China’s Economic Reckoning
The Price of Failed Reforms
As I finished my tour of FIFA’s stunning new $255 million headquarters close to my home in Zurich, FIFA President Sepp Blatter signed a FIFA-designed soccer ball and said, “Give it to your son as a present from me.” Out came Blatter’s hand, grasping mine firmly, followed by a carefully choreographed pat on the back with all of the warmness one would expect from an uncle. With that, I walked toward the door, where the next guest was already waiting to pay his respects to the man in charge of the world’s most popular sport. This was three years ago, on a sunny spring day, at the pinnacle of Blatter’s power, and a few months prior to the launch of my book about how Switzerland made itself into an economic powerhouse in a hypercompetitive world.
The son of a blue-collar chemical plant worker, Sepp Blatter grew up in Visp, a town of 7,000 inhabitants in a valley below the scenic Matterhorn. A bit like southern Belgium, this part of Switzerland has historically been Catholic, poor, and trapped between larger, unfriendly neighbors. The Wallisers, as residents of the canton are known, were constantly competing with the Italians, Swiss Germans, and the Swiss French. To succeed in a region of desolate circumstances, Wallisers must have endurance, cunning, and an instinct for survival. The former head of the Christian Democratic People’s Party, the strongest party in rural Catholic areas of central Switzerland, put it less constructively to me: “The Wallisers are born with a Mafia gene.”
At 79 years old, Blatter has been elected for the fifth time as president of FIFA. Despite his advanced age, and a 17-year tenure characterized by an unremitting stream of investigations into embezzlement, bribery, and allegations of vote-buying, Blatter, in the final count, got 133 votes to Prince Ali bin al-Hussein’s 73, leading Ali to concede to the incumbent.
YELLOW CARDS AND CREDIT CARDS
Blatter’s rule over FIFA—the world’s governing body for soccer—has been opaque. It would be hard to name a sports leader who has attracted more criticism and contempt while retaining power. In the light of Swiss and U.S. FBI investigations, however, this might not be the truth for long. In an unprecedented move, the U.S. and Swiss departments of justice swooped on the Zurich hotel hosting an international FIFA meeting, arresting seven of the organization’s officials on suspicion of receiving bribes totaling more than $100 million.
The early-morning raid created a carefully choreographed media event just two days ahead of Blatter’s reelection. Switzerland and the United States set in motion a broad investigation into FIFA’s checkered past. “These individuals and organizations engaged in bribery to decide who would televise games, where the games would be held, and who would run the organization overseeing organized soccer worldwide,” U.S. Attorney General Loretta E. Lynch said. Richard Weber, the criminal investigation chief for the IRS, said that its special agents had discovered “complex money-laundering schemes hiding tens of millions of dollars in offshore accounts.” Among those arrested was FIFA vice-president Jeffrey Webb, a Cayman Islands resident who heads CONCACAF, the regional FIFA outpost for North America, the Caribbean, and Central America. The latter two regions are at the center of the corruption and bribery allegations. Also arrested were officials from Brazil, Costa Rica, and Uruguay, one of whom was to join FIFA’s executive committee this week.
Operating as a Switzerland-based nonprofit, FIFA is a dazzlingly successful business. It has enjoyed fast-growing revenues and profits since 1998, when Blatter took the reins of the then-fledgling organization. (He began his tenure from a rented room in a Zurich house.) Under Blatter, FIFA’s revenues have increased 17-fold through a mix of television and marketing rights paid by Coca-Cola, McDonald’s, and Visa, among others. In return for these high-paying sponsorship deals, FIFA has used its profits and gains from World Cup events to sustain a global network of patronage. From the $5.7 billion in revenues FIFA grossed from the World Cup in Brazil, it dispensed $1.1 billion to its 209 member associations and regional soccer confederations, many of them poor and dependent on FIFA’s largesse. It also kept a handsome $1.4 billion for its own operating expenses, and a profit of $338 million. FIFA’s status as a tax-free Swiss entity notwithstanding, it has stashed away reserves of $1.5 billion despite having nearly nothing at the beginning of Blatter’s first term.
Few leading figures polarize the sport world more. Blatter’s allies laud him as “transformational,” “futuristic,” and the “father of football.” Osiris Guzman, FIFA member for the Dominican Republic, went so far as to say “Blatter is Jesus.” His detractors—of which there are many—ridicule him as corrupt, ruthless, and Machiavellian. The Economist wrote recently of his “bottomless capacity for self-delusion” and that “football deserves better than him.” But despite harsh words, few have made meaningful efforts to have Blatter step down; if anything, it is ambivalence itself that has enabled him to stay in power.
WHY THIS, AND WHY NOW?
To answer questions as to why FIFA is only now experiencing a critical mass of scorn, one must dig deep into the causes, rather than symptoms, of the organization’s corruption. FIFA’s phenomenal success (or failure, depending on perspective), has little to do with Blatter and more to do with three robust pedestals propping up FIFA’s architecture. FIFA is a monopoly; soccer enjoys vast popularity among an insatiable population of consumers; and FIFA’s governance is ideally suited to encourage—or at least tolerate—illicit favors in exchange for loyalty.
