Economic Impacts of World Cup

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Hosting major football tournaments like the world cup and the European Championships always has a positive economic impact on host nation.

Introduction

The sporting industry has had an impact on economic decisions since the global media explosion in the early 1980s (Heerden, 2008). Revenues that are raised from big events such as the world cup and Olympics are a key boost to the economies of the nation hosting the event. In addition, globalization has emphasized the significance of Foreign Direct Investments (FDI). Nations often struggle fiercely for the right to host the football FIFA World Cup finals. Namely, these kinds of events are considered to cause a significant boost in economic growth and result in a higher rate of employment. However, the economists ran to the conclusion that the impact on the overall economy, the aggregated demand contributes to, is often not only unimportant but even negative.

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“it is inappropriate to rely only on measures of the economic impact that are concerned only on measures of the economic impact that are concerned only with the effect on macroeconomic variables to decide whether a bid should be made or not since hosting events can have major effects on the structures of the football market and related industries” (Sturgess, 2007).

The emergence of the World Cup competition goes back to 1930 and its primary aim is to select the world’s best soccer team. The Cup is regularly held every four years on the years opposite of the Olympics with the idea of avoiding competition with the Olympic Games not only for the participants but for the fans as well. The teams representing 32 nations constitute the tournament. The participants are chosen on the basis of regional competitions; at this, each region is assigned a separate number of spaces depending on the number and quality of the teams of the same nation in the area. The 2002 Cup saw the competition between 193 nations which in 777 qualifying matches contested for a total of 32 spots in the finals.

FIFA, the governing body for soccer worldwide, determines the site of the World Cup. Until 1994, the tournament alternated between Europe and Latin America, the traditional powerhouses of soccer. Motivated by a desire to promote the sport and to capitalize on surging soccer popularity elsewhere in the world, FIFA has recently designated host countries outside Europe and Latin America. The United States of America welcomed the participants and hosted the tournament in 1994. While the event returned to a traditional soccer nation in 1998, France, in 2002 Japan and South Korea were designated as co-hosts for the Cup.

The World Cup can turn out to be beneficial for the economy of the country which hosts the tournament. Before the Cup finals begin, countries often undertake publicly financed capital improvement projects to prepare a country for the entry of the games. Examples include new or improved stadiums or road construction (Sturgess, 2007). Private companies are not left behind. They also work to expand capacity in advance of the World Cup. They do so through expansion of their accommodation such as increasing the number of hotel rooms for visitors.

In the World Cup year, host countries might receive an influx of tourists who travel to view the games although this might be offset somewhat by other tourists who don’t visit in order to avoid the hoopla. Still, soccer tourists can mean potentially millions of dollars in additional sales for locals businesses, including hotels, restaurants, and souvenir shops.

In addition to a potential impact on host countries, there could also be a champion” effect, where the country that wins the World Cup could receive a psychological boost from being crowned world champions in the world’s largest-viewed sporting event. The boost might come from either internal sources, such as a surge in consumer or business confidence, or from external sources, such as increased tourism.

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If the World Cup does provide an economic boost, we might expect to see an increase in the growth rate of a nation’s gross domestic product (GDP) either in the World Cup year or in the immediate aftermath. Table 1 presents the growth rate of GDP in the two years prior to the World Cup (Pre: -2 to WC) and compares that to the growth rate in the World Cup year, as well as the two-year periods following (Post: WC to +2).

Cumulative Growth in Real Gross Domestic Product Host
Table 1: Cumulative Growth in Real Gross Domestic Product Host

While these results are not conclusive, we see that the hypothesized economic benefits of the World Cup in the year of the event do not manifest themselves in this macroeconomic data. On average, World Cup hosts have seen a negative impact on economic growth in the year of the event. With the World Cup games lasting about one month in total, the distraction of such a large sporting event might be enough to slow economic growth. The data suggest that host countries might recover nicely in the two years immediately following the World Cup with average growth rates that are higher than the years immediately preceding it. This is especially true for countries that have been both hosts and were crowned champions.

Unlike an Olympic Games, the World Cup tournament is dispersed among a large number of cities. The only direct real estate legacy in each city will be the actual stadia. In isolation, the stadia are unlikely to underpin regeneration or city repositioning goals. They should be viewed as part of a combined approach to mixed-use development and regeneration. Of fundamental importance is the need for any stadium, arena, or cultural attraction to have a sustainable business model. Only then will an iconic building be a powerful catalyst for value creation that over time can be expected to help to meet regeneration goals. If this will be successful, then it has the potential to have an important long-standing impact on real estate markets.

