are 

thus provided with information on the impact of key parameters, which can highlight 

risks and the main areas of uncertainty. 

3.1 Some key preliminaries 

Access Economics has developed a range of principles for conducting cost benefit assessments 

of major events. These principles cover various procedural and analytical aspects of major 

event evaluations. The Access Economics companion report A framework for cost benefit 

analysis of major events (2009) contains a detailed discussion of the principles adopted in this 

report. A summary of this approach is provided in Appendix D. 

A major challenge in undertaking cost benefit analysis involves the quantification of all 

relevant costs and benefits. Unlike a more narrow financial evaluation, cost benefit studies 

cover a much wider range of impacts. Quantification of some of those impacts can be difficult, 

especially where they relate to indirect, non-market, environmental and social impacts such as 

increases in community wellbeing, where the data required to undertake a comprehensive 

quantification exercise may not exist or be readily obtainable. The quantified impacts have 

been limited to those where a reasonable level of confidence in the data and the valuation 

techniques can be demonstrated. 

The analysis conducted for this report focuses on the financial costs and benefits associated 

with the World Cup. Where it was not feasible to robustly quantify costs, including social and 

intangible aspects, these have been explored in a qualitative sense. 

Uncertainty regarding the benefits and costs necessarily involves a high degree of judgement 

in conducting an event analysis. A common analytical flaw is that inherent optimism bias 

systemically underestimates costs and overstates benefits. Therefore, where tournament 

related assumptions were required, Access Economics has adopted a more conservative 

approach to the analysis. 

A list of key assumptions adopted in the analysis is provided in Appendix A, with further detail 

provided in Chapters 4 and 5. 


9


4 Costs of the World Cup 

This chapter focuses on the costs of Australia hosting the World Cup in 2022. 

The main costs associated with hosting the World Cup relate to the upgrade of current stadia 

to FIFA standards and the construction of new stadia. Given that the CBA only includes costs 

over and above the ‘business as usual’ scenario, ie Australia not hosting the World Cup, the 

allocation of infrastructure costs between the baseline and the World Cup is a key assumption. 

Stadia development costs are separated into construction and overlay costs. Overlay costs 

refer to more temporary costs of preparing stadia to ensure they meet FIFA requirements — 

for example changing seating arrangements for a rectangular pitch — and are assumed to 

occur in the tournament year. All other (non-stadium) costs of staging the tournament are 

consistent across all three scenarios. 

Given the high level of uncertainty surrounding stadium redevelopments over the next 

12 years, the Department has provided three scenarios with which to analyse costs associated 

with stadium construction (see Table 4.1). 

Scenario Details 

Table 4.1: FIFA World Cup scenarios 

Scenario 1 — Full stadia costs All stadium construction, upgrade and overlay costs associated with 

the 12 stadia in the bid book allocated to the World Cup. 

Scenario 2 — Partial stadia costs Stadia costs incurred directly as a result of Australia hosting the 

World Cup, specifically upgrades to stadia in Townsville and 

Newcastle, and new stadia in Blacktown and Canberra. Includes all 

overlay and temporary costs for other stadia required to become 

FIFA compliant. 

Scenario 3 — Overlay costs Overlay costs for the 12 stadia nominated in the bid book. 

The three scenarios considered in the analysis reflect current uncertainty regarding how 

infrastructure costs can be attributed to the tournament. Under the FFA’s bid, a suite of 

12 stadia has been proposed: some of these are yet to be built, others will require substantial 

upgrade and refurbishment and all will require a level of overlay for the tournament. Almost 

all the major greenfield stadia contained in the bid are under some degree of active 

development consideration independent to the World Cup process (for example, Perth and 

Adelaide Oval). 

The three scenarios considered reflect the likelihood of those stadium works being developed 

irrespective of Australia staging the World Cup in 2022. Moving from scenarios 1 to 3, a 

greater level of stadium development is essentially pre-committed and not contingent on the 

tournament, therefore reducing the cost of the event. 

A conceptual representation of the analytical baseline for each of the three stadia scenarios is 

set out in Figure 4.1, with the key cost components of Australia hosting the World Cup 

summarised in Table 4.2 below. 


10


Temporary construction costs 

associated with stadia 

preparation for the event 

Permanent construction works 

including new stadia and stadia 

upgrades due specifically to 

the World Cup 

Permanent stadia 

construction works completed 

independently of the 

World Cup 

Expenditure 

item 

Scenario 1 

Full stadia 

Figure 4.1: Stadia development scenarios 

Scenario 1 

Full stadia costs 

Overlay 

Contingent 

stadia 

Pre-committed 

stadia 

Analytical 

baseline 

Scenario 2 


costs 

Overlay 

Contingent 

stadia 

Pre-committed 

stadia 

Table 4.2: Costs of the 2022 World Cup 

Scenario 2 


Scenario 3 

Overlay costs 

$ million $ million $ million 


Comments 

Scenario 3 

Overlay costs 

Overlay 

Contingent 

stadia 

Pre-committed 

stadia 

Non 

tournament 

related costs 

Bidding 45.6 45.6 45.6 Bidding cost budget allocated to 

2010 (sunk cost) 

Infrastructure 

2,748.2 1,136.6 346.2 Based on FFA Infrastructure 

Consortium estimates 

Transport 82.9 82.9 82.9 Based on FFA commissioned 

transport assessment report by 

Arup 

Security 


Cost to 

Government 

Impact on other 

sporting codes 

560.0 

53.5 

560.0 

53.5 

560.0 

53.5 

Based on Department of 

Attorney General’s estimate for 

State and Commonwealth 

government security costs 

incurred during the World Cup 

and Confederations Cup 

Cost of upgrading and building 

new training facilities 

150.9 150.9 150.9 Cost incurred by State and 

Commonwealth governments in 

meeting the government 

guarantees and host city 

agreements 

50.0 50.0 50.0 Total operational cost based on 

PwC scenario estimates 

Total Costs 3,691.2 2,079.5 1,289.1 

Note: Costs are in real dollars (2010 prices). 

11


4.1 Infrastructure 

4.1.1 Stadiums 

A FIFA requirement for hosting the World Cup is for at least 12 stadiums with a minimum 

capacity of 40,000 for the group stage and increased capacities as the tournament progresses. 

Infrastructure costs range from $2.7 billion under the full stadia scenario to $346 million 

under the overlay cost scenario, based on estimates provided by the FFA’s Infrastructure 

Consortium. The costs of individual stadium upgrades are listed in Table 4.3 below. The costs 

are based on upgrades to meet FIFA’s technical requirements to host a World Cup match, or 

full construction costs if the stadium is built specifically for the World Cup. 

Stadium 

Table 4.3: Estimated stadium infrastructure costs 

Scenario 1 

Full stadia 

Scenario 2 



Scenario 3 

Overlay costs 


New Perth Stadium 766.4 31.8 31.8 

Adelaide Oval 412.1 36.1 36.1 

Melbourne Cricket Ground 36.9 36.0 36.0 

Stadium Australia 41.6 26.7 26.7 

Sydney Football Stadium 44.6 17.5 17.5 

New Western Sydney Stadium 279.3 279.3 25.3 

Redeveloped Energy Australia Stadium 127.9 127.9 30.9 

Suncorp Stadium 35.7 33.5 33.5 

Redeveloped Gold Coast Stadium 127.6 21.7 21.7 

Redeveloped Dairy Farmers Stadium 209.8 209.8 24.4 

New Canberra Stadium (CS4 Option) 279.3 279.3 25.3 

Redeveloped Geelong Stadium 387.0 37.0 37.0 

Total of 12 selected stadiums 2,748.2 1,136.6 346.2 

Source: FFA estimates 

Given the significant costs of providing stadium infrastructure, these have been considered in 

the sensitivity analysis (see Section 7.1.2). 

4.1.2 Training facilities and base camps 

Each team competing in the World Cup is allocated a training venue, which is located close to 

their accommodation and match venues. Strict requirements concerning exclusivity of use, 

clean venues and other FIFA rules apply. Upgrades to venues include, where required, 

resurfacing of pitches, change rooms, seating capacity, lighting, insurance and media 

requirements. The FFA and PwC have conducted a review of training venues and Access 

Economics has adopted the cost estimates made as part of this study. 

Hosting the World Cup will require an upgrade of approximately 69 training venues. The 

estimated cost of upgrading training venues is determined by the current quality of each 

training site: low, medium and high. The cost per site based on this rating is $1.5 million (low), 

$0.8 million (medium) and $0.1 million (high). The estimated total cost of the new training 

venues is around $54 million. 

12


4.2 Bidding costs 

There are up-front costs associated with bidding for the World Cup. These are incurred 

whether or not Australia is successful in its bid to host the tournament. 

The Australian Government has committed $45.6 million to the FFA, which will be provided 

over three years. This grant provides financial support for Australia’s bid for the World Cup 

only. Any other financial assistance will be subject to future consideration. 

4.3 Security 

During both the World Cup and Confederations Cup, the provision of security for athletes, 

officials and spectators will involve substantial costs. Some costs will be incurred in the lead 

up to these events — for example, through risk assessment and training. However, the 

significant security resource deployment during the event will be the largest cost component. 

Security costs are aggregated into three tiers: 

■ Tier 1 — security within stadiums. 

■ Tier 2 — security within state borders excluding Tier 1 costs. 

■ Tier 3 — Commonwealth Government security costs which include airports, sea ports, 

Australian Federal Police, ASIO and the Attorney General’s Department. 

Security costs are allocated by tier to the FFA (Tier 1), state governments (Tier 2) and the 

Commonwealth Government (Tier 3). Total security costs for the World Cup and 

Confederations Cup are estimated at $560 million for State and Commonwealth governments 

with Tier 1 costs considered as part of the LOC budget. The security cost estimate has been 

provided by the Attorney General’s Department. 

Various security challenges with the World Cup have been raised, including the large number 

of international spectators and the city-wide nature of the security footprint. It is difficult to 

compare security costs between events due to the different structure of each event, and in 

particular with events held pre and post 11 September 2001. Two major events held in 

Australia were the Sydney 2000 Olympic Games and the 2006 Melbourne Commonwealth 

Games, with the security costs for these around $151 1 million and $161 million respectively. 

The difficulty in basing any security costs on these events is that each was concentrated in one 

major city, whereas the World Cup would be a national event taking in 10 host cities. 

1 Olympic Co-ordination Authority, A report on the financial contribution by the New South Wales Government to 

the Sydney 2000 Games, 2002 


13


4.4 Transport 

Transport costs are estimated at $82.9 million based on a specialist transport assessment by 

Arup which was commissioned by the FFA. The report includes costs incurred by each State 

based on the number of matches held and includes the following factors: 

■ airport parking, rental vehicle and staff costs; 

■ road traffic management costs, in respect of key routes to be utilised during both the 

World Cup and Confederations Cup; 

■ public transport; 

■ FIFA fan fest transport; 

■ information and volunteers; and 

■ vehicle fleet costs. 

4.5 Costs to Government 

Both the Commonwealth and State Governments will be required to assist the LOC in the 

preparation and running of the World Cup through commitments in the Host City Agreements 

and other guarantees. 

In total, additional costs relating to the host city agreement and government guarantees is 

expected to be around $150.9 million. State Governments are estimated to incur costs of 

about $67 million, of which around $39 million is allocated for the cost of ‘cleaning’ stadiums. 

An additional $28 million is due to other host city obligations including: 

communication/project management structure, LOC office facilities (rental costs), host city 

staffing and costs, and the use of products and services of commercial affiliates. 

A requirement of the World Cup bidding process is for bidding nations to sign various 

government guarantees that cover a range of commercial, legal and operational 

arrangements. These guarantees will commit governments to substantial costs, such as 

providing security and telecommunication requirements. Commonwealth Government 

guarantees, excluding security costs (discussed in Section 4.3), are estimated at $83.8 million. 

4.6 LOC Budget 

Costs other than those detailed above will be met under the FIFA and LOC budgets. The FFA 

has provided an estimate of the LOC budget at $820 million, based on the budget of the 2006 

World Cup held in Germany. 

