PtG Article 12.06.2018

Who will benefit from the most expensive World Cup ever?

The 2018 World Cup has been labelled the most expensive World Cup ever, but the exact costs are hard to determine. It is, however, not that hard to find a line of people who benefit from it.

It was on that football-history changing day in December 2010, when FIFA’s executive committee awarded the World Cups 2018 and 2022, the world became familiar with the Russian saying: ”Those who don't take risks don't drink champagne,” Vladimir Putin told a room full of international journalists, shortly after landing in Zurich to celebrate the success.

The Russian World Cup was labeled ‘medium risk’ even by FIFA’s own evaluation reports. With brand new stadiums and airports, a railway-network, roads, hotels – for the bigger part existing only on paper – multi-billion dollar projects to be realised in eleven cities across the vast expanse of Russia. Thus, Putin used one of his most successful political tactics: the ability to turn suspicion in his favor. The World Cup would help his country develop a modern infrastructure, he declared, fending off questions regarding the foreseeable immense costs.

Now, with the football-party about to kickoff, the costs and other substantial issues about transparency and accountability – usually associated with global sports events in authoritarian states – are rarely discussed. How much, exactly, did Russia – a country, where most people get by with $500 a month – have to risk, financially? Who is paying and who is drinking champagne?

The price tag first. There are official figures – but the fluctuations alone are casting heavy doubts about their credibility. For example, last October the government bumped the overall costs for hosting the World Cup up to $11.8 billion – via a decree and without explaining the latest increase of $600 million. Then, at the beginning of this year, the Local Organising Commitee presented another amount: $13.2 billion. Finally, in April, Russian daily Vedomosti quoted a McKinsey report, according to which $19.4 billion had been spent on World Cup preparations– a lot more than the previous final bills.

The amount may be vague, but the finding is clear: The tournament is by far the most expensive World Cup ever, after the estimated $11 billion spent by Brazil in 2014.

Opaque spending

Even Transparency International (TI) failed to clear up the mystery of the overall costs.

”We tried, but we gave up,” says Anton Pominov, Director General of the watchdog’s Russian section. ”There are no reliable public sources.”

The spending, he claims, was highly opaque from the start, ”beginning with the awarding of contracts by the Ministry of Sport”. Pominov is one of the few people in Russia with whom you can talk about what the World Cup is about behind the facade: backroom deals worth billions and a World Cup, largely bankrolled by the state.

Like dozens of other NGOs working in Russia, Transparency International has to operate under the ‘Foreign Agent’ status – in other words: by law considered an enemy. But Pominov doesn’t shy away from clear words:

”The Sochi Games were confined to one resort city. Multiply the Sochi principle of spending with eleven, then you’ll perhaps get an idea of the real costs for the World Cup.”

The Sochi Olympics spiraled out of control from $12 to $51 billion, with billions funneled away. TI’s "partial successes" (Pominov) in lifting the fog about the real costs indicate a similar pattern. For the road construction, TI managed to gather more than 1,500 contracts. The contracts revealed blatant irregularities for every third project, with large orders given away without tender and /or inexplicable high demands by construction companies.

Another example is the Krestovsky arena in Putin’s home town St. Petersburg – a football temple crowned by a 56-metre-high roof, with 72,000 seats and already called the ‘cathedral of waste’. A final bill of $784 million was sent / presented to the public when the stadium opened last June. TI managed to get a hold of the contracts with the construction companies. The contracts are worth $1,38 billion, making the stadium the second  most expensive worldwide. That is nearly as much as for the bigger Wembley stadium in London (90,000 seats, $1.45 billion) and much more than for the Maracana in Rio de Janeiro – the most notorious ‘white elephant’ the last World Cup left behind (with a price tag of around $500 million).

Waste of money

At least Krestovsky is, with Zenit St. Petersburg, home of a premier league club. ”But what to do with a stadium for 35,000 spectators in a city with a populace of 100,000?,” asks Pominov. ”That’s a waste taxpayers have to pay for after the World Cup.”

Already in January, Russian opposition party Yabloko published a report on the budget overruns for the stadiums – with average costs per seat twice as much as for new stadiums in other European countries. The title was telling: ‘The World Cup’s Gold’. $1,5 billion could have been embezzled, Yabloko’s anti-corruption centre stated, calling the staggering amount a ”guess” since „the exact costs are unknown.”

