The Costs Of Hosting A Fifa World Cup The Finances Of Indian States Daily Brief 488

In today’s episode, we’ll break down two important stories. First, we’ll talk about the price of a wave flag and then we’ll talk about India’s state budgets being a mixed bag. Welcome back to the daily brief by Zerodha where we cut through the noise to help you understand what’s actually happening in the most important stories from business and markets. I’m your host Axara and today is Wednesday 17th June.

Coming to the first story, it’s that time of the year where we’re playing iconic songs like Waka Waka or Waving Flag. The 2026 FIFA World Cup is currently underway across the United States, Mexico, and Canada, and it’s the largest tournament in the competition’s history. The FIFA World Cup is the most watched sporting event on the planet. The 2022 final between Argentina and France drew a whopping 1.5 billion viewers, a fifth of the world’s population. That scale also enables the World Cup to become an extraordinary money machine. Nearly a billion dollars in ticket and hospitality revenue alone flowed into FIFA’s coffers that cycle. Corporate sponsors paid $1.8 billion to slap their logos across the tournament. Yet, it rarely makes any economic sense for any country to take the burden of hosting the World Cup. Now, the 2026 World Cup is also the most expensive to attend. Face value ticket prices are several times higher than in Qatar, and the attorney general of New York and New Jersey are investigating FIFA over its ticketing practices. And yet, the host cities will likely lose money. Now, this is not a new problem. The economics of hosting the World Cup have almost never made sense for the host. For them, it’s structurally a money losing venture. The promise of being a host is that the World Cup will entail a massive infrastructure boom that brings in revenue over the long term. But the actuals often fall highly short of the estimates. So, sport researcher Adam Bicel put it quite succinctly about the rosy projections made about potential tourism revenue from mega sporting events. The general rule of thumb by sport economists is to move the decimal point one place to the left for all economic impact studies. So why do countries keep lining up to host? The answer lies in a peculiar collision of monopoly economics, geopolitical ambition, and a bidding process so broken that it caused the worst existential crisis in FIFA’s history.

Now, to understand why hosts lose money, you have to dive into FIFA’s business model. It’s as ruthlessly asymmetric as it is simple. Essentially a notfor-profit organization, FIFA owns all the commercial rights to the World Cup. So that means broadcasting, sponsorship, licensing, and ticketing, the four most lucrative, most scalable revenue streams the tournament generates. In the 2019 to 2022 cycle, FIFA reported total revenue of approximately $7.6 $6 billion, of which $6.3 billion came from rights tied to the Qatar 2022 edition alone. Their expenses amounted to $6.3 billion, leaving them with $1.3 billion surplus. Now, the host country, in this case, Qatar, gets nothing from these rights directly. What the host gets instead is the bill of building and operating new stadiums, transport upgrades, security, and events outside FIFA’s commercial perimeter. And then the country is solely responsible for the debt raised to fund all this and the risk of stadium sitting empty after the event. There’s no revenue sharing based on these commercial rights. FIFA also demands that the host surrender the ability to earn tax revenue on the World Cup. So host cities must grant a full 10-year tax exemption to FIFA, its subsidiaries, and its corporate sponsors. And the areas in and around stadiums become tax-free bubbles where only official FIFA partners like Coca-Cola, Visa, and Adidas are allowed to sell goods. Local vendors are shut out. Take Qatar, which spent over $220 billion preparing for the 2022 World Cup. Most of it was on national long-term infrastructure like airports, ports, and metros that was undertaken by using this event as justification. And the IMF estimated the direct short-term economic returns from visitors spending at somewhere between $2 to 4 billion, less than 2% of the total investment. The 2018 World Cup in Russia, meanwhile, ran a smaller bill of 14 to 15 billion. The World Bank found a temporary lift during the tournament itself, but that eventually wore off, leading to 0% growth in the third quarter of the year. Now, the only promise of these massive investments are indirect spillovers from tourism, food and beverage spending, local transport use, and some temporary employment. But that often doesn’t materialize. For instance, for both Brazil and South Africa, which hosted the World Cup in 2010 and 2014, respectively, tourism spending made up only 10% or less of the total World Cup spend. In fact, this isn’t just true for the FIFA World Cup. There’s a long documented history of mega sporting events like the Olympics also being money burners and the actual budget for an event always overshoots the estimate. As per researchers from the University of Loausanne, four out of every five world cup or summer Olympics event ran budget deficits and their average return on investment was minus 38%.