A specific breakdown of this overall LOC expenditure is not available and Access Economics has 

adopted the cost structure of the German LOC for the 2006 World Cup as a benchmark. A 

breakdown of the operating budget for the Germany 2006 World Cup is listed in Table 4.4 

below. 


14


Table 4.4: Budgeted expenditure of the 2006 World Cup Organising Committee 2 

Expenditure Share of Costs 

World Cup cities 3% 

Field offices 3% 

Volunteers 5% 

Miscellaneous 6% 

Transport and traffic 6% 

Security 6% 

Budget reserve 11% 

Media 13% 

Personnel 14% 

Stadiums 14% 

Organisation costs 19% 

Total 100% 

As in previous World Cup tournaments, the LOC budget is primarily funded by FIFA through its 

financial platform. The primary source of funds is generated through ticket sales to the event. 

World Cup ticket revenues initially flow through to FIFA which then funds the operations of the 

LOC, which is established as a FIFA subsidiary. A preliminary budget is required by each 

bidding nation with a final budget and funding arrangement negotiated between the LOC and 

FIFA once the host nation is selected. Figure 4.2 below shows the flow of funds between the 

LOC and FIFA. 

Other sources of supplementary funding for the LOC are also available. The LOC may generate 

its own revenues from certain commercial activities and it is also possible that some 

government contribution might be sought — although this would appear to represent more of 

a contingency rather than form a foundation funding. 

Tournament 

expenses 

Figure 4.2: FIFA financial platform 

Ticket revenue 

LOC FIFA 

Primary funding 

Other revenues 

(for example, Government, 

internally-generated) 

2 2006 World Cup Final Report by the Federal Government (www.fifawm2006.deutschland.de) 


15


4.7 Impacts on other sporting codes 

Hosting the World Cup will affect other professional sports in Australia, predominantly the AFL, 

NRL, ARU and Cricket Australia (CA), due to restricted access to major sporting venues and 

changes to normal operating schedules. While these impacts are not large relative to other 

cost components, they are potentially sensitive. 

To an extent, the nature of discussions between sporting codes and the FFA seen to date has 

some positive dimensions. Firstly, it is a direct expression of the dynamic and viable state of 

professional sport in Australia. Secondly, the keen interest shown by codes in securing key 

stadium access as a result of the tournament suggests future utilisation of stadium 

infrastructure will be healthy. 

While these operational impacts were also an issue during the 2000 Sydney Olympics, the 

World Cup will likely have greater impacts. The Sydney Olympics occurred in two weeks over 

September, typically the period in which both the NRL and AFL finals series are held. To 

accommodate this event, both competitions started and concluded earlier than usual. 

However, the World Cup would fall in the middle of the season for all football codes, go over a 

longer period and involve almost all key football stadiums. As such different operational 

alternatives must be considered. 

The AFL, NRL, ARU and CA have entered into a memorandum of understanding (MOU) with the 

FFA that will be used as a basis for ongoing commercial discussions, including any 

compensation, should Australia succeed in winning the right to host the 2022 World Cup. A 

fundamental principle of the MOU is that the respective codes will not be any worse off as a 

result of Australia hosting the World Cup and Confederations Cup. 

A restriction imposed by FIFA on nations hosting the World Cup is that no other major sporting 

events are able to take place during the tournament window. The FFA has sought and gained 

agreement from FIFA that each of the sporting codes listed under the MOU does not 

constitute a major sporting event, and as such, can continue with their respective 

competitions during the World Cup tournament window. 

It is important to note that no final decision or compensation has been agreed to between the 

FFA and any of the four affected sporting codes, and, as such, there is considerable uncertainty 

surrounding the respective costs. Any final decision may be sensitive given the concessions 

each code will have to make in order for the World Cup to proceed. The 12-year lead time for 

the tournament does however provide significant scope to negotiate and resolve issues of 

stadium access and other potential impacts on sporting codes. 

Based on limited consultations, Access Economics has assumed an operational cost of 

$50 million based on PwC’s central case estimate of the impacts on other sports. This 

assessment assumes each professional sport code will, where possible, arrange fixtures to 

minimise the impact of venue restrictions. 


16


Training venues 

In addition to stadium requirements for match days, FIFA also require that teams have access 

to base camps (chosen individually and separately financed by the competing nations) and 

training venues in close vicinity to match day venues. It is not expected that training venues 

currently used by other sporting codes will be required for the exclusive use of the World Cup 

— Access Economics has not quantified any costs relating to training venue availability. 

4.8 Broader impacts 

In addition to the costs discussed above, local communities are likely to be impacted due to 

other aspects of the tournament. These impacts are largely intangible and have not been 

quantified as part of this analysis, principally due to considerable uncertainty about their 

nature and magnitude. 

Local amenity 

Hosting the World Cup will involve some costs associated with the loss of local amenity. Key 

impacts are likely to comprise major and partial road closures, and changes to public transport 

timetables to ensure there are sufficient train and bus services available to transport patrons 

to venues. Additionally, school holidays may be moved to ensure schools are closed during 

key phases of the event, which also increases the transport resources available. 

Such impacts were seen during the Sydney Olympics. However, because the World Cup is 

more geographically dispersed than the Olympics, these amenity costs are not likely to be as 

intensive for relevant cities. 

Hosting a successful tournament 

There are potentially significant legacy benefits to be gained from hosting a major event. 

However, these are contingent on the event being run successfully. Hosting a major event also 

runs the risk that it is perceived as being poorly managed, and may in fact detract from 

Australia’s international standing in terms of its ability to host mega events, potentially having 

a negative effect for future events. However, given Australia has a proven track record in 

hosting successful and safe mega events, the risk of a negative effect from hosting the World 

Cup are considered low. 

Security issues and tourism legacy 

Security and safety is also a substantial element of risk and is a critical role for a host nation. 

Should Australia’s bid be successful, considerable resources would be allocated to ensure all 

precautions and measures were taken to provide a safe and memorable experience for visitors 

to the tournament. This commitment is underscored by Australia’s consistent record of 

hosting successful major events without incident. 


17


4.9 Summary of the costs of staging the World Cup 

The costs of staging the World Cup are large and involve a range of components. Most direct 

financial costs associated with staging the event have been quantified, although some indirect 

costs have not been valued. 

Cost category 

Direct Costs 

Table 4.5: Quantified costs of the World Cup and Confederations Cup 

Scenario 1 

Full stadia 

Scenario 2 



Scenario 3 

Overlay costs 


Bid to host the World Cup $45.6 $45.6 $45.6 

Security costs $560.0 $560.0 $560.0 

New stadiums and stadium upgrades $2,748.2 $1,136.6 $346.2 

Training grounds $53.5 $53.5 $53.5 

Transport $82.9 $82.9 $82.9 

Costs to Government $150.9 $150.9 $150.9 

Indirect Costs 

Displacement of sporting codes $50.0 $50.0 $50.0 

Total quantified costs $3,691.2 $2,079.5 $1,289.1 


The total quantified costs of hosting the World Cup range from $3.7 billion under the full 

stadia scenario to $1.3 billion under the overlay cost scenario. 

This estimate is subject to a high degree of variability due to the assumptions adopted, 

continuing negotiations between the FFA and other sporting codes and the uncertainty 

surrounding estimates 12 years out from the World Cup tournament. 

18


5 Benefits of the World Cup 

This chapter focuses on the benefits of Australia hosting the World Cup in 2022. 

The key benefit components are summarised in Table 5.1 below. These reflect the welfare 

impact of expenditure in Australia (discussed further in Section 5.6) and are common to each 

of the three stadia development scenarios. 

Table 5.1: Benefits of the 2022 World Cup 

Benefit item $ real 2010 Comments 

Tourism spending 

LOC expenditure 

$ million 

1,237.9 Bottom-up approach from ticket allocation 

� number of games per person 

� percentage of international spectators 

� length of stay and the number of additional tourists 

during tournaments 

� welfare impacts flowing from overseas tourism 

expenditures modelled in a CGE framework 

284.9 

Based on FFA budget estimate 

� welfare impacts flowing from overseas expenditure 

modelled in a CGE framework 

Television broadcasting 77.9 FFA estimate on cost of producing television 

broadcast to a worldwide audience 

� welfare impacts flowing from overseas expenditure 

modelled in a CGE framework 

Consumer surplus 

GST on ticket sales 

54.7 

56.7 

Based on the number of Australians that would have 

travelled overseas to attend the World Cup but now 

stay in Australia 

Based on the expected cost per ticket and the 

number of tickets that are sold to international 

spectators 

Operating surplus 82.0 Based on 10% of LOC budget 

National pride – 

‘halo effect’ 

Total benefits 1,793.8 

Note: Benefits are in real dollars (2010 prices). 

— Not quantified 


19


5.1 Tourism 

5.1.1 Visitors expected 

World Cup tickets 

The number of international visitors expected to attend the World Cup is based on the 

saleable capacity of the 12 selected stadiums, the number of matches to be played in each 

stadium and the allocation of tickets to international spectators (this was taken to be 60% 

based on discussions with the FFA). The proposed stadia and the number of games that will be 

played at each venue gives an overall saleable capacity of around 3.36 million tickets over 64 

matches. 

The saleable capacity excludes all non revenue bearing seats such as a contingency reserve 

(the removal of seats in order to erect camera positions, seats blocked due to obstructed 

views, security considerations and various other operational reasons) and complimentary 

tickets. 

There remains a high level of uncertainty surrounding match configuration should Australia’s 

bid succeed. The number of matches notionally allocated to each stadium for the tournament 

is shown in Table 5.2 below. 

Stadium 

Table 5.2: Fixture allocation 

Saleable 

capacity 


Number of 

matches 

New Perth Stadium 60,085 6 

Adelaide Oval 48,240 6 

Melbourne Cricket Ground 88,048 6 

Stadium Australia 82,480 6 

Sydney Football Stadium 40,402 5 

New Western Sydney Stadium 41,022 5 

Redeveloped Energy Australia Stadium 42,138 5 

Suncorp Stadium 49,150 5 

Redeveloped Gold Coast Stadium 40,021 5 

Redeveloped Dairy Farmers Stadium 40,068 5 

New Canberra Stadium (CS4 Option) 40,150 5 

Redeveloped Geelong Stadium 43,584 5 

On average, it is assumed that tourists will each attend 2.9 matches during the World Cup 

(during the 2006 World Cup in Germany ‘Visitors on average had 2.9 tickets with no difference 

existing between German and foreign visitors’ 3 ). Under the fixture allocation in Table 5.2, the 

number of international visitors who attend World Cup matches through the ticket allocation 

ballot is estimated at around 694,000. 

3 2006 World Cup Final Report by the Federal Government (www.fifawm2006.deutschland.de) 

20


In developing a net tourism figure for Australia, the expected movements due to the 

World Cup of various groups of both international visitors and domestic residents have been 

included. In total, it is estimated that the net tourism inflow to Australia due to the World Cup 

is 677,100 international visitors (see Table 5.3). Further details on the tourism flow 

methodology are set out in Appendix C. 

Table 5.3: Net tourism effect 

Category Total 

Event specific visitors (with tickets) 694,300 

plus Event specific visitors (without tickets) 7,800 

plus Visitors who would have come anyway (combine event in 

their itinerary) 

17,350 * 

less Visitors who postpone their visit due to the event 0 

less Visitors who cancel visit due to the event 7,600 

plus Residents who would have travelled to a World Cup overseas 

but remain in Australia for the event 

10,000 # 

plus Overall impact of residents who leave and those who cancel 

an overseas trip and remain home due to the event 

0 

Total net tourism effect 677,100 # 

Note: * Adjustment made for these visitors to extend length of stay by 7 days. # Residents 

staying in Australia for the event captured in consumer surplus. 

The Department of Resources, Energy and Tourism (DRET) provided projections of the airline 

capacity for 2022. On the basis of these projections and the estimated number of 

international visitors, it is unlikely that airline capacity will constrain the number of tourists 

able to travel to Australia for the World Cup. 

