24 October 2018
The cost of holding a World Cup tournament is increasing, with stadium construction taking up the bulk of expenditure.  Photo: Bloomberg
The cost of holding a World Cup tournament is increasing, with stadium construction taking up the bulk of expenditure. Photo: Bloomberg

World Cup economics: Forget it, just have fun

The FIFA World Cup, arguably the most popular sports gala after the Olympic Games, can bring in huge economic benefits. Very few people would question the idea. It’s clear the event can attract tourists and spur consumption.

Estimates from various organizations put the benefits at billions of US dollars, even tens of billions, while the fact that countries vie to host the World Cup supports the assumption that it’s profitable.

But not all are fans of World Cup economics.

Some cite fewer working hours and declining efficiency to prove that the World Cup actually brings losses.

The argument goes like this: as people watch the World Cup, they come to work late and leave early while many will even ask for leave.

These will result in fewer working hours. Even if some people work enough hours during the World Cup, their efficiency may go down sharply because they might be sleepy from watching the matches overnight.

In addition, World Cup chatter will take up much of the working time.

This theory was quantified by Beijing-based Anbound Consulting in 2002 when China competed in the World Cup for the first — and only — time.

It said China would lose 3.5 billion yuan being in the World Cup. The amount was based on estimates that the whole nation would spend two hours of 2,000 working hours watching the matches.

Gross domestic product growth that year seemed to validate the theory. The Chinese economy grew 8.9 percent in the second quarter when the World Cup was on. The growth was on a par with that in the first quarter but slower than 9.2 percent and 9.1 percent in the third and fourth quarters, respectively.

China’s stock market may add new evidence that the World Cup distracts investor attention.

The Shanghai Stock Exchange, established in 1990, has experienced five World Cup tournaments. The benchmark Shanghai Composite Index slumped during three of the those five events. In the remaining two, it recorded not-so-robust rises. So, generally speaking, Chinese stocks haven’t done very well during the World Cup.

In this sense, the World Cup may not be a boon to countries like China, where many people slacken from economic production to watch soccer.

How about the host countries?

Professors Baade Robert and Victor Matheson of the College of the Holy Cross, used regression analysis to predict the growth rate of personal income in each of the host cities of the 1994 US World Cup and compared it to the actual growth rate and extrapolated from this the impact of the World Cup on host city incomes.

Based on their analysis, “the average host city experienced a reduction in income of US$712 million relative to predictions”. This implies “an overall negative impact on the host city economies of US$9.26 billion”.

As for employment, some economists have pointed out that the World Cup brings short-term, low-pay jobs.

German economists Hagn Florian and Wolfgang Maennig examined the German experience related to employment effects of the 1974 World Cup.

They concluded that the 1974 World Cup in Germany “did not generate any short to long-term employment effects that were significantly different from zero”.

Meanwhile, Dennis Coastes, a professor of economics at the University of Maryland Baltimore County, said the cost of holding a World Cup are increasing. Stadium construction remains one of the largest expenditure but other inputs such as security resources mobilized to manage soccer fans were also huge.

Coastes concluded that “there are certainly dozens, if not hundreds, of ways to spend taxpayer dollars which provide a better return to society than spending money on the World Cup”.

Many expect the World Cup to boost tourism by attracting global visitors but Maennig has a different view. After analyzing the 2006 Germany World Cup, he said it had not had significant impact on the tourism industry that was different from zero.

He said many locals actually chose to leave Germany during the World Cup to avoid the crowds. This offset the gains from incoming tourists.

Indeed, the assumption that the World Cup attracts more global visitors is not always true. In 2002, co-host South Korea saw fewer foreign visitors during the World Cup compared with the same period a year earlier.

Summing up the economists, the World Cup is not a cost-effective undertaking.

But they forget one thing — the intangible return it can bring to the host nation and people around the world.

Tears and joys during the World Cup and the great fun surrounding it cannot be quantified. The boost to a host nation’s image on the international stage and national unity over the event are invaluable.

So, forget economics. The World Cup is a time to party and have fun. Cheers and enjoy!

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The writer is an economic commentator. He writes mostly on business issues in Greater China.

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