So if the economics are so bad, why do countries keep bidding? Because for most hosts, the World Cup is less an economic project and more a geopolitical one. The World Cup offers a month-long wallto-wall broadcast into every living room on the planet with your country’s name attached. That alone is considered priceless. As per economist Matias Fet, history shows a pattern in where the World Cups were hosted. Between 1958 to 1990, FIFA alternated hosting duties between Europe and Latin America. Chile hosted in 1962, Mexico in 1970 and 1986, Argentina in 1978. And the motivations varied. Mexico used the 1970 tournament to showcase color television and satellite broadcasting. Argentina’s military dictatorship, meanwhile, treated 1978 as a national duty, a tool to legitimize its rule regardless of the cost. Then from 1990 to 2006, the World Cup went exclusively to wealthy nations that could absorb the financial burden more easily. Italy, the US, France, Japan, Germany. But after 2006, the geography shifted dramatically to emerging markets. South Africa hosted in 2010, Brazil in 2014, Russia in 2018, Qatar in 2022. They were nations trying to make a deliberate statement about their place in the world using the tournament to project soft power. Outside of the World Cup, the Beijing Olympics of 2008 are heralded as the moment that China arrived on the world stage.

Now, for regimes seeking international legitimacy, that visibility is invaluable. Russia, for instance, used 2018 to present an image of being open and competent, and it worked during the tournament, even boosting the image of President Vladimir Putin. Even Qatar, a small Gulf kingdom, spent over $220 billion, partly because the World Cup fit a long-standing soft power strategy, one that also directly deepened political and military cooperation with France, including billions in fighter jet purchases. Their relations with other developing nations also improved after this event. Of course, Qatar strategy can’t be viewed in isolation. Oil rich Gulf nations like Saudi Arabia and the UAE have a similar strategy of hosting various sports events and purchasing European football clubs to exercise geopolitical power. And Saudi Arabia is also the host of the 2034 FIFA World Cup. But the reputational upside comes bundled with serious downside risk that all of these nations have faced and sometimes they created those risks themselves. For instance, Qatar faced significant flak for poor labor practices used in building out World Cup infrastructure and the accommodation built for the fans was in poor shape. Meanwhile, right before the start of the World Cup, Russia announced a cutback of pensions. Protests against this reform was suppressed because Russia instated no protest laws in host cities. Moreover, any positive image that the World Cup helped Russia maintain was wiped out after the invasion of Ukraine. The 2014 Brazil World Cup was supposed to be a branding triumph for a country that has been a powerhouse in the sport. Instead, it raised more questions on the host’s governance capacity with people attributing their rising living costs to excessive expenditure on the World Cup as well as the Olympics of 2016 in Rio de Janeiro. In fact, the city of Rio required a $900 million bailout from the government just to cover the costs of policing the Olympics.