Given no final decision has yet been made on the tournament configuration or FIFA ticket 

allocations, the tourism estimate has a high degree of variability and its effects are considered 

in the sensitivity analysis (see Section 7.1.2). 

Confederations Cup visitors 

The Confederations Cup has eight competing teams and attracts considerably less coverage 

and interest than the World Cup. The FFA estimates that around 600,000 tickets will be 

available to the tournament, giving an average of 37,500 tickets per match for 16 matches. 

The average crowd in South Africa 2009 was 37,000 4 , with a total attendance of 585,000. The 

average attendance at other recent Confederations Cup tournaments was: Germany 2005, 

38,000; France 2003, 31,000; 5 and Japan 2001, 35,000. No estimate of the proportion of 

international visitors attending matches at these tournaments was available. 

The level of tourism is very difficult to estimate for the Confederations Cup as there is no 

specific ticket allocation as with the World Cup. For the South Africa 2009 tournament, tickets 

were allocated on a ‘first come, first serve basis’. 6 South Africa only expected 15,000 

4 http://www.fifa.com/mm/document/afdeveloping/technicaldevp/01/09/92/45/ffc09report.pdf 

5 http://www.fifa.com/tournaments/archive/tournament=101/edition=8503/index.html 

6 http://www.sa2010.gov.za/confederations-cup/tickets/ticket-information 


21


international visitors for the Confederations Cup, predominantly through media and team 

delegations. 7 Assuming that tourists who attend the Confederations Cup will watch three 

matches, and that international visitors comprise 10% of spectators, it is estimated that 

around 20,000 tourists will attend the Confederations Cup in Australia in 2021. 

5.1.2 Other tourism related assumptions 

In addition to the number of tourists expected to attend the World Cup in 2022, estimates are 

required for daily expenditure and length of stay for the various tourism categories — general 

tourists, corporate, media, officials and competing teams. 

The amount of time spent in Australia for World Cup spectators was based on TRA estimates 

for the average time spent in Australia for holiday travelers for the year ending March 2009. 

The length of stay in Australia for other categories, including teams and officials, was 

estimated based on the number of teams and officials that qualify and are required at each 

stage of the competition, with all competitors arriving 10 days prior to the commencement of 

the tournament (a FIFA requirement). 

In 2009, international visitors are estimated to have spent $138 per day 8 whilst in Australia. 

The estimate is based on the number of holiday travelers, excluding backpackers. The figures 

reported by the TRA reflect the spending patterns for the 12 months to March 2009. The 

March 2010 TRA report saw an average 10% fall in daily expenditure per international visitor. 

For the purposes of this study, the 2009 daily expenditure estimates have been adopted. This 

is based on a judgement that the most recent estimates are more reflective of the global 

economic downturn rather than a longer term pattern. 

The real increase in daily spending per person is forecast by the TRA to remain fairly stable to 

2022. Access Economics has adopted an increase of 0.2% per annum based on the total 

inbound economic value and the number of international tourists visiting Australia annually to 

2020, as forecast by the TRA. 

During a major event, visitor spending generally increases above that which is expected during 

other periods — for example, an increase of around 20% in spending was seen during the 2003 

Rugby World Cup in Australia when compared to normal periods. In addition, a study of the 

purchasing behavior of visitors to the 1996 Australian Formula One Grand Prix indicated that 

corporate visitors spent around 18% more per day than other types of visitor. 9 These increases 

in spending during major events have been adopted in estimating the international visitor 

expenditure during the World Cup in 2022. 

A full list of tourism related assumptions is shown in Appendix A. 

7 http://www.bizcommunity.com/Article/196/82/36812.html 

8 Tourism Research Australia, International Visitors in Australia, March 2009 

9 Leo Jago and Larry Dwyer, Economic Evaluation of special events: A Practitioner’s Guide, 2006, p. 9 


22


5.2 Tourism and sporting infrastructure legacy benefits 

Tourism 

Each year the Australian Government promotes Australia as an international tourism 

destination. An event such as the World Cup creates an opportunity to showcase Australia to 

the rest of the world over a number of weeks. This potentially creates a greater awareness of 

Australia’s tourism regions and the possibility of increased flow-on tourism benefits. 

Tourism legacy benefits arising from the Sydney Olympics were estimated to continue for two 

years — 1.0% in 2001 and 0.6% in 2002. 10 During the Olympics, the number of tourists 

influenced by the Olympics was estimated to be 5%. Legacy benefits for the combined World 

Cup and Confederations Cup tournaments are assumed to be similar to that from the Sydney 

Olympics for the years following the event due to the broadly similar scale of international 

media coverage and cumulative global audience. 

Visitor numbers to Australia during 2023 are expected to be around 6.9 million. 11 The 

additional visitors that could be attributed to the legacy from Australia hosting the 2022 World 

Cup total around 69,000 in 2023 and 42,500 in 2024. This is estimated to have an overall 

welfare benefit in 2023 and 2024 of $86.5 million and $60.1 million respectively. 

Sporting infrastructure 

Construction of additional seating capacity at existing stadiums or developing entirely new 

stadiums, independent of the World Cup, would be made if there was sufficient intrinsic 

demand from the sporting community to warrant the expenditure. Over time it would be 

expected that new stadium facilities would be required — and this lies at the heart of any 

stadium legacy benefit. However, defining an optimal infrastructure development path is very 

difficult. 

There are practical challenges in ascertaining whether sporting infrastructure developed for a 

special event like the World Cup would essentially bring forward future spending say by two 

years or by a decade, if at all. An important point is that the actual sporting infrastructure 

developed for an event may never be required in the future — for example, its actual scale, 

configuration or location might well be suboptimal. The current speculation surrounding 

development of major greenfields stadiums (for example the new Perth stadium) underlines 

this uncertainty and is reflected in the three stadia scenarios analysed. 

Indeed, Stadium Australia which is proposed as a major venue for the World Cup, potentially 

hosting a semi final and/or final, is a direct legacy of the 2000 Sydney Olympics. However, at 

the time when that stadium development was being evaluated, it would have been impossible 

to gauge its potential future usage as a World Cup venue (which could be some 22 years after 

the Sydney Olympics). In many respects, such benefits should be considered intangible and 

qualitatively examined alongside other similar impacts. 

10 URS Finance and Economics, Economic Impact of the Rugby World Cup 2003 on the Australian Economy — Post 

Analysis, June 2004, Section 4-15. Figures sourced from Bureau of Tourism Research. 

11 Tourism Forecasting Committee — Forecast Executive Summary – 2010 Issue 1 Tourism Research Australia 


23


A legacy benefit would be generated where sporting teams, who currently use stadiums that 

are proposed to have additional spectator capacity, could attract crowds to fill those extra 

seats. These legacy benefits are difficult to estimate as they are based on how often the new 

seating is actually used (for example, the number of matches played at relevant venues and 

the additional attendance per match). The additional seating would also incur costs through 

an increase in stadium maintenance expenses. For many sporting matches, the additional 

seating would not be required on a regular basis, but would be utilised more for major 

sporting events such as the State of Origin series at Stadium Australia and Suncorp Stadium. 

Given the lack of publicly announced stadium developments, with the recent exception of the 

Adelaide Oval redevelopment, any legacy benefit of additional seating in current stadiums is 

likely to be minimal or highly speculative at best. Even with a reduced seating capacity post 

World Cup, many stadiums will likely have excess capacity for the majority of sporting events 

and redeveloped stadiums are unlikely to significantly increase crowd numbers to fill 

additional seating. As such, any legacy impacts from stadium developments have not been 

quantified in the analysis. 

Stadiums including Gold Coast, Dairy Farmers and Canberra Stadium will be built to a capacity 

of around 40,000 and subsequently reduced to around 25,000, depending on the needs of 

each individual stadium. This additional temporary seating could provide further benefits to 

local community sporting facilities as it is slated be used for spectator seating where required. 

That said, the requirements for such facilities are not clear cut and far better investments in 

community sport may well exist. 

In addition to the capacity upgrades, corporate facilities also require refurbishments to meet 

the high standards that FIFA has set for the World Cup. While these improved facilities may be 

able to generate additional income during future matches, there is insufficient data on the 

utilisation of corporate facilities, and it is unclear how much demand for these facilities would 

change post refurbishment. As such, the additional benefit that could be gained from 

corporate facilities has not been estimated. 

5.3 FFA friendly matches 

As part of hosting a World Cup, the host nation automatically qualifies for both the World Cup 

and Confederations Cup tournaments. Therefore, the host nation is no longer required to 

compete in the qualification rounds. For South Africa 2010, Australia qualified through the 

Asian confederation which involved playing around 14 matches, seven of which were played in 

Australia. 

Should Australia host the 2022 World Cup, the FFA would incur a loss from not playing 

qualifying matches in Australia and would gain from not incurring the expenditure of travelling 

to other Asian countries for qualifiers. However, the loss from any matches not played in 

qualifiers could be offset through hosting ‘friendly’ matches. 

In the lead up to the World Cup, the FFA will have the opportunity to organise friendly 

matches with countries that would attract a larger crowd, for example Brazil or Italy. Given 

that Australia would not be required to play qualifiers on weeks that are allocated within the 

overall football calendar to internationals, this gives the FFA a chance to more readily choose 

which opponents to play. It is also expected that several nations which expect to compete in 

the World Cup would travel to Australia in order to test playing conditions and better prepare 

squads for the event. 


24


It is difficult to determine the number of matches that the FFA would be able to organise in the 

lead up to the World Cup, or the revenue that would be generated from such matches. Any 

revenue would be dependent on the nation which Australia would play, the stadium and the 

timing of the match. Access Economics has assumed that the revenue lost from not competing 

in the qualifying rounds of the World Cup would be broadly offset by the friendly matches 

Australia would play over the same period and in the lead up to the World Cup. 

5.4 Other benefits 

In addition to the benefits discussed above, there will also be economic benefits from LOC 

expenditure within Australia and additional television broadcasting expenditures made by 

FIFA. 

The LOC is expected to have a budget in the region of $820 million to host the World Cup. The 

benefit to the Australian economy is that the LOC is not an expense covered by the 

government but rather, as discussed previously, is funded through ticket revenue effectively 

recycled under FIFA’s financial platform. The LOC expenditure therefore represents additional 

economic activity which provides a welfare gain to the economy. 

Televising the World Cup across the globe comes at a significant cost. As with the LOC 

expenditure, the costs of televising the event will be met by FIFA and its broadcast partners. In 

order to achieve the high quality pictures required by FIFA, the total expenditure within 

Australia of providing the broadcast feeds is expected to be around $200 million. 12 

5.5 Ticket revenue 

World Cup 

Ticketing revenue for the 2022 tournament has been estimated using the ticket prices in South 

Africa 2010 13 and the percentage share of tickets in four price categories (1 being the most 

expensive). The South Africa 2010 ticket allocation is detailed in Table 5.4. 

Table 5.4: World Cup ticket allocation 

Category % share of saleable tickets 

Category 1 49% 




Source: South Africa 2010 ticket allocation 

In South Africa 2010, Category 4 tickets were set aside exclusively for local residents and are 

around one third the price of Category 3 tickets. It has been assumed that this category of 

ticket was allocated due to local economic considerations and that it was a one-off occurrence. 

Therefore, the 11% of Category 4 tickets have been allocated to Category 3 to estimate ticket 

revenue for the World Cup in Australia. 

12 Estimate provided by FFA 

13 http://www.sa2010.gov.za/en/ticket-information/24-ticket-prices 


25


From Germany 2006 to South Africa 2010, the average ticket price has increased from around 

US$134 to US$154, a real increase of around 4.4%. Based on this price change, an increase of 

around 13% on 2010 ticket prices has been assumed to 2022. 

On the above assumptions, the estimated ticket revenue for the 2022 World Cup in Australia 

(based on sale of 3.3 million tickets) is $844 million. 

Confederations Cup 

Total ticket revenue from the Confederations Cup in Australia in 2021 is estimated at 

$82.6 million. The FFA has indicated that 600,000 tickets will be available for the 16 matches, 

giving an average attendance of 37,500 per match. 

