The Economics of the World Cup

The month-long excitement of the World Cup has winded down, Spain emerging as the winner in an intense game played on Sunday. Throughout the month, various blogs I follow have posted on a variety of issues concerning the games, and I thought I would highlight some of them here.

First off, Footnoted posted an article talking about how the World Cup affected a variety of businesses:

The Associated Press published an article reporting that after Italian auto workers were told they couldn’t watch a match on company time, they went on strike a half hour before the game started. It also reported that business in Brazil ‘basically shuts down when its team plays,’ and that Germany lost an estimated $8 billion in national productivity because citizens were glued to the games.

The article also mentions some companies that were able to make money during the games, including Nike and Coca-Cola. Nike isn’t a big surprise considering all the merchandise fans bought and sponsorship of the players’ gear; neither is Coca-Cola.

A second, unrelated to the above, article about the World Cup that I enjoyed came from Jodi over at Economist Do It With Models. In it she performs a cost-benefit analysis to argue the case that FIFA should have extra referees at each match, specifically behind each goal post. You should check out the link if you want to read more; it’s an interesting thought process.

The third thing I wanted to post about is an infographic that comes from Mint blog. It was originally posted before the games began, so some of the numbers are estimates, but I still think it’s an interesting way of laying out a general picture of the economics of the World Cup. Click the image below to see the infographic full size.

One final note on the World Cup: Readers, I’m curious. Did you watch any of the World Cup? Any thoughts, economics-related or otherwise?

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4 Comments »

 
  • Watched no games, but wonder if auto repair shops saw an uptick in broken horns following last weekend. :-)

  • Joao Pedro Afonso says:

    Hi Allison! Here, me, neither. But I’m a kind of pariah here in that aspect… even my father (usually a very quite and non-football person) was irritated with me when I asked him what he was watching (he was watching the first game of our selection… I had no idea the world cup had already started).

    Well, it’s over. Spain won, our ill-loved neighbors. The feelings here are mixed: on one side we can now say that we were eliminated at the eight-finals only by the champions, on the other, rivalries are old and many wouldn’t have mind seeing the Dutch winning (I don’t know why, since historically the Dutch were much more effective as OUR enemies than the Spanish). To compound everything, this happen very much in the onset of a serious economical attrition between some of our biggest companies (Telefonica versus PT, about a joint-venture, with the former wanting to take-over from the later; first time a golden share was used in my country).

    About your post, some thoughts. It is not unusual to find studies about lost productivity when this kind of events happens. The natural question would be then, why governments are interested at all. Wouldn’t be better then to ensure the non-participation on these events?

    I’ll refrain from giving my comments about this even because I tend to exaggerate on their extension. Enough to say for a first provocation, the accounting of losses are done by the same economic view that failed to deal with the “blood donor” issue you so well exposed to us, some posts ago. On another distinct direction and accepting the reality of those losses, high level football (or soccer as you call in your land) demand such level of professionalism and investment, that we can honestly suspect they are the sign of either very fanatical societies or wealthy ones enough to bet on it… money brings or maintains the best ones, and these elevates the national championships levels with influence in the national selections games; the intriguing thought that extends from here is that, being a general mechanism, I can conjectured if they are not a constant factor in level down the successful in order to avoid that they became too much different or powerful in relation to their partners. I kind of Success breeds bread and circuses… have you ever read Azimov’s foundation novels?

    About the cost analysis, it was pertinent but I was surprised it was done over the suggestion of extra referees. Of course, that way, the suggestion is condemned to failure. I think the value of the post is more in the illustration how to do accounts: measures which must be implemented always against am occasional loss. So each wrong-doing resolved would came at the cost of the measures in several games… Of course, once accepted the cost, the more likely would be some exaggeration of what it would prevent in order to support those who profit with the measure. We are talking about the cost of extra referees, but there are now helpers to the referee called line fiscals (not sure the exact name in English) would could probably take very well that mission… and seeing in retrospect, what if they are not justified by a correct cost analysis too? But they are part of the game now. Maybe that’s what is happening with the counter-terrorist paranoia now… who knows if they are not doing more evil than good? However, is unlikely that will ever be asserted because the ones with the data enough to do that cost analysis are partial to the results.

