{"id":9433,"date":"2014-06-13T15:49:25","date_gmt":"2014-06-13T05:49:25","guid":{"rendered":"http:\/\/blogs.unsw.edu.au\/BTOpinion\/?p=9433"},"modified":"2014-09-19T11:31:13","modified_gmt":"2014-09-19T01:31:13","slug":"soccernomics","status":"publish","type":"post","link":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/blog\/2014\/06\/soccernomics\/","title":{"rendered":"Soccernomics \u2013 the Economics of the World Cup"},"content":{"rendered":"

Tim Harcourt<\/strong><\/p>\n

We are days away from the long awaited FIFA World Cup in Brazil \u2013 the most watched sporting event in the world. Like the Olympics it happens every four years since it began in 1930 and this time the event has been controversial because of protests against the hosting of the World Cup (and Rio Olympics in 2016) by local Brazilians and most recently by suggestions of corruption in FIFA\u2019s decision to hand the 2022 World Cup to Qatar.<\/p>\n

As usual, most economists are soccer fans (soccer is known as football in most countries but soccer in North America, Australia, New Zealand and South Africa) and have been analysing the economic impact of the Cup, especially as they have to justify watching the games on TV over the next four weeks or so at the same time as they are analysing shares and commodity prices. But they needn\u2019t be too sheepish about it.\"\"<\/a><\/p>\n

Sport is a big deal in economic terms and the business of the World Cup has become one of the most scrutinised set of international transactions you\u2019ll ever see (or not see).\u00a0<\/p>\n

Soccer, \u2018the beautiful game\u2019, transcends cultures and national borders, has been the subject of economic diplomacy and the odd dispute, and touches millions of people on this planet, for better or for worse.<\/a><\/p>\n

But what exactly is its economic impact?<\/p>\n

First, it is clearly a big deal for Brazil to host the World Cup again, for the first time since 1950, to much fanfare and riots, but is there a world cup effect? Is it good for the host country economy?<\/p>\n

There\u2019s no doubt that Brazil went for the hosting rights because of the prestige it would bring and would help their claim to be the world\u2019s next economic superpower. After all they are the world\u2019s 5th largest economy by population and the seventh (on a purchasing power parity basis) or sixth (on a US dollar basis) largest country in the world, accounting for between 3 and 3\u00a0 \u00bd\u00a0 per cent of world output.\u00a0 As a member of the BRICSA grouping (Brazil, Russia, India, China and South Africa), Brazil is playing an important role in international affairs as we have seen in the World Trade Organisation (WTO) and G20 multilateral fora.\u00a0<\/p>\n

Brazil has undertaken a charm offensive in the developing world under the \u2018South-South banner\u2019. Under President Luiz Inacio \u2018Lula\u2019 da Silva, Brazil opened up 53 new embassies in Africa and has expanded its sphere of influence across the globe.\u00a0<\/p>\n

According to Goldman Sachs, 250 million people play soccer football regularly in more than 200 countries and since the first FIFA World Cup was hosted in Uruguay in 1930, over 70 countries have participated in various qualifying rounds. But as the protestors point out, if resources are allocated away from health and education to build stadia, or if something went wrong, it could damage Brazil\u2019s prestige just 2 years ahead of the Rio Olympics in 2016.\u00a0<\/p>\n

Second, if there is an economic gain from hosting the world cup, how about winning it? Remember, in 1950, 200,000 people jam-packed the newly built Maracana stadium in Rio de Janeiro, and Brazil just needed to draw to win the Cup. But they lost, to their neighbour Uruguay on a day that shocked the nation, and ruined the life of the poor Brazilian goal keeper who happened to be custodian of the national team on that day.<\/p>\n

According to Goldman Sachs, a World Cup win does give a country a boost on the stock market. All the winners since 1974, have outperformed in the post final month with the exception of Brazil in 2002, that had been going through a financial crisis as was near neighbour Argentina. The victor outperforms the global market by 3.5 per cent in the first month, then it tails off, and for the host nation outperformance is 2.7 per cent but it tails off too, and can even underperform in three months.<\/p>\n

Apart from the stock market, the economic impacts can be positive if the host nation uses the major event to bring forward much needed infrastructure (as in the Sydney Olympics in 2000), provides a legacy to a local area (East London in 2012 via Westfield Stratford) or to showcase its global engagement to the world (Seoul as Olympic host in 1988 signalling its move to an advanced North East Asian global \u2018hub\u2019 of trade and commerce). In addition, there are networking effects of hosting the games or the Cup e.g. Austrade\u2019s famous \u2018Business Club Australia\u2019 model at the Sydney Olympics that paved the way to Beijing business for the likes of architect John Bilman, of PTW architects who built the watercube at Beijing in 2008.<\/p>\n

Third, what will the World Cup do for Brazilian-Australian relations?<\/p>\n

Brazil has had better economic progress than the \u2018lost decades\u2019 of the 1970s and 1980s, and has plenty of economic suitors, so Australia will need to do more than just woo the Girl from Ipanema if it wants to succeed in Brazil. Areas of potential collaboration include resources and agriculture, transport, better cities (urban renewal), renewable energy, education, arts and popular culture and of course sport!<\/p>\n

Will the World Cup help with many Australians going to Brazil for the first time to support the Socceroos? One interesting fact from\u00a0 the Goldman Sachs report was that amongst foreign buyers of World Cup tickets, Australians bought 41,000 or 41k tickets making it\u00a0 second only to the USA (154 k), and ahead of football mad England (38 k) and nearby Colombia (33 k). Whether it is the strength of the Aussie dollar, the enthusiasm of Brazilian-based Australians or the perfect reason for a once in a lifetime extended holiday to Brazil, is unclear.<\/p>\n

Fourth, how with the World Cup impact on Australia\u2019s trade and investment ties with the rest of Latin America? As I wrote in the recently released Latin lessons \u2013 Australia and Latin America face the Asia Pacific Century, <\/em>the Andean countries of Chile, Peru and Colombia have been happy hunting grounds for Australian exporters and investors, particularly in resources, energy and education. The World Cup may draw in a bit of extra business, especially as Qantas flies to South America through Santiago, but I expect that business will go on whatever happens in Brazil this month.<\/p>\n

And finally what will the World Cup mean for the business of sport in Australia? As I have been finding in researching my forthcoming book, Footynomics,<\/em> on the battle of the football codes in Australia, there has been a time when the AFL, NRL and Australian Rugby Union officials were sort of hoping for the Socceroos not to qualify for the World Cup, because it would awaken \u2018the sleeping giant\u2019 and they\u2019d lose their talent \u2013 on and off the field \u2013 to Australia\u2019s fledgling soccer code.\u00a0<\/p>\n

I think we would expect the rival football codes to want the Socceroos to do well at least out of national pride and professional respect. The big question is whether the latest scandal rocking FIFA in handing the 2022 World Cup to Qatar, with accusations of bribes and breaches of occupational health and safety and actual workplace deaths and might shake things up and bring Australia back into the picture as an alternative host. Then we would see a battle of the football codes but following a successful Australia 2022 not Brazil 2014.<\/p>\n

Tim Harcourt is the JW Nevile Fellow in Economics at the Australian School of Business.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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