THE BLOG

Fifa's Gordion Knot

06/06/2010 09:44 am ET | Updated May 25, 2011

South Africa's 2010 World Cup 'feel good' factor is addictive. At taxi ranks, street bazaars and tea-rooms, South African citizens everywhere are filled with elation - and pride. Just sixteen years ago, within living memory, non-white South Africans were deprived of basic human rights by the brutal apartheid regime.

From stadiums - completed in advance to fulfill Fifa's (International Federation of Association Football) insistence on a six month 'buffer zone', to airports and other infrastructure, South Africa has fulfilled Fifa's requirements to the tee.

The LOC has also paced expenditure concerning the FIFA-approved budget of US$423 million (aout R3 billion), having used just 32 per cent by mid-April.

Yet all is not well.

Just eight weeks to the Cup, South Africa held more than 355,000 unsold tickets. Due to Fifa's preference of marketing tickets online, just under 40,000 were purchased in Africa 21 days prior to the event - a situation caused by Africa's overall lack of telecommunications infrastructure. Meanwhile, in South Africa, the initial problem, that of a nation too poor to purchase tickets was mitigated when the government subsidised tickets.

'We know our fans are poor,' stated the LOC Chief Executive Officer (CEO) Danny Jordaan. 'So we have decided to accommodate them.'

Unfortunately, subsidisation eroded the government's main revenue stream from the event. Group tickets selling for US$20 and final match tickets for US$150, were described as the cheapest tickets in World Cup history. A further 120,000 were earmarked for free distribution, mindful of the average monthly income (US$250) - for those that have employment in the formal sector.

Contrast this to Germany's successful 2006 World Cup, injecting 1.5 per cent growth to the economy.

'Germany's Organizing Committe budgeted for the sum of US$659 million. The Organizing Committee made a profit of US$237.5 million, partly due to the near-capacity sales of match tickets that resulted in US$31.1 million in additional and unexpected income,' revealed Dr Udesh Pillay, editor of Development and Dreams.

Nor is tourism, the secondary source of revenue, estimated to pump 0.4-0.7 per cent growth into the economy, providing previously assumed gains.

According to Jordaan, tourism forecasts initially pegged at half a million in 2003 has now been reduced in estimate to maximum 350,000, with Fifa's hospitality (hotel and ticket) agent, Switzerland-based Match AG, dumping 450,000 pre-booked rooms, one third of the total, on the market. Allegations against Match - securing the tender by Fifa, without a bidding process, reveal the company's exploitation, marking up services by 30 per cent. As one tour operator informed a local newspaper, 'US$30 000 (R224,000) licensing fee to Match as well as a 20 per cent surcharge, plus 10 per cent on each ticket it bought for resale.'

Match AG is primarily controlled by Byrom PLC, the 'official accommodation provider for six previous world cups'.

Related company Match Hospitality, exclusively managing hospitality packages, counts Blatter's nephew Philippe, as one of its shareholders via Infront Sports and Media corporation.

Though SA's Cup is similar in financial structuring, 60 per cent of Germany's Cup (including 12 stadiums) was financed through private clubs and other private sources, shifting a considerable portion of deferred taxes off the shoulders of citizens.

'Let's be clear,' stated Fifa General Secretary Jerome Valcke, 'The World Cup in South Africa has no financial problems for Fifa,' referring to the already guaranteed US$3.3 billion generated in pre-Cup activities, chiefly commercial i.e.: Television and marketing, rights.

Fifa allegedly retains 94 per cent of total profits, with the entities main costs limited to travel and award money for participating teams. This mounted to US$811 million for Germany's 2006 Cup, with Fifa receiving US$2.19 billion in profits.

Revenue streams of host countries, subject to FIFA's 'franchising' - whether developing or developed, reveal a financial gordion knot: not only are organising committees locked out of commercial rights, but the main benefits of hosting the Cup are largely intangible and assumed - that is, benefits projected from tourism, construction (financed by host-countries) and the perceived future enhancement of launching host countries on the global map.

What price did South Africa pay to host the World Cup?

According to Pillay, estimated expenditure for new stadiums totalled US$1, 34 billion: Cape Town at US$366 million with a capacity of 68,000, Durban, US$334.2 million (70,000 seater), Mbombela, US$105 million (45,000 seater), Polokwane, US$92 million (45,000) and Nelson Mandela Bay, US$154 million (48,000). Upgraded stadiums including Manguang, Joburg's Ellis Park and Soccer City, as well as Rustenburg and Pretoria, received a further US$294.8 million.

And stadium-investment is well above the US$105 million (R818 million) initially earmarked for stadium infrastructure, an increase of 750 per cent.