    But what surprises me most is that, there is some who had the time and trouble to launch that idea (contested, it appears, By Jodi), clearly condemned to failure, when there is obvious cheaper solutions: Technology! The truth I see, is, this is only a problem in the exact measure that private of civil actors are now able to judge the game events better than the referee. The referee judges and soon, we have someone looking to a screen, looking for a slow-motion replay of the event judged. Usually they are the assisting TV reporters, who happens to be there under straight relations with the game organizers… so why not ask an “hand” to them? That judge work is already been done. Games are lost and won by moods, but no one would be terribly affected if the decisions would be confirmed or corrected with a delay of minutes. The same movement that indeed pressure referees to do a better job offers also the tools for them to do a better job.

    And this is only one of several alternatives possible. Another could be to tag players and ball alike, in a manner that could automatically confirm game positional issues (out-of-game rule, goal, corner, out,…). A system like this could be payed by simple dismissal of the line judges, unnecessary after that.

    • Allison Guerny says:

      I completely agree with you that technology would be a very good solution in this situation. The only problem I would see with this is because the clock during a game never stops, a delay of minutes, or even seconds, could be a problem. (Although I’m no expert, seeing as I only just watched my first football game during this World Cup, so I could be wrong.) I’m curious though to try and think of ways it might eventually be implemented.

      “The natural question would be then, why governments are interested at all. Wouldn’t be better then to ensure the non-participation on these events?”

      That’s an interesting point concerning the countries that participate, and leads me to another thought concerning the hosting country. I know during the bidding process of figuring out who will host the games, there’s always a big competition and governments boast the economic benefits that will accompany hosting. But recently I’ve read a number of articles talking about how countries usually end up losing money when hosting big events like these and there’s really no long-term benefits. Why then do the countries fight so hard for the “privilege” of hosting the games, other than the world-wide recognition it brings? It’s quite baffling.

      To answer your question, I have not read any of the Foundation series, but I will check it out. Thanks!

      • Joao Pedro Afonso says:

        Delays of seconds or minutes is not really a problem. If you looked closely in the TV games, you’ll note there is a period after the official game time, when it is still on. That’s the discount time, compensating the time the referee took for the decisions he had to take. It’s always some minutes and are negligible face to the rest. In tournament or games for points, the game usually ends there, but in championship games played by payoffs which filter the teams for the next ones, the game will be extend easily with one more half-hour, and a series of penalties after that if the first doesn’t work. Time is not an issue them. You can even consider unexpected benefices from more time like that, like time for advertising. Actually, that’s one of the differences some use to explain why soccer is a step-child in the America, face to American football. With more (systematic) interruptions, the last offers more opportunities for TV ADs.

        I guess the true reason is that, the ways things are now, it works (most of the time) and it is cheap and universal. Any place who wants to organize games only have to find people to make a referee team, and with more than six billion people around, that must be the least scarce material of all. Referees have all the power and encouragement to take fast decisions because the other way will stop games (there will be always ambiguous situations where no fair decision will be possible). They can err, but if it’s perceived as a purposed error, they can be killed too. Football is a very emotional game, with consequences so dramatic that can extend to riots and war (there was one at least, catalyzed by a football match).

        (hmmm… I bet Jodi didn’t took that in consideration when she did her cost analysis)

        What I’m trying to say is that, there is strong selective forces pressuring the referees to do a good job. Some errors are bound to happen but for the sake of playability (and considering their random nature, that will average the injustices to zero at the long run), they are accepted. To introduce profound changes or technological solutions not available to everyone, is to risk to shatter its universality or popular availability.

        Saying that, is also true that only on death match games (playoffs), one error became crucial. So we could consider the introduction of such measures only on those. These are also the more dramatic games, more prone to attract people and to monetize the costs of those extra measures.