World Cup hosts should not necessarily expect a significant direct economic or real estate market impact. From the experience of some previous host cities, there are a number of common themes:

  • The World Cup is one of the most prestigious events on the global sporting calendar. A host country is in the international limelight for many years ahead of the tournament. But there is unlikely to be a step-change in its perception as a tourist or business destination and thus hosts should not anticipate structural changes in the requirements for hotel, retail, or office space.
  • Many of the economic and real estate market benefits will come before rather than during or after the event and these are unlikely to be shared evenly between host cities, with gateway cities benefiting disproportionately.
  • The most direct real estate impact is on hotel operators who can expect a significant boost to hotel occupancy and room rates during the event.
  • There might be increased retail demand and demand for retail space ahead of the tournament through stronger domestic consumer confidence. This will likely be more notable and persist longer if the host country is successful in the tournament.
  • To secure and leverage urban regeneration benefits a host city needs to put in place a long-term viable plan for its stadium in order to provide a lasting catalyst, which if successful could lead to a change in the pattern of land and real estate values in the city.
  • To influence regeneration benefits, countries that aspire to host the event in the future need to consider cautiously the number and set of cities intended to host.

The most plausible explanation for a possible slowdown – that the nation is distracted by a month of sport – is also reason to believe that the World Cup might have significant non-monetary benefits to the hosts as well as to the rest of the world. Because soccer truly is a global sport with worldwide viewers measured in the billions, it’s hard to underestimate the potential impact of a common experience and the potential for the games to foster cross-cultural interaction and understanding. The idea that every country has a chance to participate, through regional qualifiers to perhaps reach the final 32-team competition, is one of inclusiveness and respect that can bring nations together through peaceful competition.

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As a sport, soccer has been credited with a number of advances towards peace and reconciliation (as well as some setbacks). Most recently, the qualification last year of the Ivory Coast for its first World Cup berth seems to have catalyzed a truce and brought warring factions to the negotiation table. While the global sport does not have a spotless record, by any means, it does remind us that not everything of value can be measured in dollars, yen, or Euros.

World Cup of 1994 hosted by the United States of America

The world cup in the United States which was held in 1994 was hosted in several cities among them Los Angeles, New York, San Francisco, and Boston. Past and present prospective economic impact analyses prepared by event boosters predicted economic windfalls from hosting the World Cup. The 1994 World Cup Organizing Committee in the United States, for example, predicted that “as many as one million international visitors were to travel to the United States in conjunction with the World Cup, making the event one of the most significant tourist attractions in American history. The 1994 World Cup economic impact could conservatively exceed four billion dollars in the United States.”

The attendance of 69,000 which the World Cup saw in the USA in 1994 is the highest observed since the commencement of the tournament. In Los Angeles, the venue of the World Cup final, a profit of $623 million was realized. This money was injected directly into the metropolitan economy. In contrast, the Super Bowl which took place the same year gained a profit of $182 million. These games took place for one month and the figures obtained correspond to this period of time. Reports submitted by Pasadena Convention as well as those from the Visitor’s Bureau, California, registered that in the course of preparation and immediate carrying out of these events 1,700 part-time jobs were created. Boston, New York, and San Francisco together gained profits equal to $1.045. As compared with the preceding year, the manufacturers of food and beverages and the industries connected with the hotel business experienced a 10% and 15% increase. Taking into account the fact that most of these industries are either chains or corporations, the entire economy of the United States benefited from the obtained money. This money went for the development of the corporation, namely for its expansion and acquisition of new facilities.

The World Cup of 1994 in the United States influenced not only the economy of the country but affected other spheres of its life as well. In order to be chosen as the hostess of the World Cup, the country had to organize a national soccer league which served as a reason for establishing the Major League Soccer in 1996. Thus the present economic factor for the country was formed giving the possibility to make use of new facilities, supporting new teams financially, and gaining profits from ticket sales. Additionally, the new professional league in the US engendered one of the fastest-growing youth sports in the country. And another impact that could be observed was the foundation of youth soccer, the sale of the attributes connected with this kind of sports, such as special clothes and equipment which gave a new focus for some of the private businesses.

2002 FIFA World Cup –Japan/Korea

In the 2002 World Cup, several rewards were discovered when the two co-hosted the event. This was a pioneer tournament where the World Cup was hosted in two countries. It comprised sixty-four matches in general with thirty-two matches played in each country. Three million spectators observed the event and the total revenue from ticket sales constituted an astronomical sum of money equal to $1.2 billion. $110 million-plus all the profits from the ticket sales was given to each hosting country. Therefore, each country was able to invest $4.7 billion in expanding their soccer facilities.

In Korea, all ten of the newly developed stadiums are currently utilized by their professional teams. This has left long-lasting impacts on the economy. In Japan, only two of the ten facilities that they built in preparation for the 2002 Cup are being used. Thus it can be stated that Korea returned more from the original investments. According to the preliminary predictions, in case of the loss of the team representing England, the total loss would constitute 1.8 billion. It was also suggested that some of the other top ten soccer supporters were going to invest 8.1 billion of economic output or 0.3% to 0.75% of second-quarter GDP. Of even more importance is the fact that the thirty-two nations which participated in the event constituted 84% of the global GDP.

