Thursday, May 27, 2010

Soccernomics: World Cup - Part 1

Can hosting a World Cup - the world's most watched sporting event - be a good thing for a country's economy?  Most economists believe that investment in stadiums is a loosing proposition and it is easy to see why: the opportunity cost of hundreds of millions of dollars in infrastructure investment going to a large stadium that is used infrequently just seems preposterous.  Added to that is the fact that try as we might, we just can't find any evidence they the contribute in any significant way to growth.  As I have said here before, however, I think economists that assert confidently that this means the investments are losers are falling victim to the fallacy that lack of evidence for the positive is evidence for the negative.  I don't know if they are good or bad over their lifetimes, but I find it hard to believe they don't matter at all given how much our society loves sports.  Whether they matter enough to justify the cost is a different question.

But what about big giant sporting events like the World Cup or the Olympics?  These not only cost a lot in terms of stadia but also in other massive infrastructure investments.  It is hard not to think of all of the money Greece poured into the Athens Olympics when you look at their current fiscal crisis.  However, they do bring lots of exposure - but does 'exposure' really matter? It is hard to say overall, but I discovered two interesting little tidbits about such matters.

The first is that apparently events in developing countries bring bigger gains than in developed countries mostly through he fact that they force general transportation, communication and other infrastructure improvements that are strong determinants of growth - and otherwise tend to be underinvested in.

The second is that countries that stage such events tend to have a strong positive effect on trade.  But, it turns out, so do losing bidders for such events.  This suggests that there is a strong correlation between wanting to liberalize in trade and wanting to host such events - it makes sense that they would go hand in hand.

On a completely different note, I find it interesting that the sportswear maker Puma has gone heavily for the African teams, providing the uniforms for Algeria, Cameroon, Côte d'Ivoire and Ghana.  These are lower profile teams and are likely to be cheaper to sponsor, but it could be a masterstroke this year.  African teams are perennial under-achievers: super-telented but lacking in the strong team identity and discipline that is so crucial.  But being in Africa this year could change everything and I have a hunch it will.  In the past playing in your home country has proven to be a hugh boost.  And though South Africa are weak and unlikely to be able to leverage home country advantage too far, playing in Africa will still be a hugh motivation for other African teams.

There are some pretty great African teams out there and so following in the footsteps of my correct prediction that Spain would win the Euro 2008, I am going out on a limb and predicting that Côte d'Ivoire will wind the world cup - you heard it here first.  Allez Les Éléphants!

And just to get you in the mood for African football:

2 comments:

Jeff Alworth said...

Lots of folks predicting African teams to do well. I hope so--it would be cool to see them take it to the next level.

Torrid said...

Some random notes:

*I think the economic growth/benefit potential probably inversely relates to the amount of actual public investment that occurs, as opposed to private subsidy. Does the government entity own the property it paid for? What ancillary revenue streams go to the entity rather than the team owner (parking, concessions, etc)? What potential is there for events unaffiliated with the team (and thus presumably creating revenue for the entity rather than the team)? What steps are taken to insure created jobs are living wage jobs? I felt much of the negative attention on MLStoPDX based on the economic literature ignored many of these contingencies that may well set it apart from most of the empirical situations--downtown locating vs suburban and the related need for infrastructure being built (or not built), structure of public costs (general fund outlay vs bonding vs user fees), and other factors. While I won't dispute the generally unfavorable conclusions reached in most studies, there are a lot of variables I don't think were sufficiently controlled for in local analyses.

*I remember being captivated by Cameroon's team a few cups back, the first time I remember an African side really being given props and attention comparable to the big boys. It seems like since then, we're always looking for the next Cameroon...which nation will it be?

*I picked SA to draw their first match despite being likely outclassed. You'd better believe the team and crowd will be PUMPED.

*Great video ad, nice use of Gnarls Barkley. What's Zulu for "beautiful game?" :)