Why the 2018 World Cup Could Be the Most Expensive Ever

The 2018 World Cup will be held in Russia, and there's reason to believe it will be the most expensive tournament in history.

Jul 19, 2014 at 7:54AM

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Tai Gray, Flickr.

Brazil's World Cup is over, and in four years, Russia will take its turn to host the biggest sporting event on the planet. While Vladimir Putin will likely still be president come tournament time, geopolitical drama may be low on the list of the country's worries. Early estimates suggest the 2018 World Cup may be the most expensive ever, and there's reason to believe Russia won't make its money back. Why?

Stadium costs are soaring
Most visibly, stadium costs are soaring. KPMG estimates that altogether, venue construction could cost Russia more than $8 billion, twice what Brazil paid leading up to this year's tournament. Seven of the 12 stadiums set to host World Cup matches in 2018 must still be built, The Guardian reports.

Luzhniki Stadium in Moscow, for example, which will host the Cup final, will likely set the local government back $640 million to renovate, according to The Associated Press.

Even more costly is the stadium planned for St. Petersburg. Partially funded by energy giant Gazprom (NASDAQOTH:OGZPY), it is estimated to hit $1.1 billion when completed in two years. The price tag is so high, in fact, Russian Prime Minister Dmitry Medvedev has called the project "disgraceful" in the past. Brazil's most expensive Cup stadium, by comparison, was Estadio Nacional in Brasilia, worth about $850 million. 

Why are costs so high?
Research from the University of Zurich reports Russia is spending about $11,500 per seat for the World Cup. Brazil paid $6,500 per seat, and South Africa, the 2010 host, paid around $5,000 a seat, Spiegel Online notes. While the exact source of the country's high stadium costs is up for debate, there are a couple theories.

Corruption may be the most obvious culprit. The most recent Olympics in Sochi were likely subject to unparalleled levels of fraud, according to many media outlets, centered on claims of crooked officials and businessmen. One estimate from The Telegraph reports as much as $30 billion in Olympic funds could've been stolen. As Russia continues to revise World Cup costs upward, it's reasonable to think these issues are resurfacing.

Less ominously, a poor macroeconomic environment could also be to blame. As Vitalie Iambla, a construction analyst with PMR, recently explained in an AP interview, the Russian ruble's depreciation and rising construction prices are pushing costs up.

Russia may not turn a profit
Thus, it's certainly possible Russia won't turn a profit from the tournament. Early reports suggest half of the country's World Cup funding will come from government money, while outside investors like Gazprom and Russian football club Spartak Moscow, among others, will cover the remaining costs.

Assuming the country spends $8 billion on stadiums and $20 billion total when infrastructure projects are included, it would need to recapture about $10 billion to break even. Given that Brazil likely brought in around $3 billion in tourism-related spending this World Cup, it's unlikely Russia surpasses even that -- Moscow doesn't exactly have the allure of Rio de Janeiro.

The bottom line
Of course, host countries would benefit if FIFA renounced its tax-exempt status, and forced sponsors to do the same. It's likely this policy cost Brazil between $250 million and $500 million, and during the next World Cup, the loss could be just as large. 

Taking in more tax revenue would certainly help the Kremlin recoup some of its mounting costs, though there might be nothing it can do to avoid finishing the tournament in the red. And unless its national team makes history -- it has never made it out of group play -- 2018 may not be a very good year for Russia.

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Jake Mann has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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