Revenue estimates for the Confederations Cup are made using a similar method to the 

World Cup. The price of tickets is based on the Confederations Cup in South Africa 2009 14 , 

increased by around 13% to 2021. 

GST revenue on ticket sales 

Based on Australian Government advice, the sale of all World Cup and Confederations Cup 

tickets will incur GST, irrespective of whether these are purchased overseas or within Australia. 

For international visitors purchasing World Cup tickets, the GST represents extra income 

generated for the Government. 

GST revenue estimates have been based on the share of visitors that are expected to purchase 

tickets. In total, it is estimated around $56.4 million of GST revenue will be collected for both 

the World Cup and Confederations Cup tournaments. 


Consumer surplus is estimated at around $54.7 million for Australian supporters. The surplus 

is based on the number of Australians who would have travelled overseas to attend the 

World Cup but can now remain in Australia for the event. Access Economics estimated that 

around 10,000 Australians attended the World Cup in Germany 2006 and has used this as the 

expected figure in 2022. The consumer surplus is based on the expenditure assumptions used 

for international visitors (spending and length of stay) and includes the purchase of overseas 

travel totaling $2000. 

5.6 Economic welfare impacts of staging the World Cup 

This study has an economy-wide focus. As such, it is important to carefully consider how the 

benefits of additional activity brought about by the World Cup are quantified. In other words, 

the additional activity generated by: 

■ tourism, team and media spending; 

■ LOC spending; and 

■ the sale of communication services to FIFA. 

14 http://www.capetownmagazine.com/articles/Sport-a-Fifa-2010~c9/Prices-and-Tickets-for-the-FIFA- 

Confederations-Cup-2009~1027 


26


When assessing the economy-wide impacts, an estimate of the economic welfare effects of 

these different spending items is required. To make this assessment Access Economics has 

used a computable general equilibrium (CGE) modelling approach (see Box 4). A key 

advantage of the CGE framework is the ability to determine the direct and indirect impacts of 

additional demand generated by the World Cup. These represent both positive and negative 

influences on the economy. 

On the positive side, additional spending on, say, tourism services increases economic activity 

in this sector. The model also accounts for linkages between the tourism sector and other 

sectors of the economy it uses as intermediate inputs. As such, any increase in demand for 

tourism also increases economic activity in those sectors that supply relevant impacts to the 

tourism sector. Increased economic activity raises the demand for factors of production 

(labour and capital) which, depending on their availability, increases their use and price which, 

in turn, increases national income and welfare. 

On the negative side, the model accounts for indirect linkages across the economy though 

mechanisms such as the collective competition for available resources, for example, labour, 

that operates in an economy-wide or global context. As such, the model accounts for what is 

known as ‘crowding out’. In other words, as the tourism sector expands as a result of the 

World Cup, other sectors find it difficult to attract or retain key factor inputs such as workers. 

As a result, tourism expands at the expense of other activities, thereby crowding them out. 

Box 4: The modelling framework 

AE-RGEM is a large scale, dynamic, multi-region, multi-commodity computable general 

equilibrium model of the world economy. The model allows policy analysis in a single, robust, 

integrated economic framework. This model projects changes in macroeconomic aggregates 

such as GDP, employment, export volumes, investment and private consumption. At the 

sectoral level, detailed results such as output, exports, imports and employment are also 

produced. 

The base data of AE-RGEM is derived from the Global Trade Analysis Project (GTAP). GTAP 

produces a global database for GE modelling used by over 700 researchers worldwide. 

AE-RGEM is based on Version 6.0 of the GTAP database. This version has a 2001 base year 

with 87 countries and 57 industry sectors. 

AE-RGEM solves year-on-year over a specified timeframe. The model is then used to project 

the relationship between variables under different scenarios over a predefined period. A 

typical scenario is comprised of a reference case projection that forms the basis of the analysis, 

in this case an estimate of economic activity in the absence of the World Cup. This is then 

compared with a scenario that assesses the economic impacts of increased spending 

associated with the World Cup. The impacts of the World Cup spending are measured by 

differences between the reference case and scenario levels at given points in time. 


27


Of course, any economic model is highly dependent on its assumptions, parameters and data. 

Some of the key assumptions are described in Appendix E. Two key assumptions underpinning 

the analysis are that: 

■ full employment conditions apply, meaning the World Cup does not increase 

employment; and 

■ the government budget position remains unchanged and government expenditures for 

the World Cup do not require additional taxes to be levied. 

5.7 Broader impacts 

Hosting the World Cup in 2022 would generate additional social benefits. However, the 

intangible aspect of these benefits, which manifest in enhanced social cohesion, social 

inclusion and legacy benefits means their nature and scope is highly uncertain. Further, the 

flow-on benefits often extends to future generations. 

As such, these benefits are very difficult to quantify and, indeed, can be challenging to 

adequately define. Consequently, Access Economics has not attempted to place a dollar value 

on these impacts. 

National pride and other intangible effects 

Major events are generally seen to confer a positive ‘halo’ effect on the residents of the city or 

nation in which the event is held. These effects are generally attributed to several factors, 

such as general public enthusiasm, and can be usefully categorised as feelings of wellbeing. 

Additionally, representation on a global stage in a premier sports event is commonly 

considered to improve a sense of ‘national pride’. Importantly, such an effect can be 

experienced broadly across the community and does not necessarily depend on individuals 

attending the event. 

Such effects will, however, depend highly on the type and nature of the event, with some 

events naturally being more popular. A useful proxy might perhaps be the number of 

volunteers able to be marshalled for the event, such as the large numbers used to stage the 

Sydney Olympics. 

The ‘halo’ effect is an example of a public good: citizens cannot be excluded from its 

enjoyment (non-excludable) and the feeling of wellbeing generated in one person does not 

impact the amount of wellbeing felt by another (non-rivalrous). The public good nature of this 

‘halo’ effect cannot be effectively captured by markets and, where significant, it provides some 

justification for public support for such events. 

While these effects are no less important than the other quantifiable benefits discussed above, 

they are certainly less tangible. Including them in a CBA would require explicit quantification 

of the community wellbeing generated. As there is no market price and revealed preference 

for wellbeing, estimation is notoriously difficult. 


28


Business and trade benefits 

Additional business and trade can potentially be generated with international companies via 

tournament-specific functions. During the Rugby World Cup in 2003, the Business Club 

Australia (BCA) held events where international business executives could be introduced to 

local exporting companies during their visit. The BCA estimated that $496 million of additional 

trade was generated for Australian companies through the Rugby World Cup initiatives. 

However, countries like Australia are certainly not new and unknown to most international 

business people. As such, the potential developmental business opportunities from hosting a 

major event would appear somewhat limited (the opposite would appear to apply for 

emerging economies). It is also difficult to establish whether such benefits would have 

occurred regardless (possibly at some time in the near future). A fundamental issue for the 

success of this demonstration strategy is to attract additional investment and trade without 

assistance. For these reasons, such trade benefits have not been incorporated into the 

analysis. 

Legacy effects 

Proponents often advocate the potential for a major event to make winning other events more 

likely. While this can represent a legitimate positive spillover effect, the magnitude of any 

impact can be overstated and the effects are extremely difficult to verify after the event. 

There is also considerable uncertainty regarding the precise nature and timing of any 

potentially benefiting future event. This makes the inclusion of such impacts into the 

evaluation highly speculative and, as such, they have not been adopted into the analytical 

framework. 

5.8 Economic welfare and labour market assumptions 

Economic welfare is measured in the CGE model by real Gross National Product (GNP). This is 

a common welfare measure used in economic modelling. It equates to gross domestic product 

(GDP) plus foreign income transfers, and therefore provides a complete measure of national 

income. 

In the context of the CBA, this measure recognises that a dollar of additional demand brought 

about by the World Cup does not equate to a dollar of economic welfare. Rather, it is the 

contribution of the additional spending to national income, or the net impact on earnings by 

labour, capital and tax revenue that contributes to the welfare of Australians. 

The economic benefits of additional spending associated with the World Cup are shown in 

Table 5.5. The table shows additional World Cup spending totalling around $4.3 billion for the 

2022 event, as well as the estimated economic welfare effect of around $1.6 billion. In other 

words, for every dollar of additional expenditure estimated for the World Cup, around 37 cents 

accrues to the country in terms of economic welfare. 


29


Table 5.5: Economic welfare benefits of staging the 2022 World Cup 

Benefit 

Revenue 

($million) 


Economic welfare 

($million) 

Tourist expenditure 3,250.0 1,237.9 

LOC expenditure in Australia 819.6 284.9 

Television broadcasting 200.0 77.9 

Total Benefits 4,269.6 1,600.6 

Note: Revenue represents the value of expenditure (2010 dollars) before adjusting for welfare effects. 

One of the key determinants of this spending-to-welfare ratio is the assumption of full 

employment. This assumption means that, in response to an increase in aggregate demand 

brought about by the World Cup, the Australian economy is not able to increase its productive 

base in order to increase economic activity and, ultimately, welfare. This is particularly 

relevant for the World Cup as it is primarily a tourism related activity, the provision of which is 

labour intensive. 

A representation of the effects of an increase in aggregate demand under different supply 

conditions is shown in Figure 5.1, with the demand movement from AD1 to AD1’ being broadly 

representative of the core labour supply assumptions used in the analysis. 

Price 

Aggregate demand 

Figure 5.1: Macroeconomic expansionary effects 

Excess 

capacity 

AD0 

AD0’ 

Expansionary effects 

Aggregate supply 

Towards fullemployment 

AD1 

AD1’ 

Output 

30


Sensitivity of results to the labour market assumptions 

To test the sensitivity of the welfare benefits of World Cup spending to the labour market 

assumptions, the full employment assumption was relaxed. This was replaced by a 

specification of the labour market that assumed a long run supply elasticity of 0.1 and a short 

run supply elasticity of 1.0. This means that for every one per cent rise in wages, labour supply 

increases by 0.1 per cent in the long run, and 1.0 per cent in the short run. 

From an economy-wide point of view, a more elastic labour supply curve allows the economy 

to respond more favourably to increased demand generated by the World Cup compared with 

the full employment assumption. This is demonstrated in Table 5.6, which shows the 

projected economic welfare benefits under the long run supply elasticity assumption are 

significantly higher than the full employment assumption. This is because some labour can be 

employed by, for example, the tourism sector from a pool of unused labour rather than 

competing workers away from other sectors of the economy which occurs under full 

employment conditions (i.e. the crowding out effects are greatly reduced). 

Table 5.6 shows the value of additional spending, which totals around $4.3 billion for the 2022 

event, as well as the estimated economic welfare impact of around $2.7 billion. This implies a 

0.64 ratio of economic welfare to spending. 

Table 5.6: Sensitivity of economic welfare benefits to labour market assumptions 

Benefit 

Revenue 

($ million) 

Full employment 

($ million) 


Higher labour supply 

elasticity ($ million) 

Tourist expenditure 3,250.0 1,237.9 2,145.9 

LOC expenditure in Australia 819.6 284.9 426.6 

Television broadcasting 200.0 77.9 140.8 

Total Benefits 4,269.6 1,600.6 2,713.3 

Note: Revenue represents the value of expenditure (2010 dollars) before adjusting for welfare effects. 

The ability of the Australian economy to expand production in the World Cup year by 

employing more labour is a key uncertainty. The full employment assumption is conservative, 

and is consistent with the principles established for this analysis and Department of Finance 

and Deregulation guidelines. On the other hand, the assumption can be questioned given the 

standard practice for long term analysis such as this is to assume an elastic supply response. 

These labour market sensitivities are considered alongside other key parameter assumptions 

in Section 7.1.2. 

31


5.9 Summary of the benefits of staging the World Cup 

The benefits of staging the World Cup are predominantly due to international tourists 

attending the event and LOC expenditure. Indirect benefits such national pride other 

intangible benefits have not been valued. 