Cape Town's Athlone Stadium, the preferred choice of the province to host matches, was marginalised when then-Fifa representative Valcke, revealed that the Fifa did not approve. Gert Bam, director of sports and recreation, stated the province's unanimous choice to site the matches in poverty-ridden Athlone would 'turn the city around, it (would) impact on this tale of two cities...'

But this was not to happen.

According to Fifa 'A billion television viewers don't want to see shacks and poverty on this scale.'

Karen Schoonbee and Stefaans Brummer, co-authors of 'Player and Referee: Conflicting interests and 2010 Fifa World Cup', documented how the LOC 'Fifa's agent' bypassed the 'opportunity to leverage development of an underdeveloped area', in favor of building the R4.5 billion stadium, hosting eight semi-final matches. Revamping existing stadiums to fulfill 'state-of-the-art' requirements in Athlone would have cost R1.1 billion.

'That thing is going to be a white elephant because Newlands rugby is not going to move there and soccer unfortunately is never going to attract games where that stadium is going to be full,' stated former head of recreation and sport, Rod Solomons.

Meanwhile, Durban's Moses Mabhida Stadium, scheduled for seven matches and built at a cost of R3.1 billion, and is pegged as one of Africa's only stadiums capable of hosting most Olympic requirements within one facility. The stadium - soon to be downgraded to 56 000 seating capacity, was constructed a stones throw away from Kings Park Stadium, host to the Sharks rugby team, with a seating capacity of 50,000. The Sharks rugby has indicated that it will not consider shifting base, rendering stadium sustainability a headache for both the Cape and Durban municipalities. To generate forced viability, Durban City Manager, Mike Sutcliffe - who recently admitted the City would struggle to finance the operating costs of the stadium in the long-term, stated that Kings Park would be torn down.

Yet Fifa's agenda was not simply limited to utilising 'world-class' stadiums, but also to have matches located in the best areas of South Africa.

Jordaan however claims that the US$4.5 billion of public funds (US$2.2 billion/stadiums and US$2.3 billion related infrastructure) invested in the event will 'trickle down' through job creation and development. Yet of the 22,000 Cup-related jobs made available to citizens, 70-80 per cent are subcontracted positions, offering wage rates of US$1-2 per hour, while construction companies reported pre-tax profits of 54-142 per cent.

The debt itself is compounded by the global economic recession eroding potential tourist revenue; five major currency crashes boding ill for debt, and negative perceptions of the country ranging from crime (leading to UK's marketing of 'Kevlar Vests' for tourists, despite the government financing a further 41,000 police officers and ramping up on security for the duration of the Cup), to The Economist's identification of South Africa as the 'riskiest' of 17 emerging economies.

Fifa's Cup erodes rather than aids SA's political economy. Vice President, Jack Warner effectively lied when he stated that the Fifa paid taxes in host countries. Fifa's 'tax-free bubble', following amendments categorising Fifa's activities as 'diplomatic' via the Revenues Law Amendment Act 20 of 2006, guaranteeing Fifa 17 provisions underpinning 'supportive financial environment', as well as free services ranging from safety and security, healthcare, transport, communications, intellectual property and marketing, control-zones for specific km, amounting to as yet unknown costs.

According to the Act: 'The Act creates a 'tax-free bubble' around FIFA-designated sites so that profits on consumable and semi-durable goods sold within these areas will not be subject to income tax; neither will VAT be applied.' The tax bubble extending 'diplomatic status' to Fifa, includes all Fifa-related vehicles and subsidiaries and associated entities.

This includes the stadiums, the Fifa-designated exclusion zones, training sites, public viewing venues known as 'fan parks', VIP areas, media centers - such as the International Broadcast Centres, and official tournament parking areas.

The entity refuses to provide accreditation to journalists who may question the financial gordion knot underpinning the event.

Fifa remains the 'owner' of events, and as such, holds the mandate to dictate most activities including suppliers - irrespective of inflated costs. Even tents, food and flowers are to subject to unrestricted imports. Match spokesperson Peter Csanadi recently came under fire for destroying practice fields while constructing German-made marquees - a justified purchase due to the 'lack of sufficient quality tents' made in South Africa.

'The unaccountable structure they've installed is honed to deliver the game to the needs of global capitalism - with no checks or restraints. Just cheques,' said Andrew Jennings, investigative journalist and co-author of Player and Referee.

Fifa has already cashed in on the highest ever pre-Cup profits. And when the crowds have gone, and the excitable nature of the spectacle has died down, it is unlikely that the World Cup, designed, in the words of Jordaan to 'reintegrate South Africa into the global community', will benefit citizens beyond the notion of identity.

The question however is whose identity was served by the mega-event - South Africa or Fifa's?

This article first appeared in ChinAfrica Magazine