First, FIFA has no competition when it comes to global soccer governance, leaving the world bereft of an alternative structure. Few other sports, save for cricket and rugby, have such a wide-ranging international body that governs its trajectory—only Formula 1 and the International Olympic Committee could be considered similar in term of size, scope, and profitability. This forces government, fans, managers, and players to accept FIFA’s decisions irrespective of their merits.
Second, soccer has become the lingua franca of globalization. With 3 billion viewers in 204 countries, the Brazil 2014 World Cup was the most watched televised event in history. During an insignificant early-round match between Holland and Mexico, 89 percent of Dutch television watchers tuned in. Throughout the entirety of the World Cup, the whole world quiets in order to watch the “magnificent game” on its global stage. With true fans swearing allegiance to their team of choice in early childhood, this unbroken bond withstands frustration at FIFA just as much as it does poor team performance. No other sport boasts such global reach and local appeal, providing the wind in the sails that propels FIFA forward.
Finally, FIFA’s own structure is conducive to bad behavior. Each of FIFA’s 209 members cast votes in simple majority elections that make key organizational decisions, such as the host country for the next World Cup. Votes are unweighted—the Cook Islands have the same say as Germany. With only a handful of reasonable host cities existing around the world, smaller and uninterested states often look to sell their vote to suitors eager to host the event within their jurisdiction. In addition, FIFA rules require that the president secure a two-thirds majority for reelection. On a practical level, this makes it unappealing for sitting presidents to punish nations receiving bribes for votes, as a president may need their votes in order to stay in power.
FIFA’s money machine is so prolific, its incentives so invincible, that most within the organization seek to preserve, rather than challenge, the status quo.
A BRIBE BY ANY OTHER NAME
It is under this electoral system of bribery and vote-selling that Blatter instituted FIFA’s “development programs,” policies that provide funding to small countries looking to boost their national soccer programs. Critics have called these development grants gifts, suggesting that those who receive help reciprocate help. Blatter also rewards loyalty with paid appointments for membership on myriad committees. FIFA has 25 standing committees for a variety of functions, ranging from women’s soccer to beach soccer and Fair Play, which rewards good behavior and tolerance within the sport. Each of the committees is filled with candidates proposed by Blatter himself. His policy has paid off brilliantly: in 1998, he barely squeaked by with 111:80 votes cast in his favor; in 2002, the tally was 139:56; and when elections came up during 2007 and 2011, nobody bothered oppose Blatter at all.
The grants aren’t all. Soccer stadiums built with tax-free government loans have become public monuments in a way that cathedrals like Notre Dame were in the Middle Ages, and that railroad stations like Grand Central Station were at the zenith of the industrial age. Brazil invested $14 billion in its complement of new stadiums, and Qatar is expected to spend over $65 billion for its host duties in 2022. Local taxpayers ultimately carry the burden. The most expensive World Cup stadium located in the capital of Brazil, Brasilia, had a price tag of $550 million. Now it is being used as a parking lot for buses.
Huge tax-funded stadiums are less likely to be built in developed countries with state-sponsored ethics committees and a watchful media. These countries are also less willing to spend outrageous sums when designing their bids for host duties, and are therefore less likely to be selected. Unsurprising, then, is that the progression of World Cup venues during Blatter’s reign have charted a line straight down the Democracy Index; beginning with South Africa (30th place) and continuing to Brazil (47th), Russia (107th), and finally, to Qatar (137th). Pay slips show that migrant workers building the al-Wakrah Stadium work up to 30 days a month for pay as low as $7.35 per day. Recent reports indicate that North Korean laborers may be working on Qatar’s World Cup infrastructural projects, with their paychecks going directly to the central government in Pyongyang.
FIFA’s money machine is so prolific, its incentives so invincible, that most within the organization seek to preserve, rather than challenge, the status quo. It is unlikely that Blatter, or his eventual successor, will behave differently unless pressured to do so. Notwithstanding the testimony coming from recent indictments, no one has thus far proved Blatter’s direct involvement or guilt. Attorney General Lynch seems driven to change this, however, stating that bribery occurred “year after year, tournament after tournament, over more than two decades.” The period in question coincides with Blatter’s tenure.
Blatter routinely reminds that he has never been implicated in illicit behavior, and he described the justice department’s actions as “good for FIFA.” Mark Pieth, a professor of law at Basel University, asked, “Is someone in charge of an organization who does not sufficiently fight against corruption also corrupt?”
That depends on whom one asks. British maritime tradition and law recognize the difference between blame and responsibility. A captain of a ship is held responsible for the ship, regardless of the blame of his crew’s misdeeds. Some argue that FIFA’s ship has hit plenty of icebergs during Blatter’s tenure.
After the Salt Lake City Olympic Games bidding scandal, it was the corporate sponsors who forced the International Olympic Committee to become more transparent and institute reforms. They should do so again. Soccer fans should also take on greater responsibilities by boycotting sponsors and demanding transparency. Sport offers a kind of escape, and an opportunity to take a collective sigh of relief while humanity suspends its everyday concerns. Sport should not, however, be a vacation from critical thought.