The funding for the World Cup, that much can be said, has developed into a massive black hole, magnetically drawing in huge amounts of money. And nearly all of it – at least according to available information – came from federal or regional budgets, contradicting the government announcements about private investments. (The Russian Ministry of Sport did not respond to a detailed inquiry.) When the ball is rolling, that is the idea, questions about where the money came from and where it is gone are forgotten anyway. Anton Pominov says: ”That’s what Putin’s TV is for. Officially, the people will be excited about how brilliantly Putin and his men have prepared the World Cup.”

A political manifestation and money machine

Indeed, for Moscow the World Cup seems to be an event with a winner who is already a given: Vladimir Putin. And with a message to be broadcasted to the Russians: Look, we are on a par with the West!

The official narrative, born in the Soviet Union and revived by Putin during the last years: The West is trying to keep Russia from its rightful place as a world power. Crimea, Ukraine, Syria or the shooting down of Malaysia Airlines flight MH17 – that is the West against Russia.

”With the World Cup and all the show-off,” says Russian-American historian and Kremlin expert Yuri Felshtinsky, ”Putin wants to prove to his own people that the world needs Russia – whatever the Kremlin does.”

That is why the costs do not matter, Felshtinsky and others suggest.

As it was the case in Sochi. The real bill for the Sochi Olympics was a contribution by Boris Nemtsov, the opposition leader and former deputy prime minister murdered in 2015. The Olympics worked as a great opportunity for, as Nemtsov put it, ”stealing billions”. His prediction for the football jamboree: ”It will be roughly the same story when it comes to preparing for the World Cup.”

It turns out, the story seems to be exactly the same - making the World Cup just another example for fulfilling a kleptocratic mandate: privatizing the profits, nationalising the costs. A small circle of so called oligarchs, billionaires – all with a personal connection to Putin – is drinking the champagne. 

Some already benefitted with the biggest contracts in Sochi, thus bolstering their wealth and, in exchange, acting as Putin’s ambassadors, buying influence in Western democracies or – that’s a suspicion, although well grounded – being a source of private finance for the Russian president himself.

The contract holders

Just a few of them:Arkady Rotenberg, dubbed by magazine ‘Forbes’ the ‘emperor of state contracts’ and a prominent figure already in Nemtsov’s Sochi report, got his share again. Quite literally. At first, for the World Cup he and his partners were allowed to renovate Moscow’s Sheremetyevo airport, which was then undergoing an ownership change.

Putin personally signed the decree for selling the government’s shares – to a company, controlled by Rotenberg. The ‘emperor’ happens to be the president’s childhood friend and judo partner, and before the year 2000, before Putin conquered the Kremlin, nobody knew the former sports teacher. Since the annexation of Crimea in 2014, billionaire Rotenberg is under Western sanctions due to his close relationship with Putin. In the world of sports, the same relationship carried him onto the executive board of the International Judo Federation – where Putin is the honorary president.

Gennady Timchenko, another old friend from St. Petersburg, playing ice hockey with Putin and chairing the board of directors of the Kontinental Hockey League. His rise began with a license to export oil – signed by Putin, then head of the City’s committee for foreign liaison. In 2014, Timchenko sold his shares in Gunvor, the world’s second largest oil trader. The next day he was under Western sanctions.

The U.S. Treasury’s announcement linked his business activities to Putin: ”Putin has investments in Gunvor and may have access to Gunvor funds.” The friends dismissed those claims. Now Timchenko was awarded with the contracts for two stadiums, in Volgograd, the former Stalingrad, and Nizhny Novgorod, 400 kilometers east of Moscow – according to Yabloko with a price tag of at least $166 million over budget.

Interestingly, further three of the oligarchs with World Cup contracts are featuring more or less prominently in the FBI investigation into a possible Russian involvement in the 2016 US presidential election:

Aras Agalarov usually builds luxury apartments. He owns shopping malls and the Moscow expo, where the FIFA congress is meeting this week. He is called ‘the Russian Trump’ for a reason: In these halls, he almost made the first meeting between Putin and Donald Trump possible. Back in 2013, at the ‘Miss Universe’ contest that Agalarov arranged with Trump. Putin cancelled at the last minute, but many others came: ministers, high government officials, and a mafia boss whom Interpol had been looking for.