So the combination of FIFA’s monopoly and the use of the World Cup for soft power purposes has made the bidding process for the event extremely difficult. See, to host a World Cup, a country must submit a detailed bid covering infrastructure, venues, security, and event operations. Then a FIFA appointed task force evaluates each proposal across 20 categories, scoring bids out of 500 points and assigning risk levels. bids that fail minimum thresholds can be disqualified before the final vote by FIFA’s member nations. Now, that sounds orderly, but in practice, it has hardly been that. The first problem is structural. FIFA keeps its historical financial data and cost benchmarks opaque. So, that means bidding nations cannot benchmark their cost estimates against what previous tournaments actually ended up costing. Every bid is in a sense flying blind, allowing overly optimistic forecasts to go unchecked. And it also means that countries cannot learn from the mistakes of previous cycles. And since FIFA doesn’t bear those costs, it has little incentive to restrain the bidding. Additionally, the task force’s recommendations are not binding and can be overridden. Now, the second problem is political. On one hand, an event like the World Cup has no economic benefit. However, it has positive political benefits. Politicians pursue hosting rights because they reap immediate rewards while the long-term burdens get passed on to taxpayers and future administrations. So, it’s hardly a surprise that FIFA is laden with corruption. In 2015, a scandal blew the lid off a system inside FIFA that had been rotten for decades. Over $150 million in bribes had been exchanged to secure hosting rights and sponsorships. All but two of the 35 voting members of the FIFA Council were criminally indicted. And a good chunk of this corruption is driven by the host country’s need to secure the bid. For instance, Qatar’s bid score was actually too low and it was deemed high risk by the task force. Yet somehow they secured the 2022 World Cup bid and some of it may have to do with some under-the-counter dealings. Here are three examples. So Muhammad bin Ham, a Qatari member of FIFA’s executive committee, orchestrated a campaign that transferred $5 million directly into the bank accounts of FIFA officials to buy their votes. Then 3 weeks before the host selection vote, Qatari news outlet Alazer offered FIFA $400 million for broadcasting rights, a deal that secretly included an extra $100 million to be deposited into a special FIFA account only if Qatar won. Qatar also financed a $387 million intelligence operation to spy on critics of FIFA. Now, FIFA has since made some changes. Hosting decisions now go to a public vote by the full Congress rather than a closed committee. Joint bids are permitted, allowing countries to pull existing infrastructure, but the underlying incentive structure remains intact. Now, the 2026 World Cup was supposed to be the proof of concept for a better model. It was a joint bid across three nations led by the US, the largest consumer market in the world. FIFA projects an unprecedented 11 to 13 billion of revenue in the 2023 to 2026 cycle. And yet the familiar warning signs are here. Coast cities are covering operations and security while FIFA keeps the commercial hall. Ticket prices have soared to the point of formal investigations. And to make things worse, Trump’s immigration politics are raising questions about who can actually attend a supposedly global event. The World Cup works beautifully, primarily for FIFA. But for everyone else, it remains a gamble where the odds are stacked by design. If you prefer reading the daily brief instead of watching the video, check out the link to the newsletter in the description.

Coming to the second story, every February the country pulls apart the union budget in obsessive detail and almost nobody does the same for the state budgets. This is an odd blind spot because several Indian states run economies bigger than entire nations. Now we can’t do 28 deep dives. The next best thing we can offer is a consolidated look at all the states together. So on the face of it, the story is reassuring. States deficits, which is the gap between what states spend and what they earn, has crept back above 3% of GDP, but it’s still comfortably inside the 3.5% limit the center sets. Now, state revenues grew, though the mix shifted. For better or for worse, we’ll see. And the spending mix improved. A bigger share went into building things and less into day-to-day running costs with capital spending at its highest in years. So, we’ll take each of these apart.

Let’s start with the deficit. So, the reason it even crosses 3% comes from one thing, a federal scheme called the scheme for special assistance to states for capital investment. So, under this, the center hands states 50-year interestf free loans on the strict condition that they spend the money on building things. It began in 2020 2021 as a COVID era stimulus to keep money moving while the private sector sat frozen. Now, back then, it was pitched as a one-off thing, but it wasn’t. It ballooned from around rupes 12,000 cr in that first year to rupees 1.5 lakh cr by 202425 and is now a permanent pillar of how states fund their capital spending. Now for the states this isn’t normal borrowing. A half ccentury loan at zero interest costs almost nothing to service. Moreover, it sits on top of their usual borrowing limits letting them run a slightly bigger deficit without breaking the rules. So this is why despite a growing pile of debt, the interest states actually pay has barely budged in over a decade. For the center, meanwhile, the same loans count toward its own capital spending tally. Every rupee given here shows up in the cent’s investment numbers while bankrolling the state’s deficit at the same time. Now this marks a quieter shift in policy. The center used to support states mainly through grants, money it never expected back. But now it increasingly leans on loans that states must eventually repay, even if that shall happen decades later and won’t yield interest. The old grants are shrinking while this is a new channel stepping into their place. So in other words, the deficit is actually tighter than the headline suggests.