        —-

        Regarding the questions that baffle us, I’ll insist in your “blood donor” post as an example of something economical counter-intuitive that escapes orthodox analysis: likely some of those studies was also done under the some optic and maybe commit the same “errors”. Worst, maybe they are right because people do believe in them, particularly if that means it spells other people were wrong. I’ll explain: It is clear that construction companies have a direct interest into these events and will lobby for them. There is here a private greed motive that should spring the public governance to caution, but then, the later can also question about the cost of not supporting them in the end of a construction cycle. Whichever they choose, however, it must be understand that such project will not end with the event itself. These are huge investments which must be maintained through their life and likely must be made profitable with other initiatives. I can give you one example of success in my country: we bid and received the Expo 98 (1998 Lisbon World Exposition) to commemorate 500 years of Portuguese Discoveries. While others before and after that were not financial successes, this one was, because it was done considering its impact at long term. One big depleted part of Lisbon was remodeled and used as an anchor for what became a modern and attractive premium real state part, infrastructures were build and now serve millions, the local still attract millions of tourists each year.

        Now a story of a “failure”: after that, we won the organization of the Euro 2004. If you go to the Wikipedia, you’ll see that 10 stadiums were build new or renewed, it was consider the best Euro ever by UEFA, and ourselves, we reach the finals. I can attest you the wide support and national elation that come from it (unlike the Americans, we are not very prone to show off our national flag, but now you see a flag here and there once for a while… all from that time). However, if you ask about the Euro 2004 today, the picture you’ll receive is none other than, money badly spent, new rich gesture, sport clubs at the brink of bankruptcy without money to serve or pay the stadiums built, “why they had to build so many?”, and an example of bad and wasteful management. I’m almost sure this is one of the bad examples in the studies you refer.

        I can point you a crucial difference between these two cases. In the first, a State company was formed explicitly to manage the event and his assets, in a permanent basis (the company still exists and profits). Companies are like organisms who want to survive, and this one was no exception. Also, the event had no clear politic parenthood. Lisbon and national government were from different rival political colors, cooperation was needed, there was stability of objectives for that company operate and the result was good. But in the case of the Euro, the parenthood was clearly assigned to a govern. There was purpose into distribute it through the country, to boost it, but I get the impression that this lead to a multiplication of ill-prepared powers, to accommodate all the owners of the Euro assets. And to finalize all, when the Euro was happening, we were having already a different government, which appeared to me to be more interested to show how the previous one was worst and a big spender (presenting the Euro as example of that).

        What I want to say to you with this is that, it is possible that the Euro was a perceived failure (I didn’t found numbers, unfortunately) because there was no political will to saw it succeeding in the long term. With some care, because I’m basing only in one example, it is possible that same of your referred big events that fare badly in financial terms, do so because there is no political will to continue the perceived work of rivals. And having studies saying they are a loss of money is pretty convenient to them to feel justified in not doing anything more. This is a little cynical, but I sincerely feel it might have be a possibility in some of those cases.

        (so why they are so wanted and why so many fail? The answer is pretty the same: they are wanted because they became emblems of the party regime, they fail because the next rivals to be in power will not want that to happen… that’s a killer for projects that need a long time to get even)

        —-

        The foundation books are known for having introduced to the grand public the concept of psycho-history, the idea of an human history governed by math laws, in the same way statistical physics are able to translate the actions of individual particles into the laws of thermodynamics (you might feel amused to know there is here more than one analogy with thermodynamics: its laws are usually static, defined in an equilibrium state; in the same way, history – and likewise, the more basic Economy discipline – is able to describe historical human setups, but not feel very comfortable into predicting their evolution; in history things happen, in psycho-history things are statistically bond to happen, in thermodynamics you can see when two systems are not in equilibrium, in non-equilibrium statistical physics… well… I’m not really sure we got there yet).

        The foundation books are golden age science fiction books, and you might not like their prose (a little dry, for our times). There is also some serious speculative works around it (some years ago, Analog published a series of articles about it), and cherry in the top, I read today that “Paul Krugman, credits the Foundation series with turning his mind to economics”.

 

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