The total quantified benefits of hosting the World Cup in 2022 total $1.8 billion. This reflects 

the welfare impact of expenditure in Australia and is common to each of the three stadia 

development scenarios. 

Table 5.7: Quantified benefits of the World Cup and Confederations Cup 

Benefit category Scenarios 1 to 3 


$ million 

Tourism spending $1,237.9 

LOC Expenditure $284.9 

Television broadcasting $77.9 

Consumer surplus $54.7 

GST on ticket sales $56.7 

Operating surplus $82.0 

Total quantified costs $1,793.8 


32


6 Weighing up the impacts of the World Cup 

6.1 Quantification of costs 

The major costs involved in hosting the 2022 World Cup are shown below in Table 6.1. The 

three development scenarios are discussed in Chapter 4. 

The construction of new stadia and upgrades to existing stadia account for the major share of 

costs under Scenario 1 and Scenario 2, followed by security and the cost to government of 

providing FIFA guarantees for the tournament. Under Scenario 3, security is the major cost 

category followed by stadium infrastructure which only allocates overlay costs specifically to 

the World Cup. 

Excluding stadium infrastructure costs, other cost components are consistent between 

scenarios. 

Expenditure / 

Benefit item 

Scenario 1 

Full stadia 

Table 6.1: World Cup costs 

Scenario 2 



Scenario 3 

Overlay costs 

($m, 2010) ($m, NPV) ($m, 2010) ($m, NPV) ($m, 2010) ($m, NPV) 

Bidding 45.6 45.6 45.6 45.6 45.6 45.6 

Infrastructure 2,748.2 1,947.8 1,136.6 775.8 346.2 204.1 

Transport 82.9 49.8 82.9 49.8 82.9 49.8 

Security 560.0 333.2 560.0 333.2 560.0 333.2 

Other 103.5 62.5 103.5 62.5 103.5 62.5 

Cost to Government 150.9 97.1 150.9 97.1 150.9 97.1 

Total Costs 3,691.2 2,535.9 2,079.5 1,364.0 1,289.1 792.3 


Given the significant share of costs represented by stadium infrastructure, transport and 

security, these are examined further in the sensitivity analysis in Section 7.1.2. 

Scenario 1 — Full stadia 

The time profile of costs and benefits for Scenario 1 is set out in Chart 6.1 below. Chart 6.2 

details a breakdown of major tournament expenditures. 

The major cost associated with hosting the 2022 World Cup under Scenario 1 is stadium 

infrastructure. FIFA requires that a minimum of 12 stadiums be used during the tournament 

and, given Australia’s current stadium infrastructure, all would require some refurbishment 

and/or reconstruction works to meet FIFA requirements. In total, it is estimated that around 

$2.7 billion is required for stadium infrastructure and training grounds. 

33


$ Millions (Real) 

Chart 6.1: Costs and benefits of hosting the World Cup — Scenario 1: All stadia 

2,000 

1,500 

1,000 

500 

- 

-500 

-1,000 

-1,500 

2010 

2011 

2012 

2013 

2014 

2015 

2016 

2017 

Total annual revenue Total annual expenditure Net revenue 

Chart 6.2: Costs of hosting the World Cup — Scenario 1: Full stadia 

Stadium infrastructure 

75% 

2018 


2019 

2020 

2021 

Transport 

2% 

2022 

Security 

15% 


3% 

2023 

Cost to Government 

4% 

Bidding 

1% 

Infrastructure accounts for around 75% of total costs under Scenario 1, with the majority of 

construction works expected to take place from 2016 to 2021. Security and transport are the 

two other major expenditure components. Security is estimated at $560 million, or 15% of 

total expenditure, for both the World Cup and Confederations Cup tournaments, with 

transport costs contributing a further $82.9 million. 

2024 

2025 

2026 

34


Scenario 2 — Partial stadia 

Infrastructure costs under Scenario 2 are significantly lower than for Scenario 1, totalling 

$1.1 billion, or 55% of total costs. The time profile of construction works is consistent with the 

relevant stadia under Scenario 1 (see Chart 6.3). Again security costs are the next largest cost 

component totalling $560 million, or 27% of total costs, with transport at around 4% of total 

costs. 


Chart 6.3: Costs and benefits of hosting the World Cup — Scenario 1: All stadia 

2,000 

1,500 

1,000 

500 

- 

-500 

-1,000 

-1,500 

2010 

2011 

2012 

2013 

2014 

2015 

2016 

2017 


Chart 6.4 shows a breakdown of tournament expenditure under Scenario 2. 

Chart 6.4: Costs of hosting the World Cup — Scenario 2: Partial stadia 

Transport 

4% 


55% 

2018 

2019 


2020 

Security 

27% 

2021 



5% 

2023 


7% 

Bidding 

2% 

2024 

2025 

2026 

35


Scenario 3 — Overlay costs 

Under Scenario 3, all new stadia construction and upgrades to existing stadia have been 

allocated to the baseline (i.e. they are treated as non-tournament developments), with overlay 

construction costs specifically attributed to the World Cup. Overlay costs total $346.2 million, 

or 27% of total costs under Scenario 3, and are expected to be undertaken in 2022, consistent 

with Scenario 1 and Scenario 2 (see Chart 6.5). Security is the major cost category accounting 

for 43% of total event costs. 


Chart 6.5: Costs and benefits of hosting the World Cup — Scenario 3: Overlay costs 

2,000 

1,500 

1,000 

500 

- 

-500 

-1,000 

-1,500 

2010 

2011 

2012 

2013 

2014 

2015 

2016 

2017 


Chart 6.6 below shows a breakdown of event expenditures under Scenario 3. 

Chart 6.6: Costs of hosting the World Cup — Scenario 3: Overlay costs 

Security 

43% 

Transport 

6% 

2018 

2019 


2020 

2021 


8% 


2023 


12% 

Bidding 

4% 


27% 

2024 

2025 

2026 

36


6.2 Quantification of benefits 

The major benefits generated from the 2022 World Cup are shown below in Table 6.2. 

Tourism is the major benefit and generates a welfare gain of around $1.2 billion, followed by 

LOC expenditure totalling $284.9 million. 

Table 6.2: World Cup benefits 

Expenditure / Benefit item Scenario 1 to 3 inclusive 

($m, 2010) ($m, NPV) 

Tourism (including legacy) 1,237.9 726.1 

LOC Expenditure 284.9 172.7 

Television Broadcasting 77.9 45.9 

Other World Cup related 193.1 113.9 

Total Benefits 1,793.8 1,058.7 


Based on the expected number of tourists, teams and officials that would travel to Australia 

for the event, tourism welfare gains are estimated at 69% of total benefits. The LOC is 

expected to spend around $820 million in organising the event which contributes to significant 

welfare gains for Australia, and accounts for 16% of total benefits. The benefit generated 

assumes that the LOC budget will be negotiated with FIFA and funded through the FIFA 

financial platform model (see Chapter 3). 

Chart 6.7 below shows a breakdown of benefits accrued from hosting the 2022 World Cup in 

Australia. Benefits from hosting the tournament are consistent across all scenarios. 

Tourism 

69% 

Chart 6.7: Benefits of hosting the World Cup 

LOC expenditure 

16% 



related 

8% 

Television 

broadcasting 

4% 


3% 

37


The benefits accrue almost entirely during the year of the World Cup with welfare gains of 

approximately $1.0 billion in 2022 (see benefit profile in Chart 6.1, Chart 6.3 and Chart 6.5). 

Following the event, the benefits taper off considerably, with the post-event tourism impact in 

the two years following the tournament the major driver of benefits. 

6.3 Results summary 

Chart 6.8 and Table 6.3 below detail the costs and benefits of hosting the 2022 World Cup. 

The tournament generates a net financial cost under Scenario 1 and Scenario 2 of $1.5 billion 

and $305 million respectively. Under Scenario 3, however, the World Cup generates a net 

financial gain of $266 million. 

On a per capita basis, hosting the 2022 World Cup would involve a financial cost of 

$66 per person for Scenario 1 and $14 per person for Scenario 2, whilst providing a financial 

gain of $12 per person for Scenario 3. 

The fundamental conclusion drawn from this analysis is that the allocation of stadium 

infrastructure costs to the World Cup is a major driver of the overall outcomes (see Chart 6.8). 

$ Millions (NPV) 

2,250 

2,000 

1,750 

1,500 

1,250 

1,000 

750 

500 

250 

0 

Chart 6.8: Costs and benefits of hosting the 2022 World Cup 

Scenario 3 

Scenario 2 

Scenario 1 


38



item 

Table 6.3: Net benefits of hosting the 2022 World Cup 

Scenario 1 

Full stadia 

Scenario 2 



Scenario 3 

Overlay costs 

($m, 2010) ($m, NPV) ($m, 2010) ($m, NPV) ($m, 2010) ($m, NPV) 

Benefits 

Tourism (incl legacy) 1,237.9 726.1 1,237.9 726.1 1,237.9 726.1 

LOC Expenditure 284.9 172.7 284.9 172.7 284.9 172.7 

Television Broadcasting 77.9 45.9 77.9 45.9 77.9 45.9 


related 

193.1 113.9 193.1 113.9 193.1 113.9 

Total Benefits 


1,793.8 1,058.7 1,793.8 1,058.7 1,793.8 1,058.7 

Bidding 45.6 45.6 45.6 45.6 45.6 45.6 

Infrastructure 2,748.2 1,947.8 1,136.6 775.8 346.2 204.1 

Transport 82.9 49.8 82.9 49.8 82.9 49.8 

Security 560.0 333.2 560.0 333.2 560.0 333.2 

Other 103.5 62.5 103.5 62.5 103.5 62.5 

Cost to Government 150.9 97.1 150.9 97.1 150.9 97.1 

Total Costs 3,691.2 2,535.9 2,079.5 1,364.0 1,289.1 792.3 

Net benefits -1,897.4 -1,477.2 -285.7 -305.3 504.6 266.4 

Net benefit per person -66.0 -13.9 11.9 

Note: Impacts are in real dollars (2010 prices). Per capita estimates based on a population of 22.38 million as at 

July 2010, Australian Bureau of Statistics. 

6.4 Key uncertainties 

Data limitations 

The estimated costs and benefits of the tournament are highly dependant on the availability of 

reliable and robust information. Specialist transport and infrastructure firms were 

commissioned by the FFA to cost various aspects of the tournament and this analysis has relied 

on these reports. The estimates have been completed based on the most up to date 

information, and have relied on the tournament specifications as set out in the bid book. 

Given the World Cup is 12 years away and the Australian economy will change markedly over 

this period, there is considerable uncertainty on the final costs for the tournament. Where 

possible, the cost information should be improved over time to reflect the current economic 

and international environment. 

In particular, security and stadium infrastructure costs are expected to have the greatest 

uncertainty. While security costs were developed based on the current environment, how 

security is viewed and enforced over the next decade is likely to change, and costs should be 

updated to account for new factors. 

Stadium infrastructure is another area where considerable uncertainty exists and where cost 

estimates should be updated to reflect the cost of labour and materials used in construction. 

Stadium construction costs should also be updated if stadium configurations change or 

different stadiums are proposed for use during the tournament. This may in turn affect 

forecasts of international tourists attending the event. 

39


7 Risk analysis 

A general framework for considering risks that may influence the magnitude, timing and 

distribution of costs and benefits of hosting the World Cup is provided in Figure 7.1. 

Impact 

High 

Medium 

Low 

Figure 7.1: Risk analysis framework 

Medium 

Low 

High 

Medium 

Low Low 


Critical 

High 

Medium 

Low Medium High 

Likelihood 

Most of the cost and revenue components of the World Cup occur well into the future and are 

thus uncertain. The following assessment aims to systematically examine the attendant risks, 

identify the main risk factors and subsequently inform the most appropriate way of addressing 

risk in the cost benefit analysis. The risks that typically require the most attention are those 

that have a large effect on the dominant benefit and cost elements and thus the potential for 

significant economic gains or losses. 

