World Cup Gets Sticker Shock in Brazil

07/25/2011 02:47 pm ET | Updated Sep 24, 2011

Brazil has been in a state of depression since getting knocked out of the Copa de las Americas, the major test before World Cup competition. Outplayed, outcoached and dominated by sides that showed solidarity between team players and high priced superstars, the land of the samba is now struggling to manage the skyrocketing costs that will make the 2014 World Cup the most expensive ever.

In a conference call last Thursday (in which this writer took part), sports minister Silva Junior blamed an overheated economy for more than doubling the estimated cost of the new host stadium under construction in Sao Paulo from 330 million reals to over 830 million (one dollar buys about 1.57 reals). Roads, airports, hotels and other infrastructure linked to the World Cup and the 2016 Rio Olympics are feeling the sticker shock too.

But president Dilma's economic team has been doing all the right things to keep inflation in check. Moody's recently upgraded Brazil's credit rating, citing sound economic policies and unemployment is hovering at 6.2 percent, the lowest in a decade.

A big factor pushing costs upward is the conventional wisdom that Brazil's real is an overvalued currency, caught in the crossfire of the U.S.-China currency war. Experts provide evidence that China, now Brazil's top trade partner, is keeping its currency overvalued to manage domestic inflation and also cite Japan for doing the same.

China, with over $1.1 trillion, and Japan with $900 billion, are the largest holders of U.S. financial paper, effectively propping up a still crisis-facing American economy. Key Brazilian exports including ethanol, sugar and steel are lagging due to a combination of the overvalued real and Washington's continued reliance on a cheap dollar as a policy tool to reshape the world economic order.

Brazil's futebol industry has also been hurt by the sticker shock. With attendance down, major teams depends on the export of top talent to fill their coffers. The transfer of superstars like Neymar, Ganso and others -- worth hundreds of millions of seemingly overvalued reals -- to clubs in Europe and England are, for now, in limbo.

Under the aegis of Brazil's powerful football federation, the CBF, futebol has been linked to corruption that creates sticker shock and other sports crimes. The CBF could partner with the Dilma government to help clean up the game by calling for goal line cameras at the 2014 World Cup to help eliminate bad calls. But so far it there are no indications of that happening. Brazil got knocked out of the Copa de las Americas on a bad call by an Argentine ref who did not call a Paraguayan player for using his body to block a second half shot that went beyond the goal line.

The global sports marketing model associated with futebol that is a major driver of Brazil's domestic economy is linked to the purchasing power of individuals buying consumer goods, not the traditional agro-export economic model.

Helping make Brazil the world's 5th largest economy, domestic spending with an overvalued real is now competing for influence with agribusiness and heavy industries, which have traditionally operated as near-government entities whose exports benefit from a cheaper real. With business elites pitted against each other for access and influence the finance ministry and the central bank are changing their game plan from one of political futebol to economic hardball. The same pattern is being seen in India, and Colombia and other emerging economies.

To present an image of concertation to FIFA and World Cup sponsors, the Dilma government has created a new super ministry with responsibility for managing the infrastructure deals associated with the World Cup and the Rio Olympics. Much in the style of Japanese governance the sticker shock will be covered by federal monies in the name of the national patrimony and the details will be protected under a government seal.

Minister Silva Junior claims that the 2014 World Cup will generate $103 billion in business for Brazil's economy. Meanwhile Japanese via mutual funds will have quietly invested 75% of that amount to help grow Brazil's economy.

With World Cup preparations now the latest pawn in the currency war it raises the question of whether the economic benefits of futebol and sports marketing model are overblown, a subset of the bread and circuses model of social organization that is gaining popularity everywhere. And it's no secret that -- while projecting multiculturalism -- the 2010 FIFA World Cup in South Africa was not a major economic success.

Maybe it's time to declare everyone a winner in the currency war and give the beautiful game back to the people, where it belongs.