2006 World Cup – Germany

The World Cup of 2006 which took place in Germany is believed to be even more successful than the tournament conducted in the USA. The German government reported that for the month of the World Cup only tourism alone contributed 400 million dollars into the economy of the country. What’s more, another sum of around 3 billion dollars was obtained from the sale of different paraphernalia connected with the World Cup. And finally, during the preparation of the event a striking number, approximately 50,000 new jobs, were created. Another interesting fact was that no vacant places in bars and restaurants could be found for the time of the tournament since Germany welcomed 15 million more guests than was expected initially.

The German professional League, Bundesliga, was finally noticed though no proper attention was paid to it before the beginning of the tournament. The result of this was a tangible increase in the sales of tickets and paraphernalia of the team. The tournament also contributed to the international acknowledgment of the Bundesliga bringing the expected profits to the telecasters and the sponsors.

Upcoming 2010 FIFA World Cup – South Africa

The 2010 FIFA World Cup will be the first time in the history of the tournament when it will be held in Africa. The tournament is anticipated to have an economic advantage due to the location and the already emerging economy. South Africa still has one of the largest inequalities in wealth. Therefore any predictions about the economic impact of the 2010 FIFA World Cup have to take this into account. Economical stability, as well as stability in the governmental sphere, is what Africa will have to achieve in order to increase international trade and Foreign Direct Investment. Only then will the country would have a chance to become an object for foreign direct investments and get potential revenues from the World Cup 2010. Due to the fact that Africa alone won’t be able to handle all the financial expenses connected with the tournament, FIFA will have to fund it partially. Nevertheless, the investment of the larger capital still rests with Africa, just like with other countries that host events of this kind.

Around $21,3 million is the projected direct economic value for Gross Domestic Product (GDP). It is predicted that about 159,000 new jobs will be created, including not only temporary and part-time but permanent and full-time jobs as well. The future plans of the government include the construction of new stadia and building a new international airport. The event is expected to host 36 teams, each of them consisting of 50 people, 14,500 VIPs, and dignitaries, 10,500 media, and 500 officials. Africa is planning to welcome 500,000 visitors from other countries. The expectation is that they will be staying for an average of 15 days. The country is expected to spend R12.6bn (around $1.95bn) on hosting the World Cup, while ticket revenues from the predicted 280,000 foreign fans that will come to the country are estimated at R4.6bn.

The government believes that the event will create 150,000 new jobs and increase GDP by $400m, while the organizers have promised that many smaller South African companies will be awarded contracts.

Conclusion

Taking into account the experience of the countries which used to hold the World Cup earlier, it can be stated that the event itself can not only bring the booth of the economy of the hosting country but to result in certain losses as well. However, the subsequent years after the tournament show that the hosting country performed better than usual. This is what the historical experience of the countries which used to host the World Cup revealed:

  • Since 1954 seven out of thirteen countries that held the tournament did not experience the boost of the economy for the period of time when the event took place but improved their economical position in the subsequent two years.
  • In most of the cases the countries witnessed slower economic growth for the period of time when the tournament was held than in years either preceding or following the event. Nonetheless, the return of the investments proved to be beneficial.
  • There also were instances when the economic growth increased during the years which followed the World Cup:
  • Since 1954 nine of thirteen countries that hosted the World Cup improved their economic growth during the period of two years after the event was held.
  • Generally, it was noticed that the economic growth of the hosting country after holding the tournament is stronger than in the period of time during the event or in the preceding years.

And lastly, the country which held the event and ended as the winner of the tournament saw only positive results afterward:

  • The two years after the tournament proved to be extremely successful and beneficial in terms of economic growth for the four countries which hosted the World Cup and won it.

References

Business Asia (1995). Economic Doubts about World Cup. First Charlton Communications Pty Ltd, Vol 3. issue 5. 2002.

Sergienko, M. (2007). FIFA 2006: Its effects on the Economy of Germany. The Financial Times Deutschland. Online version. Web.

Heerden, H. R. (2008). Predicting the economic impact of the 2010 FIFA World Cup on South Africa. International Journal of Sport Management and Marketing, Vol. 3 No.4 , 383-396.

Irons, J. (n.d.). The Quest For The Cup: Assessing the Economic Impact of the World Cup. 2009. Web.

LaSalle, J. (2002). Home Advantage? The Impact of the World Cup on Real Estate.

Mvula, R. (n.d). 2010 FIFA World Cup: Business Opportunities for Malawi. MCCCI.

Neil, F. (2004). S Africa Counts World Cup. African Business, Issue: 300, 62.

Rodrigo, A. (1994). Conquering the Last Frontier. Americas. Volume: 46. Issue: 3. pg 6.

Sturgess, B. (2007). Hosting the FIFA World Cup: Economic Boon or Winner’s Curse?, Sport Business Centre. 2009. Web.

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