In addition to an evaluation of specific risks and uncertainties, sensitivity analysis on more 

general modelling parameters is also undertaken. A key aspect is to highlight the extent to 

which outcomes are sensitive to changes in the assumptions and to address any inherent 

biases in developing the analysis. 

A summary of the main risks and consequences is provided in Table 7.1. A more detailed 

sensitivity assessment is provided in Section 7.1.2. 

40


Table 7.1: Key risks of hosting a World Cup 

Risk Key issues Bearer Scale 

Planning Stage 

Other sporting codes Costs incurred by other sporting codes for disruption 

of season. Impact is expected to be low but 

potentially sensitive. 

Construction Macroeconomic conditions (such as skills shortages 

or weak Australian dollar), cost blow outs or 

industrial action that causes an increase in costs of 

stadium developments. 

Scope creep The services required to be delivered by the LOC 

could be changed or the scope increased. 

Transport and security Need for further infrastructure to accommodate the 

movement in tourists or an increase in security 

concerns. This may have an implication on the 

design of transport links and security. 

Availability / Delay risk Stadiums, training venues or transport links not 

completed in time for the tournament. 

Tournament Stage 

Team participation Tournament qualification uncertainty. A country 

with residents that have a higher propensity to travel 

to Australia, such as England or the USA, does not 

qualify, or that a country like China does qualify. 

The qualification, or failure to qualify, of a team from 

a larger country is likely to affect the number of 

tourists. 


Other professional sporting 

codes, Commonwealth and State 

Governments 

Commonwealth and State 

Governments 


Governments 


Governments 


Governments 


Governments 

Likelihood: High 

Impact: Low 

Rating: Medium 


Impact: High 

Rating: Critical 

Likelihood: Low 

Impact: Low 

Rating: Low 


Impact: Medium 

Rating: High 


Impact: High 


Likelihood: Medium 

Impact: Low 

Rating: High 

41


Risk Key issues Bearer Scale 

Catastrophes 

Global travel risks Events that affect World Cup tourists’ willingness to 

travel such as terrorist activity, SARS or economic 

conditions (global financial crisis). 

Natural hazards Disruption to the itinerary of travellers to the World 

Cup, from an extreme weather event. This would 

primarily be a localised event affecting one or two 

venues. 

Other risk and third party risk 

Airline capacity The tourist arrival window is critical for measuring 

the benefits of the tourism activity. 

Tourism activity may be significantly affected where 

the normal airline operation capacity was disrupted 

during this time. For instance, one of the major 

airports could remain inoperable during this time or 

an airline may cease operations during the event 

window. 

Commonwealth Government risk State governments unable to meet host city 

agreement requirements post bidding. 



Governments 


Governments 


Governments 

Commonwealth Government 


Impact: High 



Impact: Low 

Rating: Low 


Impact: High 


Likelihood: Medium 

Impact: High 

Rating: High 

42


Main forms of risk 

In examining risks relevant to the World Cup and their consequences, it is important to 

distinguish between different forms of risk. There is considerable evidence pointing to a 

systematic tendency for optimism bias when assessing project risk. The tendency is to 

overestimate demand and revenues and to understate costs. The difference between 

projected (biased) values and true expectations can be termed ‘downside risk’. This is 

principally addressed through thorough reporting of assumptions and sensitivity testing of key 

parameters. 

Other forms of risk can be termed ‘pure risk’ and have two key forms: idiosyncratic risk and 

systematic risk. 

Idiosyncratic or unsystematic risk is project-specific. In the context of the World Cup, it 

essentially reflects risks associated with the unique circumstances of the tournament, as 

opposed to the economy overall. Conversely, systematic or market risk concerns risk that is 

correlated with other projects or with movements in the economy as a whole. An important 

aspect to distinguishing these forms of risk is that idiosyncratic risks can be largely eliminated 

by diversification across a variety of projects and investments, whereas systematic risks cannot 

be diversified away. 

7.1.2 Sensitivity analysis 

Sensitivity analysis was conducted on key inputs to determine the variability of net costs and 

benefits. This includes an analysis of the discount rate, construction costs (including stadium 

and training venues), tourism revenue, transport, security costs and labour market constraint 

assumptions. As seen in Figure 7.2 below, stadium construction costs and tourism revenue are 

the key cost and benefit categories that drive the overall results. 

$ Millions (NPV) 

2,250 

2,000 

1,750 

1,500 

1,250 

1,000 

750 

500 

250 

0 

Figure 7.2: NPV of costs and benefits of the World Cup 

Scenario 1 

Scenario 2 

Scenario 3 


43


Table 7.2 below details the sensitivity analysis for major cost and benefit categories. Under 

Scenario 1, a 10% increase in the costs of stadium construction would lead to a $198 million 

increase in overall net costs. Stadium cost increases for Scenarios 2 and 3 are significantly less 

than under Scenario 1 due to a higher proportion of costs allocated to the baseline. A 10% 

increase in stadium infrastructure costs under Scenarios 2 and 3 would result in a lower net 

benefit of around $81 million and $24 million respectively. 

In respect of benefits generated from the World Cup, the sensitivity results are consistent 

across all scenarios. Should tourism revenue be 10% less than projected, this would have a 

material impact on the outcomes, reducing the overall net result by $72.6 million. 


item 

Table 7.2: Sensitivity analysis of key inputs 

Scenario 1 

Full stadia 

Scenario 2 



Scenario 3 

Overlay costs 

NPV Variance NPV Variance NPV Variance 

$million $million $million $million $million $million 

Base Case -1,477.2 -305.3 266.4 

3% real discount rate -1,605.6 -128.4 -305.0 0.3 330.5 64.1 

6% real discount rate -1,359.6 117.7 -301.6 3.7 213.7 -52.7 

10% real discount rate -1,095.8 384.4 -280.2 25.1 114.1 -152.3 













Long run labour supply -797.2 680.0 374.7 680.0 946.4 680.0 

Note: NPV estimates use a real discount rate of 4.5%. The long run labour supply sensitivity test relaxes the full 

employment assumption and shows the economic impact in which spare capacity in the labour market can respond 

to increased demand generated by the tournament. 

Labour market conditions 

The 2022 World Cup is 12 years away and the Australian economy will look quite different at 

this time than it does today. This extended timeframe has important implications for the 

analysis. Above all, projections of macroeconomic and labour market conditions, as well as 

stadia and infrastructure cost estimates, become much more uncertain. 

In particular, the full employment assumption adopted in the GE modelling has a significant 

effect on results. The labour supply condition has a considerable effect on the economy’s 

ability to respond to increased demand from the World Cup through increased employment, 

and therefore the extent to which economic welfare can increase. Department of Finance and 

Deregulation guidelines state a full employment condition is to be taken when examining the 

general equilibrium impacts of policy proposals. Such a condition, which is consistent with the 

44


conservative approach adopted in the analysis, ensures that any expansionary impacts are 

more constrained than if there was excess capacity in labour and other factor markets. 

Relaxing the long run labour supply assumption (see Table 7.3) improves the net result by 

around $680 million across all three scenarios. It results in a net tournament cost of 

$797 million under Scenario 1, and a net positive result of $374.7 million and $946.4 million for 

Scenarios 2 and 3 respectively. 

Table 7.3: Impact of additional labour market capacity 

Expenditure / Benefit item 

Scenario 1 

Full stadia 

Scenario 2 



Scenario 3 

Overlay costs 

($m, NPV) ($m, NPV) ($m, NPV) 

Benefits 

Tourism (incl legacy) 1,260.5 1,260.5 1,260.5 

LOC Expenditure 281.3 281.3 281.3 

Television Broadcasting 83.0 83.0 83.0 

Other World Cup related 113.9 113.9 113.9 

Total Benefits 


1,738.7 1,738.7 1,738.7 

Bidding 45.6 45.6 45.6 

Infrastructure 1,947.8 775.8 204.1 

Transport 49.8 49.8 49.8 

Security 333.2 333.2 333.2 

Other 62.5 62.5 62.5 

Cost to Government 97.1 97.1 97.1 

Total Costs 2,535.9 1,364.0 792.3 

Net Benefit -797.2 374.7 946.4 

Note: Impacts are in real dollars (2010 prices). 

45


8 Concluding comments 

Hosting a tournament the scale of the FIFA World Cup requires a significant commitment from 

the Government to meet the requirements set out by the governing body. 

Given the World Cup will not be held for 12 years, there is considerable uncertainty 

surrounding not only the overall costs of the tournament but which costs will be borne by 

State or Commonwealth governments. Once a host nation for the World Cup is selected, 

government (and thus taxpayers) would bear significant risk of either tournament cost 

overruns or that benefits are lower than expectations. It should be noted that upside potential 

also exists from more international tourists attending the tournament than expected. But this 

is less likely and indeed has not been the general experience with staging mega sporting 

events. 

The fundamental conclusion drawn from this analysis is that, except under the most 

favourable cost conditions, the expected financial benefits from tourism, team and media 

spending are not sufficient to outweigh the significant financial cost of stadium construction 

and operational services required to host the event. These financial estimates would need to 

be considered in conjunction with the broader social and cultural benefits which the 

tournament is likely to yield. 

An important procedural aspect given high levels of uncertainty is to clearly establish 

responsibility for all costs of staging the event. This would include costs to be borne by the 

LOC and especially between States and the Commonwealth. Host city agreements are entered 

into by the States involved, but may present considerable risks for the Commonwealth — for 

instance, to meet any funding shortfall from the States or LOC. 

Should Australia’s bid succeed, it is understood that a more inclusive process between FIFA 

and the host country will emerge in which there is likely to be some scope to modify or refine 

aspects of tournament commitments given the long lead time and changing circumstances. 

Where this occurs, there may well be material cost and risk implications for government and 

any such proposals should be carefully scrutinised. 

Further, cost benefit analysis of an event should ideally be commenced early in the process to 

allow careful analysis and consideration of methodological issues and data requirements. 

Preferably, this should occur before a decision to bid for the World Cup is made. 


46


Appendix A: Key analytical assumptions 

Table A.1: World Cup CBA key assumptions 

Parameter Assumption Basis 

Real discount rate 4.5% p.a. Commonly used discount rate 

Number of host cities 

Number of stadiums 

Stadium infrastructure costs 

Scenario 1 – All stadia 

Scenario 1 – Partial stadia 

Scenario 1 – Overlay costs 

10 

12 

$2,748.2 million 

$1,136.6 million 

$346.2 million 

Advice from DRET/FFA 

Advice from DRET/FFA 

FFA Infrastructure Consortium 



Security costs $560 million Attorney General’s Department 

LOC ticket revenue (World Cup 

and Confederations Cup) 

Expected net tourist numbers 

during World Cup 

Expected net tourist numbers 

during Confederations Cup 

Visitor time spent in Australia 

$926.9 million Germany 2006 ticket sales, South Africa 

2010 ticket prices and Australian stadium 

capacities 

677,100 60% of tickets allocated to international 

visitors (based on discussions with FFA) 

20,000 Availability of tickets, assumption that 

10% of ticket holders are international 

visitors 

Tourists 20 days TRA International Visitors Survey, holiday 

travellers excluding backpackers 

Corporate 10 days Access Economics assumption 

Media 42 days Tournament window plus one week 

either side 

Officials 31 days Based on number of officials required at 

each stage of the tournament, arriving 10 

days prior to the tournament and leaving 

two days post competition 

Teams 32 days Based on number of teams qualifying at 

each stage of the tournament, arriving 10 

days prior to the tournament and leaving 

two days post competition or elimination 


47


Parameter Assumption Basis 

Average daily spend (real $ 2010) TRA International Visitors Survey – 

World Cup Tourists 

World Cup Corporate 

$172 

$203 

minimal forecast real increase in daily 

expenditure per tourist to 2022 

Confederations Cup tourist $172 

Confederations Cup corporate $203 

Team spend during tournament $7.6 million Based on FFA estimates which include: 

flights, accommodation, incidentals, 

security, consultants, medical, sponsor 

tour and VIP functions 

Attendance by media and officials 32,549 Based on Germany 2006 

‘Legacy’ extra tourists 111,000 Based on Sydney Olympics legacy benefit 

visitor rates 


48


Appendix B: Key results 

Scenario 1: Full stadia 

Hosting the World Cup in 2022 ($ million) 

