08 JUN

2018

Assessing the potential economic impact of the World Cup

With us now only one week away from the opening game, Russia seems to be ready for the start of the 2018 World Cup. Although it is difficult to get a clear view on the true economic gain for the country, an assessment of previous competitions might give investors some insight.

There can be multiple benefits for countries organising the World Cup, one of the largest sports events in the world. Political leaders believe that investment results in both short-term and long-term economic gains, an invaluable global image campaign and a positive branding effect (supportive of tourism and business activity).

It is nevertheless difficult to measure the long-term economic benefits of world sports events for the organising country. The short-term impact can be measured more precisely, taking into account the overall financial impulse, additional spending on accommodation and, in the retail industry, the direct tax income from ticketing, players’ fees and profit, and the positive impact of additional employment in the months preceding the tournament and during the event itself.


The first time ever in Russia

The upcoming World Cup in Russia will be one of the most expensive in the history of the tournament. A close examination gives us an estimated cost of almost USD 13 billion, of which 70% is covered by public budgets. Of this 13bn, more than USD 4bn has been invested in sports infrastructure (stadiums) and almost USD 7bn on transport improvement (upgrading of major airports, highways and safety measures).

These investments, which have been allocated evenly in recent years (from 2013), and the World Cup itself, will have a short-term impact on the Russian economy in the second and third quarters of this year. The economy will benefit from temporary job growth and increased consumption from the 3.5 million people that have bought tickets for the matches. Previous tournaments show that World Cup visitors spend up to twice as much as “ordinary” tourists on accommodation, food & beverages and other items. In Brazil, during the World Cup of 2014, at stadium concessions, FIFA registered more than 800,000 food servings, more than 3 million units of beer, 2 million of soft drinks and nearly 750,000 snacks.

The estimated additional economic gain for Russia is around 0.2%-0.3% of annual GDP growth in 2018. This seems to be in line with previous World Cups. The short-term economic gain for Brazil was estimated at between 0.2% and 0.7% of total GDP, even though official figures have yet to be reported, while, according to KPMG, South Africa GDP grew by an additional 0.5% in 2010 thanks to the World Cup.


The long-term gain

Estimating the potential long-term gain is more difficult. Russia is quite optimistic, though, taking into account the projected growth in tourism in the years after the World Cup, the subsequent effects of government investments and even the greater number of Russians taking more exercise (thanks to improved sports facilities) and thus fewer sick days. A report on the expected economic impact of the World Cup on the Russian economy cites a boost to the country’s GDP of nearly USD 31 billion over the 10 years from 2013 through to 2023, or around 2% of the total GDP. Although it is difficult to say whether these predictions are realistic, it is clear that the World Cup will bring Russia a better sports infrastructure, better public transport and potentially higher international tourist visits in the years following the Cup thanks to an improved international reputation.


Russia: a questionable economic profile

One of the most expensive World Cups ever has resulted in a newly built and upgraded infrastructure, such as roads and airports, bringing about a welcome diversification of the economy from traditional pillars such as fuel and mining. Unfortunately for the Russians,the country of Yashin, Blokhin and Belanov[**], the economy is about more than just taking the short-term benefits from hosting world sports events. The Russian economy remains highly dependent on oil & gas prices and exports, whose decline of recent years only came to a halt in late 2016. In addition, the international economic sanctions imposed by the West, mainly the US and the EU, in response to the annexation of Crimea in 2014, hurt economic growth, as the share of Russia’s oil & gas product exports fell from 65% in 2014 to 55% in 2017.

Real GDP growth, estimated at ‘only’ 2% for 2017, should remain below, but close to, this figure in 2018 and 2019. Although higher oil prices are clearly supportive of the economy, further US or EU sanctions, geopolitical risks and dependency on commodity exports are too important to be casually dribbled around with the outside of the foot and justify a cautious view on Russian assets.


[*]In football, a "hat trick" is when a player scores 3 goals in one match.
[**] Russian (former USSR) footballing legends.