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In the wake of a report by Goldman Sachs on the World Cup’s impact on business, experts Jim O’Neill, Goldman Sachs’ head of global research and a former Man United director (top left) and David Owen, FT sport editor answer readers’ questions on the economics of football.
How will the World Cup affect the German economy as a whole, and what is the total volume of services that the tournament will render in revenue terms?
Kofi Ansah, Ghana
Jim O’Neill: I think the World Cup build up is likely to be more beneficial to the German economy, i.e. in the build up, rather than afterwards. Past history suggests the same especially for host countries where there are efforts to rebuild stadia, ensure major cities have the appropriate transport facilities, etc, etc. Afterwards, these factors fade, and sometimes, budgetary constraints actually cause pressures for spending to slow/reverse.
David Owen: Many people are hoping that the World Cup will provide a much-needed boost to consumer spending in Germany - but much may depend on how the host nation performs. Estimates suggest the competition may boost German GDP (currently slightly over euros2,000bn) by up to 0.3 per cent.
I would like to know how much do companies spend on promotion/advertisement within the worldcup: i.e. Adidas producing the game ball. What are companies’ expenses, ROI, etc? Secondly, it would be interesting to know how teams are sponsored, and the difference in budgets between a top-notch team, compared to a weaker team: i.e. - Brazil or Italy as compared to Trinidad and Tobago or Australia
David Owen: Equipment manufacturers tend to keep a fairly tight lid on such figures. What we do know is that adidas’s deal to be fifa’s official sports equipment supplier for eight years from 2007 is valued at $351m. $215m of this is cash and $136m value-in-kind services. We also know the company hopes to sell 15m of this year’s world cup footballs, ranging from mini-balls to the full match ball.
Once again, comparative budgets are hard to assess, as there are no club-style shirt sponsorship deals and national associations are not always the most transparent bodies. However, fifa contributes sfr1m towards the preparations of each finalist, so it is a fair bet even the smaller teams will spend at least that much. All 32 teams will also get at least sfr6m for appearing in the tournament in their three group games.
The business of football in England has enjoyed excellent growth over the past decade and a half. But every business has a product life cycle. Would England winning the world cup bring the business of English Football to its product life cycle peak or would it fuel further growth in the industry that is football?
David Dunn, Liverpool
Jim O’Neill: The past 15 years has indeed been tremendously bullish for British football, and in this regard, last week’s new deal for televised football in Britain was extremely positive for the Premier League, and this will not start until 2007. It may attract more top foreign players here as they may attract even higher rewards, as well as possibly attracting more top global businessmen to invest. Inherently, the value of owning a British club has probably just risen. Your point about cycles is well made, but in this case, it seems to have long duration potential.
David Owen: It might bring the English team to a life cycle peak, but it would undoubtedly fuel further growth in the UK industry. This is because England players spend most of their time playing for clubs and more people would want to watch them.
Will the stock markets across the globe register lower trading activity from private investors as along as the World Cup is in play?
Edmund Langal, Oslo, Norway
Jim O’Neill: Trading volumes in equities, and indeed in many financial products are likely to be variable through the tournament, depending on which day, which team. For example, if England play Germany or Argentina, you can bet that not too many males will be focusing on equity trading in either nation if the kick off coincides with their local trading hours. On the other hand, if Germany play Argentina, less British people will be quite as obsessed in watching it live.
David Owen: I very much doubt it. Even if turnover were marginally affected during a particularly exciting/significant game, it might pick up again with the post-match euphoria.
Is there any correlation between stock market performance and prowess on the pitch?
Jim O’Neill: Only indirectly via the performance of the economies. I suspect that stock markets are good predictors of economic growth and rather better at it than vice versa. Also, I suspect that host countries often see their economies do well in anticipation of the world cup being hosted, and then more often than not, suffer “hangovers” afterwards, quite like some past winners. The English experience in 1966 and the pound’s devaluation in 1967 maybe an unfortunate illustration!
How significant were the previous world cups for sportswear manufacturers in increasing their annual sales? Does the number of annual leaves during any single World Cup go up comparing to the same month during non-cup years? Are the volumes at stock markets effected by the shift of interest away from a business side of life during any single world cup?
David Owen: As one of the world’s leading sports events (along with the olympics), world cups are highly significant in driving sports manufacturers’ annual sales. Though sales of some products (ie balls and replica shirts) do tend to cluster around the tournament, world cups are at least as significant for helping to create the stars that companies then sign for product endorsements. That’s why the sales of, say, Adidas, tend to rise in relatively smooth annual increments rather than being tied unduly to years when big sports events take place.
I don’t have figures on annual leave, but I’d be surprised if the world cup had much impact. it takes place virtually in the holiday season anyway and it makes little difference whether people holiday in football stadiums or on the beach. I strongly suspect that the tournament will trigger some big ‘spikes’ in the number of sickies taken by employees however. The semi-finals, for example, are in midweek and will be played in the afternoon american time.