CAPEX COST NPV 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 

TOTAL CAPEX $2,427 $46 $2 $2 $2 $78 $36 $732 $634 $364 $344 $235 $261 $958 $0 $0 

Bidding $46 $46 $46 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 

Stadium Infrastructure $2,748 $1,948 $0 $0 $0 $0 $75 $32 $729 $627 $356 $337 $216 $31 $346 $0 $0 

Transport $83 $50 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3 $27 $53 $0 $0 

Secuirty $560 $333 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $112 $448 $0 $0 

Other $104 $62 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $54 $50 $0 $0 

Cost to Government $151 $97 $0 $2 $2 $2 $3 $4 $4 $8 $8 $8 $15 $38 $60 $0 $0 

REVENUE NPV 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 

TOTAL REVENUE $1,013 $0 $0 $0 $0 $0 $1 $1 $1 $5 $9 $29 $101 $1,501 $87 $60 

Tourism $1,238 $726 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3 $48 $1,041 $87 $60 

LOC Expenditure $285 $173 $0 $0 $0 $0 $0 $1 $1 $1 $5 $9 $26 $52 $190 $0 $0 

Trade gain $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 

Television Broadcasting $78 $46 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $78 $0 $0 

Other World Cup related $193 $114 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $1 $192 $0 $0 

NET REVENUES -$1,477 -$46 -$2 -$2 -$2 -$78 -$35 -$731 -$633 -$359 -$335 -$206 -$160 $543 $87 $60 


Scenario 2: Partial stadia 



TOTAL CAPEX $1,305 $46 $2 $2 $2 $3 $4 $317 $251 $8 $99 $132 $259 $958 $0 $0 

Bidding $46 $46 $46 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 

Stadium Infrastructure $1,137 $776 $0 $0 $0 $0 $0 $0 $314 $243 $0 $91 $113 $30 $346 $0 $0 

Transport $83 $50 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3 $27 $53 $0 $0 

Secuirty $560 $333 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $112 $448 $0 $0 




TOTAL REVENUE $1,013 $0 $0 $0 $0 $0 $1 $1 $1 $5 $9 $29 $101 $1,501 $87 $60 

Tourism $1,238 $726 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3 $48 $1,041 $87 $60 


Trade gain $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 



NET REVENUES -$305 -$46 -$2 -$2 -$2 -$3 -$3 -$316 -$249 -$3 -$90 -$103 -$159 $543 $87 $60 



49


Scenario 3: Overlay costs 



TOTAL CAPEX $758 $46 $2 $2 $2 $3 $4 $4 $8 $8 $8 $18 $230 $958 $0 $0 

Bidding $46 $46 $46 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 

Stadium Infrastructure $346 $204 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $346 $0 $0 

Transport $83 $50 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3 $27 $53 $0 $0 

Secuirty $560 $333 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $112 $448 $0 $0 




TOTAL REVENUE $1,013 $0 $0 $0 $0 $0 $1 $1 $1 $5 $9 $29 $101 $1,501 $87 $60 

Tourism $1,238 $726 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3 $48 $1,041 $87 $60 


Trade gain $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 



NET REVENUES $266 -$46 -$2 -$2 -$2 -$3 -$3 -$3 -$6 -$3 $1 $10 -$129 $543 $87 $60 



50


Appendix C: Net tourism impact of the World Cup 

In developing a net tourism estimate for the World Cup, the expected movements of various 

groups of both international visitors and domestic residents during the tournament window 

has been considered. These various movement effects are shown in Figure C.1 below. 

Australian Bureau of Statistics tourism data has been used to identify trends in short term 

arrivals and departures during previous major events in Australia (ABS Cat. No. 3401.0). 

Non resident movements 

Event specific 

visitors, without 

a ticket 

Event specific 

visitors, with a ticket 

Resident movements 

Residents who cancel an 

overseas trip to stay in 

Australia due to the event 

Non-resident movements 

Figure C.1: Host nation net tourism effect 

Visitors who postpone their 

visit due to the event 

Host Nation 

net tourism 

effect 

Residents who would 

have travelled to a world 

cup but remain in 

Australia for the event 


Visitors who would have 

come anyway, combine 

event in their itinerary 

Visitors who 

cancel their visit 

due to the event 

Residents who leave 

due to the event 

The event specific visitors with a ticket were estimated based on assumptions of stadia usage, 

matches per spectator and tickets allocated to international visitors. In total, international 

visitors are estimated at 694,300. Event specific visitors without a ticket are those who travel 

to the host nation to be part of the tournament, for example attend fan zones or travel with 

family members. Access Economics has assumed a total of around 7800 visitors fit this 

category, or 1.0% of those travelling with a ticket. 

There may be some visitors who would have travelled to Australia around the time of the 

World Cup, but who postpone or bring forward their visit due to the event (possibly to avoid 

crowds, high prices and accommodation shortages). These include business travellers who 

come regularly to Australia who may rearrange a pre-existing trip to avoid the tournament 

(i.e. to arrive either before or after the tournament window). The effect of this visitor category 

has been estimated by examining visitor arrivals before and after the event. 

An opposite effect may also occur in which individuals with pre-existing plans alter their 

itineraries to actually coincide with the event. If such an effect is present, lower than trend 

51


visitation would be recorded in the periods immediately before or after the event. When data 

from the Sydney Olympics period is considered, however, no such pattern is observed. Even 

when the data is disaggregated to consider visitors by main purpose of trip, there is no 

quantitative evidence to suggest business travellers or other visitor categories altered travel 

plans to coincide with the Olympics. 

Examining those visitors who would have come anyway is difficult, primarily because these 

individuals will tend to be embedded in other tourist data. These are visitors who were 

already planning to visit Australia, and simply add the World Cup to their activities. One way 

these visitors may be identified in the tourism data is by staying for a longer period of time. 

However, the length of stay data in Australia is broken into large chunks, such as “10 to 39 

nights” and “40 to 99” nights, and so an additional week stay for a major event may not be 

sufficient for any change in reported data. Indeed, no such pattern is seen for the Sydney 

Olympics and the period before and after the event. In Germany 2006, survey responses 

indicated that around 10% of World Cup tourists fell into this category. Based on the German 

experience and given Australia’s relative geographic isolation, Access Economics has assumed 

2.5% of ticketholders belong to this category. 

When major events take place, many visitors are attracted to the region. However, the 

anticipated large influx of additional tourists is often associated with a temporary increase in 

prices for goods utilised by tourists, including accommodation, transport, food and beverages. 

Increased demand for some services, particularly accommodation, may mean hotels are fully 

booked. These price increases and capacity constraints, along with potential loss of amenity 

because of special event arrangements (i.e. large crowds), mean that some visitors cancel their 

visit due to the event. These visitors partially offset the benefits of those who come to 

Australia for the event. 

When visitors to Australia for the Sydney Olympics are considered by region of residence, 

there are considerable differences. Some regions, particularly the Americas, recorded large 

increases in visitors for September 2000, before these returned to trend levels in the following 

months and the following September. However three regions — Oceania, South-East Asia and 

North-East Asia — recorded noticeable drops in visitor numbers for September 2000. 

In total, an estimated 15,260 visitors below the September 1999-2001 average growth rate 

visited from these regions in September 2000. These may be considered individuals who were 

dissuaded from coming to Australia because of the Olympics. 

However, it would be overly simplistic to suggest that this number represents dissuaded 

visitors due to the Olympics. Visitor numbers from these regions rebounded to trend levels in 

October 2000, while for the Oceania and North-East Asian regions, a considerably above trend 

number of visitors arrived in Australia for November 2000. This suggests that some of these 

visitors did not cancel their trip, but rather deferred visiting Australia until after the Olympics. 

The November spike suggests that only around half of the September shortfall represents 

actual lost visitors rather than merely a delay, or around 7600 visitors. 


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Resident movements 

Should Australia be successful in its bid to host a World Cup, residents who would have 

travelled to a World Cup now remain in Australia. In June 2006, Australian visitors to Germany 

totalled 17,300. This compares to 7,100 and 7,900 in that month in 2005 and 2007 — the 

years before and after the World Cup. Based on seasonally adjusted numbers, Access 

Economics has assumed that additional Australians visiting Germany during the World Cup 

were around 10,000. Given the event would be held in Australia, these residents are now 

assumed to remain in Australia for the tournament. The additional expenditure from these 

residents is captured in the consumer surplus estimates. 

Although many residents will embrace a major event there are some residents who leave due 

to the event. This effect is supported by the fact that flights running counter to the flow of 

inbound World Cup traffic (i.e. backhaul flights) may be offered at unusually low prices, as was 

seen during the Sydney Olympics. 

The departure of these residents is tempered by those residents who cancel an overseas trip to 

remain in Australia for the event. It is difficult to disentangle these two factors, and so they 

are best considered jointly, for a net resident impact. 

When data on Australian residents departing the country during the Sydney Olympics is 

considered, there is a slight drop in Australian resident departures in the month of September 

2000, however, it is not large enough to be considered any form of deviation from the trend. 

This suggests that the impacts of residents who departed the country because of the event and 

those who stayed because of the event are roughly offset. 

A summary of the net tourism impact for Australia is detailed in Table C.2. 

Table C.2: Net tourism effect 

Category Total 

Event specific visitors (with tickets) 694,300 

plus Event specific visitors (without ticket) 7,800 

plus Visitors who would have come anyway, combine event in 

their itinerary 

17,350 * 

less Visitors who postpone their visit due to the event 0 

less Visitors who cancel visit due to the event 7,600 

plus Residents who would have travelled to a World Cup overseas 

but remain in Australia for the event 

10,000 # 

plus Overall impact of residents who leave and those who cancel 

an overseas trip and remain home due to the event 

0 

Total net tourism effect 677,100 # 

Note: * Adjustment made for these visitors to extend length of stay by 7 days. # Residents staying in 

Australia for the event captured in consumer surplus. 


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Appendix D: Principles for assessing major events 

Access Economics has developed a range of general principles for assessing the costs and 

benefits of major events (A framework for cost benefit analysis of major events 2009). These 

principles, which cover various procedural and analytical aspects of major event evaluations, 

are summarised below. 

■ Cost benefit analysis should be developed with the Australian Government guidelines 

in mind — Cost benefit assessments of major events should closely adhere to the 

Australian Government’s guidelines. In many areas, however, these are not definitive, 

making sound judgements and analytical transparency paramount. 

■ Looking at the event from a society-wide point of view — An important part of 

structuring a cost benefit study is to establish an appropriate analytical envelope. The 

CBA framework subsequently aims to measure welfare impacts within this envelope. In 

the case of a major sporting event which spans different states, has a national element, 

and can involve large transfers overseas and Australian Government support, a wholeof-economy 

analytical envelope should be adopted. 

■ Careful consideration of displacement effects — Major events, indeed any activity, use 

economic resources that could be employed for alternative purposes, with only small 

scope to use unemployed resources or idle capital. In this regard, event-related 

activities have a range of displacement effects and come at an opportunity cost. Where 

government support for an event is intrinsic, the displacement of other economic 

activities should be factored into the cost benefit analysis. This should include the 

impacts of the event on other sports where possible. 

Where an event is large, such displacement and crowding out can be material from a 

macroeconomic perspective. These dynamic effects should be captured using 

appropriate analytical techniques. 

■ Recognise the opportunity cost of government expenditures (including in-kind 

contributions) — All government spending uses real resources which have competing 

uses and which must be funded by taxation. Where government facilitates a major 

event, whether through direct financial support or some other form of backing, there 

are explicit costs involved. Such costs should be recognised in undertaking a cost benefit 

analysis of an event. 

Cost benefit analysis of major events should be undertaken with an assumption of no 

additional government expenditure, unless there is clear policy advice to the contrary. 

Rather, any spending comes at the opportunity cost of other existing government 

activity. This avoids unnecessary complications such as speculation over government 

funding or alternative economic impacts of government spending. 