Now before we go any further, we’ll need to catch you up on a quick bit of plumbing. So states have three sources of money. The taxes they raise themselves and two separate pipes from Delhi. The first of these pipes and the biggest is devolution which means the state’s fixed share of central taxes. That share is set by the finance commission which redraws the formulas every 5 years deciding both how big the state’s collective slice is and how it’s split between them. And we dove into the mechanics of this a little while ago. The new 16th Finance Commission kept the state’s share steady at 41% of the tax pool. And because tax collections are broadly rising in rupee terms, the amount they get keeps inching up. The second pipe is grants. And this is where you see the squeeze. So the finance commission takes calls on some grants and recently it’s scrapped a whole category of them worth roughly 45% of the old grant pool and it’s funneled more money to local bodies instead. Now that’s a major swap. Suddenly, money that once went to a state goes to the tier below local councils and municipalities where it’s earmarked for specific jobs like water and sanitation. This money is no longer the states to spend. What was once flexible cash that states used to balance their own books must go straight to local bodies. Now this is arguably a good policy but states that leaned on those grants to stay afloat such as Kerala, Himatal, Punjab, the Northeast take a bad hit. Now states are effectively being asked to make do with taxes. But the trouble is that their tax base is narrow. The GST they collect themselves, tax on fuel, excess on liquor, and the stamp duties on legal agreements together make up about 90% of it. Now to many, the last of these is a real lever. The gap between the most and the least efficient collectors of stamp duty is enormous. Many states have no real sense of the transactions happening within their boundaries. They could raise serious money through simply administrative action like digitizing land records, updating outdated property values, etc. without touching a single rate. But beyond this, there’s little scope to increase revenue quickly.

So if states need money, their grants are shrinking and taxes can’t fill the gap, what do they do? Easy, they borrow. States now fund about 3/4 of their combined deficit by selling bonds in the market and their borrowing is up sharply from a decade ago. But that can become a problem because their borrowing has a crowding out effect. As states rush into the bond market, they eat into the room left for the center and private companies to borrow. In fact, big long-term buyers like banks, insurers, pension funds are starting to rethink their allocation strategy, and their appetite for such bonds have muted. Now, here’s one reason. You would expect a shaky state to pay noticeably more to borrow than a strong one. But in reality, there’s barely a difference. The gap between the safest and riskiest states is just a few basis points. And the market treats every state as if Delhi will always quietly stand behind it rather than pricing in who’s actually running their finances. Well, for now, that’s a comforting assumption, but if it’s ever tested, all bets are off. If the center lets a state default, the repercussions could flow far and wide.

But why do states need more money? So, they’re trying to do two expensive things at once. On one side, they’re making a capex push, good and improving, but at the same time, they’re funding a fast growing pile of welfare promises, free electricity, loan waiverss, and above all, direct cash transfers straight into people’s bank accounts. In fact, when the RBI studied the language of state budget speeches, there was a clear tell. The vocabulary has shifted from subsidy toward income support. So, welfare itself isn’t a bad thing. In a country as unequal as ours, much of it is necessary. But the worry is that a cash transfer once it starts is almost impossible to stop. It quietly hardens into a permanent line in the budget with a very vocal constituency attached. And such promises may be easy to make, but they’re impossible to roll back.

