With the economic recovery apparently well underway, the brain trust at Goldman Sachs must have a lot of time on its hands.
How else do you explain the world’s most profitable bank undertaking a full-fledged study about the impact of the World Cup on the global economy?
After all the bad ink the company has gotten of late, Goldman may be trying to soften its mercenary image. With these guys, however, it’s hard to know. But if history is a guide, Goldman never does anything that doesn’t fatten its bottom line.
Goldman’s study – this is the fourth edition – actually finds a correlation between a nation’s economic development and its global rankings by FIFA (Association Fédération Internationale de Football), the international governing body of soccer. The Goldman study results also make a strong statement about the global economics of competition.
Brazil, a Promising Future
The New York-based investment bank, best known for it making a killing on any variety of “creative” financial instruments, developed a matrix of so-called Growth Environment Scores (GES) to match up a country’s FIFA ranking with its potential for sustained economic success. The GES variables include political, economic and social factors like the rule of law, corruption, the number of computers and mobile phones in a country, and debt.
Goldman found a solid connection between improvements in GES scores over the past four years and a rise in FIFA rankings. For example, the North African nation of Algeria showed a steady GES improvement over the past four years. Since the 2006 World Cup tournament held in Germany, Algeria has moved from 80 in the FIFA rankings ladder to as high as 27 just prior to the opening of the quadrennial competition in South Africa.
Brazil has won the World Cup more than any other nation, and is among the favorites again this year. Although kings of Samba are perennial favorites, according to the Goldman, Brazil’s GES demonstrates that it is a country poised for even greater economic growth.
The guys at Goldman were not the only ones to take a serious look at the possible economic impact of the World Cup. British economists associated with the government are banking on a World Cup bounce, when beer sales rocket, shoppers hit gobble up fan memorabilia and home viewers reach for take-out menus.
England’s World Cup participation is expected to provide a revenue boost of between $2 billion and $3 billion through the summer months. Among the biggest winners will be pubs and clubs showing matches on big screens, and food delivery businesses for those fans watching at home. Predictors show that for each week Britain survives in the tournament, the industry will generate an additional $250 million in sales.
In England, as well as other European countries, bars are a hugely popular venue for large groups to watch soccer matches. Because of the slight time differential with South Africa, Brits along with other European soccer fans from the Netherlands and Germany to Italy and even the tiny Alpine nation of Slovenia – all of whom have national teams in the tournament — will be able to watch games from the mid-afternoon through the evening.
Why Not Go on Holiday?
Studies have estimated that about 80 percent of the world's population will watch the games at some point. More than 3 million soccer fans are expected to attend the games. Billions more will watch the action on television or on the Internet, with more than 800 million expected to watch the title game.
Those eyeballs have attracted big advertisers who are estimated to spend more than $2 billion to promote their wares. Many of the sponsors are American companies. U.S. sponsors inclu’de the usual suspects like Coca-Cola, McDonalds and Nike. Other American entries are Visa, Budweiser and Castro Oil.
While most Americans are intimately familiar with international entries like Sony or Adidas, most have never heard of Brazilian food maker Seara or Mohindra Satyam, an Indian conglomerate engaged in everything from aerospace and industrial chemicals to semiconductors and banking. Like their American counterparts, they’re hoping that associating themselves with the largest and most watched sporting event on the planet will boost their fortunes.
On the flip side, many economists are focused on the negative impact the World Cup has on productivity. In many countries, matches are televised during the most critical productive hours of the day. This is particularly true for countries in Central Asia and the Western Hemisphere.
Although many of the start times for viewers in the west occur during the wee hours of the morning, an enormous bulk of the games are televised during the heart of the workday. A 6:30 p.m. game in Johannesburg is televised at 9:30 a.m. in San Francisco and 12:30 in Boston.
The World Cup will likely cost American companies 14 minutes of productivity a day for 21 days, according to the outplacement company of Challenger, Gray & Christmas. That comes to about $160 million in lost productivity in the U.S.
But for real pain, one has to look no further than south of the border or across the sea. Estimates from England predict that the World Cup will cost the British economy about $9.36 billion in productivity. That is, if British workers just check the games out for an hour every day.
There are no accurate estimates on productivity loss from Mexico or Latin America. Workers in those regions, however, are no less passionate about the sport. Frequently, labor unions in Brazil, Venezuela and Colombia negotiate special exceptions for absences during World Cup play. Most managers realize that to do otherwise would cause unnecessary friction. Most are only happy to go along because they generally are just as enraptured by the constant coverage as their underlings.
Then there is the hangover and sleep deprivation factor. Most Americans ascribe to the unwritten rule that a game is not worth watching unless it’s enjoyed with your mates and a few cold ones. With matches happening everyday for a month, managers from Cairo to Caracas expect increasing numbers of bleary-eyed employees fighting off the effects of their game revelry from the previous evening. During past World Cups, economists have reported productivity sags up to 20 percent. Sleep deficits combined with a lingering liquored haze also lead to a climb in work-related absences and injuries.
For South Africa, once a pariah because of apartheid, the chance to shine is incalculable. The nation has spent billions to create state-of-the-art venues to host the games. During the height of the recession, building projects employed an estimated 695,000 South Africans.
With the global economy still in a funk, it is unclear whether South Africa will attract as many foreign visitors as Germany in 2006 or South Korea and Japan in 2002. Situated at the southern tip of Africa, getting there is neither easy nor cheap. But most economists believe that for South Africans, the chance to show the world the beauty of their country and their ability to handle the enormity of such an event will give them a lift that could lead to a new era of prosperity.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