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■ Be careful about claims that costs can generate benefits — Many large events involve 

considerable capital expenditures such as for stadia and other facilities. There are good 

reasons to be highly sceptical of claims that such spending will provide incremental 

economy-wide benefits through supporting aggregate demand and employment. Such 

claims typically ignore the counterfactual effect that multiplier impacts could also be 

achieved by alternative uses of the project resources. 

Failing to recognise the forgone stimulus effect from other potential spending priorities 

can lead to overstating any expansionary benefit from any particular event or project. It 

may be the case that little or no additional impact is generated. 

■ Careful consideration and treatment of guarantees — Where major events, such as the 

Olympic Games or FIFA World Cup, involve a competitive bidding process, countries are 

often required to provide a range of guarantees to the relevant governing organisation. 

These guarantees are typically broad, covering various financial and operational matters 

such as the costs of staging the event and the rights to relevant event revenues. They 

can effectively lock sponsoring governments into expensive commitments and involve 

substantial risk. Accordingly, the potential impacts of guarantees should be carefully 

considered and accounted for within the analysis. 

■ Explicit treatment of risks and bidding costs — Many of the costs and benefits of major 

events are uncertain and therefore involve an element of risk. Importantly, this should 

be explicitly accounted for in a cost benefit analysis, primarily through undertaking a 

sensitivity analysis of key risk elements. 

Where events require participation in a competitive bidding process, the certainty of 

incurring budgeted bidding costs needs to be recognised in the context of the event, 

including the expected value of future benefits and costs. In this regard, the amount 

willing to be spent on a bid would be expected to be commensurate with the likelihood 

of success (that is, broadly, the number of realistic competitors), as well as the scale of 

the event and the economic benefits likely to be generated. 

■ Conservatism — Uncertainty regarding the benefits and costs of a major event (as 

discussed above) necessarily involves a high degree of judgement in conducting an event 

analysis. A common analytical flaw is that inherent optimism bias systemically 

underestimates costs and overstates benefits. Taking a conservative approach to the 

analysis, and the myriad of judgements required along the way, is a good way to build a 

credible and dispassionate analysis. 

On the benefit side, potential overestimation of non-financial benefits is particularly 

problematic. Quantifying the social, environmental and cultural impacts from events is 

to be encouraged, but only where they can be done in a well-designed, transparent and 

credible fashion. The analysis may well be better served by addressing most, if not all, 

non-financial social impacts in a qualitative fashion and making policymakers aware of 

the attendant value judgements involved in pursuing a particular event given other 

quantifiable impacts. 


55


■ Transparency — Cost benefit analyses of events, and indeed most projects, are heavily 

reliant on judgement. Because of this, it is crucial that the basis for analytical inputs, 

decisions and conclusions are properly explained and documented. A key benefit is it 

allows for more robust scrutiny of the analysis by other (independent) parties, thereby 

facilitating more informed debate and continual improvements over time. 

■ Post-event assessments — Agencies should conduct post-event assessments of the 

benefits and costs from hosting major events in the context of government support. 

Crucially, this will also help build a better data and evidence base to support future 

event analyses. In particular, it can assist in more fully understanding the nature and 

magnitude of non-financial impacts from events. 

■ Ongoing review — These principles, and other relevant analytical considerations, should 

be reviewed periodically. No two events are the same and other issues are sure to arise 

which will require variations to any general approach. Indeed, the ongoing review of 

how event analyses are conducted should be a core procedural feature which aims to 

ensure the assessment of major events is continuously strengthened. 


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Appendix E: The Access Economics CGE model 

AE-RGEM is a large scale, dynamic, multi-region, multi-commodity computable general 

equilibrium model of the world economy. The model allows policy analysis in a single, robust, 

integrated economic framework. This model projects changes in macroeconomic aggregates 

such as GDP, employment, export volumes, investment and private consumption. At the 

sectoral level, detailed results such as output, exports, imports and employment are also 

produced. 

The model is based upon a set of key underlying relationships between the various 

components of the model, each which represent a different group of agents in the economy. 

These relationships are solved simultaneously, and so there is no logical start or end point for 

describing how the model actually works. 

Figure E.1 shows the key components of the model for an individual region. The components 

include a representative household, producers, investors and international (or linkages with 

the other regions in the model, including other Australian States and foreign regions). Below is 

a description of each component of the model and key linkages between components. Some 

additional, somewhat technical, detail is also provided. 

Figure E.1: Key components of AE-RGEM 

Representative 

household 

Producers 

International Investors 

AE-RGEM is based on a substantial body of accepted microeconomic theory. Key assumptions 

underpinning the model are: 

■ The model contains a ‘regional consumer’ that receives all income from factor payments 

(labour, capital, land and natural resources), taxes and net foreign income from 

borrowing (lending). 

■ Income is allocated across household consumption, government consumption and 

savings so as to maximise a Cobb-Douglas (C-D) utility function. 


57


■ Household consumption for composite goods is determined by minimising expenditure 

via a CDE (Constant Differences of Elasticities) expenditure function. For most regions, 

households can source consumption goods only from domestic and imported sources. 

In the Australian regions, households can also source goods from interstate. In all cases, 

the choice of commodities by source is determined by a CRESH (Constant Ratios of 

Elasticities Substitution, Homothetic) utility function. 

■ Government consumption for composite goods, and goods from different sources 

(domestic, imported and interstate), is determined by maximising utility via a C-D utility 

function. 

■ All savings generated in each region are used to purchase bonds whose price 

movements reflect movements in the price of creating capital. 

■ Producers supply goods by combining aggregate intermediate inputs and primary 

factors in fixed proportions (the Leontief assumption). Composite intermediate inputs 

are also combined in fixed proportions, whereas individual primary factors are combined 

using a CES production function. 

■ Producers are cost minimisers, and in doing so choose between domestic, imported and 

interstate intermediate inputs via a CRESH production function. 

� The model contains a more detailed treatment of the electricity sector that is 

based on the ‘technology bundle’ approach for general equilibrium modelling 

developed by ABARE (1996). 15 

■ The supply of labour is positively influenced by movements in the real wage rate 

governed by an elasticity of supply. 

■ Investment takes place in a global market and allows for different regions to have 

different rates of return that reflect different risk profiles and policy impediments to 

investment. A global investor ranks countries as investment destinations based on two 

factors: global investment and rates of return in a given region compared with global 

rates of return. Once the aggregate investment has been determined for Australia, 

aggregate investment in each Australian sub-region is determined by an Australian 

investor based on: Australian investment and rates of return in a given sub-region 

compared with the national rate of return. 

■ Once aggregate investment is determined in each region, the regional investor 

constructs capital goods by combining composite investment goods in fixed proportions, 

and minimises costs by choosing between domestic, imported and interstate sources for 

these goods via a CRESH production function. 

■ Prices are determined via market-clearing conditions that require sectoral output 

(supply) to equal the amount sold (demand) to final users (households and 

government), intermediate users (firms and investors), foreigners (international 

exports), and other Australian regions (interstate exports). 

■ For internationally-traded goods (imports and exports), the Armington assumption is 

applied whereby the same goods produced in different countries are treated as 

imperfect substitutes. But in relative terms imported goods from different regions are 

treated as closer substitutes than domestically-produced goods and imported 

15 Australian Bureau of Agricultural and Resource Economics (ABARE), 1996, MEGABARE: Interim Documentation, 

Canberra. 


58


composites. Goods traded interstate within the Australian regions are assumed to be 

closer substitutes again. 

■ The model accounts for greenhouse gas emissions from fossil fuel combustion. Taxes 

can be applied to emissions, which are converted to good-specific sales taxes that 

impact on demand. Emission quotas can be set by region and these can be traded, at a 

value equal to the carbon tax avoided, where a region’s emissions fall below or exceed 

their quota. 

The representative household 

Each region in the model has a so-called representative household that receives and spends all 

income. The representative household allocates income across three different expenditure 

areas: private household consumption; government consumption; and savings. 

Going clockwise around Figure B, the representative household interacts with producers in two 

ways. First, in allocating expenditure across household and government consumption, this 

sustains demand for production. Second, the representative household owns and receives all 

income from factor payments (labour, capital, land and natural resources) as well as net taxes. 

Factors of production are used by producers as inputs into production along with intermediate 

inputs. The level of production, as well as supply of factors, determines the amount of income 

generated in each region. 

The representative household’s relationship with investors is through the supply of investable 

funds – savings. The relationship between the representative household and the international 

sector is twofold. First, importers compete with domestic producers in consumption markets. 

Second, other regions in the model can lend (borrow) money from each other. 

Some detail 

■ The representative household allocates income across three different expenditure areas 

– private household consumption; government consumption; and savings – to maximise 

a Cobb-Douglas utility function. 

■ Private household consumption on composite goods is determined by minimising a CDE 

(Constant Differences of Elasticities) expenditure function. Private household 

consumption on composite goods from different sources is determined is determined by 

a CRESH (Constant Ratios of Elasticities Substitution, Homothetic) utility function. 

■ Government consumption on composite goods, and composite goods from different 

sources, is determined by maximising a Cobb-Douglas utility function. 

■ All savings generated in each region is used to purchase bonds whose price movements 

reflect movements in the price of generating capital. 

Producers 

Apart from selling goods and services to households and government, producers sell products 

to each other (intermediate usage) and to investors. Intermediate usage is where one 

producer supplies inputs to another’s production. For example, coal producers supply inputs 

to the electricity sector. 


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Capital is an input into production. Investors react to the conditions facing producers in a 

region to determine the amount of investment. Generally, increases in production are 

accompanied by increased investment. In addition, the production of machinery, construction 

of buildings and the like that forms the basis of a region’s capital stock, is undertaken by 

producers. In other words, investment demand adds to household and government 

expenditure from the representative household, to determine the demand for goods and 

services in a region. 

Producers interact with international markets in two main ways. First they compete with 

producers in overseas regions for export markets, as well as in their own region. Second, they 

use inputs from overseas in their production. 

Some detail 

■ Sectoral output equals the amount demanded by consumers (households and 

government) and intermediate users (firms and investors) as well as exports. 

■ Intermediate inputs are assumed to be combined in fixed proportions at the composite 

level. As mentioned above, the exception to this is the electricity sector that is able to 

substitute different technologies (brown coal, black coal, oil, gas, hydropower and other 

renewables) using the ‘technology bundle’ approach developed by ABARE (1996). 

■ To minimise costs, producers substitute between domestic and imported intermediate 

inputs is governed by the Armington assumption as well as between primary factors of 

production (through a CES aggregator). Substitution between skilled and unskilled 

labour is also allowed (again via a CES function). 

■ The supply of labour is positively influenced by movements in the wage rate governed 

by an elasticity of supply (assumed to be 0.2). This implies that changes influencing the 

demand for labour, positively or negatively, will impact both the level of employment 

and the wage rate. This is a typical labour market specification for a dynamic model 

such as AE-RGEM. There are other labour market ‘settings’ that can be used. First, the 

labour market could take on long-run characteristics with aggregate employment being 

fixed and any changes to labour demand changes being absorbed through movements in 

the wage rate. Second, the labour market could take on short-run characteristics with 

fixed wages and flexible employment levels. 

Investors 

Investment takes place in a global market and allows for different regions to have different 

rates of return that reflect different risk profiles and policy impediments to investment. The 

global investor ranks countries as investment destination based on two factors: current 

economic growth and rates of return in a given region compared with global rates of return. 

Some detail 

■ Once aggregate investment is determined in each region, the regional investor 

constructs capital goods by combining composite investment goods in fixed proportions, 

and minimises costs by choosing between domestic, imported and interstate sources for 

these goods via a CRESH production function. 


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International 

Each of the components outlined above operate simultaneously, in each region of the model. 

That is, for any simulation the model forecasts changes to trade and investment flows within, 

and between, regions subject to optimising behaviour by producers, consumers and investors. 

Of course, this implies some global conditions must be met, such as global exports and global 

imports are the same and that global debt repayments equals global debt receipts each year. 


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