Now, there happens to be a sweet spot in some count’s lives. They suddenly have a massive influx of working age people while there are relatively few children or elderly for them to support. Economists call this a demographic dividend. And India is famously in that window. But that is only if you look at the national picture. Averages make it seem that way, but averages lie. In reality, different states are at completely different points on the curve. So the RBI sorts Indian states into groups. Youthful states like Bihar, Uttar Pradesh, Madhya Pradesh still have a young growing workforce. Intermediate ones like Maharashtra, Gujarat, Karnataka are maturing. But there are aging states where more than 15% of people are now over 60. Today that’s just Kerala and Tamil Nadu. But Punjab and Himachel are close behind. So what does that imply for these states? Let’s follow the money. So if you were to measure a state government’s revenue against the size of its economy, you would find that for every 100 rupees an economy generates, a youthful state’s government collects around 19 to 20 rupees. An aging state on the other hand collects barely 10 rupees. Young states look far better resourced relative to the economy underneath. Now it isn’t that young states tax their own people harder. If you look at just the taxes the state raises and keeps for itself, the two groups look almost identical. They draw somewhere around rupees 6.5 to rupees 7 out of every 100 rupees whether the state is young or old. The gap comes from Delhi. Youthful states get a big top up from the center. Roughly 7 rupees of that 100 rupees. Meanwhile, aging states get under 2 rupees. This imbalance is baked into the very formula that splits central money and it’s deliberately redistributive sending more to poorer states. India’s most youthful states, Bihar, UP, Madhya Pradesh happen to be the poorest. So they get a larger cushion. Richer but older states get a much thinner one. So when an aging state like Kerala looks fiscally stretched, it isn’t solely because it taxes badly or spends recklessly. It faces a slow squeeze from two sides. Its shrinking workforce drags down growth, which means its tax base stays stagnant with fewer working people and less economic activity to tax. Meanwhile, because it’s well off relative to everyone else, the help it gets from Delhi is thin. This is simply a feature of the system. But there’s one big caveat in this framing. It’s easy to assume that people stay put. But they don’t. As we discussed with the authors of the state of working India report, young workers from poorer states like Bihar and UP migrate in huge numbers to richer aging states for work and that’s where they transact and where they create economic gain. So a state that theoretically has a dividend might not reap it while those gains go to aging states that can draw young workers from elsewhere. And there’s a cruel irony in the data. A young state can only harvest its youth bulge if it educates those workers, turning them into skilled, employable workers. Only even as cash transfers expand, the share of youthful state’s budgets going to education has been falling.

The bills are all coming due at once, but demographics more slowly. In the meanwhile, there are bills that are more immediate and many shall land at once. The first is the ETH pay commission, the latest edition of a periodic exercise that raises government salaries and pensions which states inevitably follow and this is expected to hit state budgets around 2027 28. Two, climate is now becoming a budget line. India is among the world’s worst hit countries by extreme weather with nine states in the most vulnerable tier and dealing with everything that follows will be expensive. Three, there’s a time bomb hiding within state balance sheets. States have given massive guarantees, much of it to prop up lossmaking power utilities. So if something goes wrong, that bad debt will show up in the deficit at once, which is why the Finance Commission is forcing states to own up to them. On top of all that, there’s the immediate shock of the Iran war. Even though the hostilities appear to have paused, the repercussions won’t cease. Carage expects it to slow growth, soften tax collections, and push next year’s deficit 2 to 4 percentage points wider than budgeted. For now, everything holds, but only because Delhi keeps lending to the states for cheap while the economy is growing fast enough to outrun the debt. Neither is guaranteed forever. As all these bills come due right as grants dry up and the rules tighten, a state that doesn’t have the handle on its finances could be in for a rude shock.

Now coming to the tidbits, the RBI has barred banks and NBFCs from forcing customers to buy bundled products and will require full refunds where misselling is proven. The rules kick in from January 1st, 2027. Coming to the next tidbit, China’s retail sales fell for the first time since co reopening dropping 6% in May while investment also shrank 4.1% in the first 5 months of 2026. Coming to the final tidbit, HCL Techch is buying a 10.5% stake in Indian AI startup Sarbam AI for rupees 1,427 cr leading its series B round. The deal values the company at $1.5 billion making it India’s newest unicorn. That’s all the news I have for you. Thank you so much for watching and see you in the next one. Disclaimer, this content is forformational purposes only. None of the stocks, brands or products mentioned are recommendations or endorsements.