The World Cup and Economics

After a month of intense soccer competitions, the FIFA World Cup 2006 drew to a close last Sunday evening (Monday morning in Manila) in Berlin, Germany with an exciting match between previous title-holders France and Italy. A World Cup estimate states the final was watched by a worldwide television audience of more than one billion. Cumulative audience for the month-long tournament was estimated at 30 billion.

Italy defeated France in a penalty shootout, 5-3 after a 1-1 draw in regulation period.

According to the "World Cup and Economics 2006," a special report by Goldman Sachs (GS), world-renowned investment bank, Il calcio is one of the Italians’ strongest passions, cutting through age, geographical and socio-economic groups. The national team, also known as Gli Azzurri (azurro is Italian for sky blue, the color of the team’s jersey) and Ferrari Formula One are probably the two things that bring Italians closest together.

Given the broad following of soccer, it is no surprise that the sport is synonymous with business in Italy. Data for 2003 indicates that overall revenues generated by the sport stand at around Euros 4.2 billion, corresponding to those of the country’s 13th largest industrial group.

Prior to the tournament, GS published bookmakers’ odds ass follows: Brazil, 11/4; England, 6/1; Argentina and Germany, 7/1; Italy, 8/1, Netherlands, 10/1 and France and Spain, 12/1.

In addition to providing the odds, GS came up with probabilities that combined official FIFA rankings and odds from different bookmakers to create a probability model that penalizes teams according to how tough their schedule is on average. Brazil was ranked first with 12.4 percent probability of winning followed by England (8.6 percent), Spain and France (8.3 percent), Netherlands (8.0 percent), Argentina (7.4 percent), Portugal (5.8 percent), Germany (5.5 percent) and Italy (5.3 percent).

World-wide interest on the World Cup reached fever pitch to the point that Joschka Fischer, Germany’s former foreign minister estimated that "up to 80 percent of people around the globe (watched) the games, while economic productivity will drop," per the same GS report. 

The World Bank also stated that ABN AMRO (investment bank) calculates that countries winning the World Cup add 0.7 percent to their economic growth. ABN AMRO also suggests that economic crises are typically followed by poor results from a country’s football performance.

According to Professor of International Politics at the Fletcher School of Tufts University, Daniel W. Drezner, a working paper by business professors Alex Edmans, Diego Garcia and Oyvind Norli finds that "losses in soccer matches have an economically and statistically significant negative effect on the losing country’s stock market."

To be sure soccer and the World Cup have grown by the proverbial leaps and bounds since the first World Cup was hosted — and won — by Uruguay in 1930. 1954, when then West Germany was host, was the year television covered the World Cup. There was TV coverage too in 1958 and 1962 when Sweden and Chile, respectively, hosted the World Cup. Live coverage over radio started in 1962 and according to Fischer, "the radio commentary sounded a bit like Neil Armstrong on the moon."

Today, as reported by Fischer, soccer is not only big business but also a really impressive example of successful globalization between the First World and the Third World. Much of the development took place in Africa when European soccer managers started going to Africa to help develop African soccer.

By the 1970’s and early ’80’s, the first African professionals arrived in the major European leagues. They gained experience in Europe, improved their skills and taught their colleagues back home.

A ruling by the European Court of Justice in the late 1990’s marked a real breakthrough. It opened up Europe’s major soccer leagues to foreign professionals, including Africans. Since then, African (and Latin American) players have been keys to the success of top European soccer clubs.

The whole world now looks forward to 2010 World Cup to be held in South Africa. This early, South Africa’s Department of Environmental Affairs and Tourism is getting organized in order to maximize tourism value from the 2010 World Cup.

Beyond 2010, England is hoping to host the 2018 World Cup as a follow up to the 2012 London Olympics. According to Gordon Brown, the United Kingdom’s (UK) Chancellor of the Exchequer, the British are hoping for the reciprocal support of Nelson Mandela and South Africa whose bid for 2010 the UK backed up. 

The World Bank says that some were not able to watch the exciting matches because they (either) don’t have access to electricity or are living in a country embroiled in conflict. Yet, even these people may be positively affected by the World Cup.

In recent years, development organizations and civil society groups have increasingly begun to turn to sports as a tool for poverty and conflict reduction. Kofi Annan, Secretary General of the United Nations (UN) remarked in the Olympic Aid Roundtable Forum, Salt Lake City Olympic Games 2002 that "sport can play a role in improving the lives of individuals, not only individuals, I might add, but whole communities. I am convinced that the time is right to build on that understanding to encourage governments, development agencies and communities to think how sport can be included more systematically in the plans to help children, particularly those living in the midst of poverty, disease and conflict."