As a true England fan, I’m really disappointed you’re advising clients not to back England. Is your advice based on the available odds being unattractive/expensive, or do you really not think they have a chance of winning?
David Howard, London
Jim O’Neill: Odds too expensive, and greatly influenced, I suspect, by the British desire to have a punt and support the home team. Interesting to have seen them widen out with Rooney’s problems, which is realistic. I think England have a better chance than for quite some time, especially with it being in the same time zone and continent, but Italy, Germany, Brazil and Argentina are all very good.
Who are the footballing equivalents of the Brics (Brazil/Russia/India/China) and why?
Andrew Miller, UK
Jim O’Neill: Historically, the equivalent are Brazil, Germany, Italy and Argentina, simply because of their domination and success. In the long past, Uruguay would dispute that, saying they have more right than Argentina, but i shall leave that argument to them!! These countries have been the most successful and therefore dominant. there is no “bric like equivalent” although if one wanted to seriously compare the brics-type impact, one might want to think of the african teams, who have the same promise as the brics economies, but seem to be some way of delivering in the same way the brics economies are doing! The Koreans and the Mexicans might argue they should be “brics” in both football and economic matters!!
David Owen: If you mean those countries capable of establishing themselves quasi-permanently among the sport’s euro-south american elite over the next 20-30 years, I would say the footballing ‘brics’ include: Turkey, Russia, the US, Nigeria and Korea (especially if the country somehow becomes unified). that makes them the ‘trunks’!
I remember Goldman’s two previous reports in 1998 and 2002. Your record in football forecasting seems inconsistent - is this a bit of fun or do you aspire to as high a standard in football forecasting as you show in economic predictiions?
Jim O’Neill: In 1998, we did extremely well, predicting 3 of the 4 semi finalists, including one big outside, Croatia. In 2002, we fared less well, which I put down to the asian factor and the problems facing the non-asians acclimatising! We would like our track record to be just as good and consistent in football forecasts as economics, although of course, our main motive is to provide some fun!!
I am a currency trader. I have been pondering for over a month what effect the world cup will have on the value of the euro especially against the sterling. I am thinking of going long eur/gbp at this stage and hold it till the end of the world cup. Apart from the world cup - interested rate expectation in the euro i believe is higher than for sterling and the fundamentals are better than that of the sterling. I want to believe it is a win win situation.
David Owen: In purely footballing terms, your main downside risk is if England perform surprisingly well in Germany - or conversely, if Germany, France and Italy fare so badly that the biggest EU economies are plunged into gloom and despondancy. Then again, there are myriad other factors that affect the currency markets, even at world cup time.
How many clients took the trouble to nominate players for Goldman Sachs’ ‘Dream Team’ and what does this tell you about the level of interest in football?
Jim O’Neill: We had close to 2100 clients (and GS staff) voting for the team, which was fantastic fun. Some names switched around from time to time, although the longer it went on, the more “populist” it became. If I were the Real Madrid marketing strategy people, I would have been very pleased with these results as it supports their strategy. I think “true” football supporters might not have been so eager to vote for some of the names that appeared. In many ways, the team tells you about the power of “branding” and supports the idea of a strong link between business and success in modern soccer, or at least perceptions of.
Both F1 racing and World Cup are extremely exiting games. What, in your opinion, are the different business impact between F1 and World Cup?
David Owen: One difference is in timing: the world cup (the finals, anyway) come once every four years for a month of concentrated (and, the organisers hope, growing) excitement; F1 happens, broadly, every two weeks for about three-quarters of the year every year. Another difference is geographic focus: a world cup is centred on a narrow geographic region; F1 spans the globe every year.
China has been the global economic story of the past five or 10 years. When do you expect China to emerge as a footballing power?
Jim O’Neill: I think it will probably take the Chinese quite a long time to become as powerful on the pitch as off it! A really good thing from a chinese perspective might be to use some of their vast resources to “buy into” top European teams and to develop local feeder clubs, Manchester United Beijing, or Juventus Shanghai, etc. this might allow the development to happen quicker!
If footballing success is linked to economic performance, why has the US never won the World Cup, and why is South Korea priced at 150-1 to win this year’s tournament?
Jim O’Neill: I am not sure there is a strong linkage, as I argue in the article. There appears to be pretty good evidence of a strong regional relationship but not at all clear globally. In Europe and South America, the biggest and richest economies seem to be the best at football, but on a global basis, it is not clear. In past decade, maybe the evidence is rising, judging by the improved performance of the US (fifa ranked 4th ) and South Korea (semi finalists in 2002).
Will globalisation see the power of football’s elite being cemented?
Jim O’Neill: For some but not all, I think globalisation is fantastic for Europe’s top club sides, Manchester United, Real Madrid, Juventus etc, but it is not clear that globalization is important for national teams.
As a Manchester United fan, were you surprised that David Beckham selected Gary Neville in his ‘Dream Team’ but not Pele?
Jim O’Neill: Of course not, I was a bit more surprised that Becks didn’t include Roy Keane! I would feel for David next time he happens to be in Glasgow or Cork!!