At the time, Trump was very keen to meet Putin and asked via Twitter if the Kremlin boss would come to the beauty contest. "And if so, will he become my new best friend?" For the World Cup, Agalarov snatched contracts for the stadiums in Kaliningrad on the Baltic Sea and in Rostov-on-Don, the gateway to the Caucasus. And declared publicly: "There should be no loss, but we make no profit." Such selfless acts are highly unlikely in the Russian business world. But the billionaire proved one thing with this sentence: his qualities as an entertainer.Oleg Deripaska, Russia’s aluminum tsar, stepped into the St. Petersburg arena construction in 2008 – and prematurely stepped out in 2016 after he had – according to TI’s investigation - pocketed the lion's share of the costs, about $934 million. Putin forgave him. A 2006 US embassy cable described him as "among the 2-3 oligarchs Putin turns to on a regular basis". Last year it became public that Deripaska paid millions in fees to lobbyist Paul Manafort, Donald Trump's interim campaign manager. Since April, he has been under US sanctions. The US Treasury has accused him of “having acted or purported to act for or on behalf of, directly or indirectly, a senior official” - a clear allusion to Putin.

Viktor Vekselberg. "Everyone thinks we are puppets in Putin's hands," Vekselberg once publicly rejected the idea that Russian businessmen would operate abroad at Putin's behest. “That would be a mistake," he claimed.

For him, it was a long-standing line of defense – but in April, the US put him on the sanction list too after links were made to the Trump election campaign.

For the World Cup, one of his companies built the new Yuzhny Rostov-on-Don airport from scratch – one of the few public-private partnership ventures. The mixed calculations are not always what they seem: in Sochi, for example, Vekselberg discarded unprofitable hotels a year after the Games. The state took over.

Dmitry Pumpyansky produces steel pipes, far back in the Ural. He already was part of the Sochi gang. Afterwards Putin awarded him the Order "For the honor of the Fatherland". Opposition leader Alexej Navalny once called the billionaire the "tube seller to Gazprom who writes bills that are seven times higher than the cost". The tube man came to wealth before Putin honored him. But nobody knows how. Back in the day, reports suspected delicate contacts to a Russian mafia cartel.

For the World Cup, he rebuilt the stadium in Yekaterinburg, 1700 kilometers east of Moscow, for the second time in ten years. Russian newspapers calculated what the four World Cup games at the twice renovated stadium could cost around $1.6 million per minute of each match.

Ravil Ziganshin pulls strings from Tatarstan, an autonomous republic 1000 kilometers east of Moscow. There he is a high-ranking member of Putin’s party ‘United Russia’ and goes by the nickname ‘King of construction’. He got contracts for three stadiums: Kazan, Saransk and Samara. In April, just before the first match in Samara, a newspaper noted that about 70 percent of the stadium equipment was not ready yet. "They have definitely saved money here," the newspaper wrote.

Ziganshin’s company PSO Kazan responded to a media inquiry, claiming the stadiums were built under "repeated inspection". More gripping are two recent verdicts. The Ministry of Sport sued some of the stadium builders, not because of immense costs, but because of delays. For the stadium in Saransk, a Moscow court dismissed the Ministry's claims. For the Samara arena, the Ministry demanded $9 million, and the court reduced the sum to a mere $14,000. That smells of alibi complaints. But they may do well - especially if, after the World Cup, auditors want to know why the Ministry of Sport has plundered the budget excessively.

Alisher Usmanov: For Putin, the billionaire likes to put his foot in the door – although it is not always obvious where it leads to. For example, last year, he sent a public note of protest to Thomas Bach, the IOC president demanding to ensure that Russian athletes at the Winter Games in Pyeongchang could see "the flag of their fatherland in the sky".

Only a few days after the Games, the doping-tainted Russian NOC was reintegrated – but Usmanov, who is also the president of the International Fencing Federation, had set a scent mark for IOC president Thomas Bach, the ex-fencer, for dealing with the doping scandal. Presumably acting as Putin's minister of foreign affairs for sport.

The ‘Man of steel’, as Usmanov is called because of his core business, set up the communication technology for the World Cup with the mobile operator MegaFon – as he did in Sochi.

FIFA’s responsibility

There are more of Putin’s allies in the mix. The Russian president will probably not be troubled by the implications. But shouldn’t FIFA be? Gianni Infantino seems keen to show the World Cup as an opportunity to transcend politics through the game – although the Russian reality has laid bare the cynic ignorance behind those intentions. And isn’t there a contract expiring this year? FIFA, at the moment a bit short of cash, gives the impression that they would like to extend the sponsoring contract with Gazprom rather than open their eyes for the reality in Putin’s Russia.

The sweet talking continued, anyway: Like in early May, when the board of the World Cup organising committee met in Sochi and the FIFA president sat next to Putin, the chairman of this body, too.

"Absolutely unique," Infantino praised the tournament’s preparation. “Thanks to the Russian government, beginning with the president."

Putin smiled. Of course, he likes it when someone says what the World Cup actually is about: It is Putin who has made Russia great again.

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