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World Cup Bribery Scandal: 6 Things Investors Need to Know

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The massive business machine that is soccer has been roiled by controversy with bribery allegations. Officials of the sport’s governing body FIFA (Fédération Internationale de Football Association—in English, the International Association of Federation Football) are accused of accepting bribes, and various international officials are accused of offering them—in the form of money, influence, and even arms deals.

Now the world is asking whether the scandal could result in the overturn of World Cup hosting awards to Russia, which is scheduled to host the event in 2018, and Qatar, which is scheduled for 2022..

The event is extremely important to both countries, not just financially but politically, with Russia likely in more immediate need of the financial shot in the arm the 2018 World Cup could provide. However, Qatar is looking far beyond the 2022 World Cup to a greater presence on the world stage. Naturally, neither country wants to lose its hosting, but as the investigation continues the odds grow that Qatar stands a greater likelihood of being stripped of the event.

While the jury is still out on the final outcome, here are six things that investors in host countries and related sectors should know about the investigation and what could be affected if awards should be canceled.


1. The accusations:

Russia and Qatar won hosting honors in December 2010, amid corruption allegations. In 2011 Jack Warner, FIFA’s former vice president, quit amid talk of bribery, and the Sunday Times reported that another former FIFA vice president, Mohamed bin Hammam, forked over millions to ensure Qatar won. Other bids were also questioned, and in 2012 FIFA commissioned a two-year-long investigation.

Lawyer and former U.S. prosecutor Michael Garcia delivered investigation results last September; in November, FIFA released a summary of his report that it said cleared both Russia and Qatar of any wrongdoing in the bids. Within hours, Garcia repudiated the summary, saying it did not reflect what he’d found. After FIFA rejected Garcia’s criticisms of the summary in December, he resigned as independent chairman of the FIFA Ethics Committee’s Investigatory Chamber.

Swiss authorities and the FBI, meanwhile, have been investigating allegations, from bribery to money laundering. On May 27, as Swiss authorities moved in on soccer officials in Zurich, arresting 14, the U.S. Justice Department unsealed a 47-count indictment surrounding $150 million in bribes related to earlier bids. Swiss prosecutors are pursuing their own criminal proceedings relating to the Russian and Qatari bids.

Since then, FIFA’s president, Sepp Blatter, resigned just days after being reelected—but may have changed his mind.


2. The competition for 2018:

The countries who lost out to Russia on the 2018 World Cup bid are England; Belgium and the Netherlands in a combined bid; and Spain and Portugal in another combined bid.

While Russia insists it ran a “clean bid,” it certainly isn’t in the clear yet. According to Michael Lauber, Switzerland’s attorney general, the country’s banks have identified 53 potential money laundering incidents in connection with the 2018 and 2022 bids that are being investigated.

In his investigation, FIFA’s Garcia ran into difficulties collecting evidence and compelling testimony, since his position did not provide him with the means to make officials comply. Russian officials reportedly said computers used by staff working on its bid were leased and were destroyed subsequent to use, and they did not provide much information to Garcia’s team.

Swiss authorities may have more success despite Russian protestations of innocence. In reports, Lauber characterized the case as “huge and complex,” and has also indicated that he intends to pursue “criminal mismanagement and money laundering” regardless of whether it leads to a country’s loss of its bid.


3. The competition for 2022:

Countries losing to Qatar are Australia, Japan, South Korea and the U.S. Australia faces its own investigation into a questionable payment, but has said it could step in to host in 2022 if Qatar is disqualified. England has also offered to host it, but since at present Russia is still scheduled to host in 2018 and FIFA rules decree that the event cannot be held on the same continent twice in a row, that’s not likely.

Australia, for its part, has also said it doesn’t intend to bid on another World Cup event unless there are big changes at FIFA.


4. World Cup spending, by host country:

Qatar wins here, by a massive margin.

While Germany spent approximately $6.2 billion to host the World Cup in 2006 and South Africa just $3.5 billion in 2010, it cost Brazil $11.2 billion last year. Russia originally planned to spend $20 billion of its own. When it won the bid in 2010 it put the figure at $9.5 billion, not counting what it spent on facilities for last year’s Winter Olympics—some of which could be reused for the World Cup, but that was before sanctions hit and the price of oil plunged.

Now that its economy is floundering, Sports Minister Vitaly Mutko has said that the country will pare spending back by 10% on organizational issues, subsidies and some ceremonies. Transport infrastructure and stadium construction won’t be cut.

Still, when you consider that Qatar is planning to sink $200 billion into its own hosting—building not just stadiums and infrastructure but whole cities—it underscores the credibility of the bribery accusations, and also makes the money spent on bribes look like pretty small potatoes in comparison. In 2013, Qatar’s entire GDP was $203 billion.


5. Likelihood of change: Russia:

Even if FIFA hadn’t already said it wasn’t changing its mind about either bid, Russia is really not all that likely to lose the World Cup, just from a timing standpoint. If the country wasn’t stripped of the event after the MH-17 tragedy and sanctions over Crimea, it’s not likely to lose it now, absent some pretty horrible revelations.

Time’s pretty short for another country to step in and take over, and Russia just spent a $50 billion on those Winter Olympics facilities. Some of those will be reused for the World Cup, putting Russia considerably farther ahead of the competition than it might otherwise be—particularly considering the effects of sanctions on its budget and its ambitious hosting plans.

Bank of America Merrill Lynch’s Vladimir Osakovskiy pointed out in a report that if it did happen, however, it might not be such a bad thing if Russia lost out on the World Cup.

In research, Osakovskiy said, “Overall, we think if WC 2018 in Russia were canceled it would likely have minimal impact on projected GDP dynamics as a large part of the planned public investment spending would still be made. Moreover, we think that apart from the negative sentiment, it could in fact be positive for Russian [bonds in local currency] and [bonds in hard currency] as despite the likely unchanged overall spending the government could be more flexible in any new investments projects, potentially redirecting them towards more profitable ones. This could be increasingly important, given the considerable tightening of fiscal policy in the next 2–3 years.”


6. Likelihood of change: Qatar:

Because 2022 is still so far out, it’s much more likely Qatar could lose the right to host the World Cup. It already has two major strikes against it, in the form of accusations of human rights abuses of the migrant workers brought in to build its infrastructure, and weather too hot in which to play, or even observe, soccer. And while FIFA has said it won’t, or even can’t, change its mind, Domenico Scala, chief of its audit and compliance committee, has said the awards could be canceled if there’s “evidence that the awards to Qatar and Russia came only because of bought votes.”

Sponsors have already quit because of FIFA. Sony, Emirates, Castrol, Continental and Johnson & Johnson have all bowed out, while Visa is considering an exit. Adidas, Coke, Hyundai and Anheuser Busch have said they are “concerned,” and McDonald’s is “monitoring the situation.” The Nobel Peace Center said this month that it will sever ties with FIFA, likely because of the corruption scandal.

Qatar, meanwhile, is air conditioning nine new stadiums, renovating three others, and plowing ahead. And while loss of the World Cup would cut tourism expectations, where it could really hit hard is in land values and property prices, which have seen a strong run up in anticipation of World Cup activities. Developers and builders have been busy, and could stand to lose substantially should the venue be canceled—and Qatari investors could choose to put their money into property elsewhere in the world, rather than investing at home.

However, last August Credit Suisse predicted that the country could lose short term should the event be relocated, but said Qatar’s growth shouldn’t be cut by it. All the projects currently underway might proceed at a slower pace, but would likely continue nonetheless.


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