The Financial System That Keeps The World Cup Going

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This article first appeared in my weekly column in the Business Daily on July 15, 2018

The last few weeks have been dominated by the FIFA World Cup with fans all over the world tuning in to support their teams and catch all the action. What many may not know is the size of the World Cup economy and the financial ecosystem that keeps it running.

The first element of cost of the World Cup is paid by the host nation. Russian media reports indicate that the total cost of hosting the event is over USD 10 billion. Interestingly, this is USD 5 billion less than the cost of the 2014 World Cup in Brazil. There are differing views as to whether investment in hosting the World Cup generates financial returns for the host economy. A study on FIFA World Cups indicated it has varied impacts on host country stock markets. In the case of South Africa, the tournament announcement date was linked to a largely positive trend on stock returns. However, in Japan there was a decline in daily stock returns a day after the announcement of the tournament.

Gianni Infantino

(source: https://www.businessdailyafrica.com/analysis/ideas/Financial-system-that-keeps-the-World-Cup-tournament-running/4259414-4664084-121ir1pz/index.html)

Further, some economists assert that no observable short-term economic growth linked to the World Cup exists within the tourism, retailing, accommodation, and employment sectors of host countries. Others insist that the World Cup can boost tourism, retailing, accommodation, and employment because of the novelty effect of new stadiums, the feel-good effect, and the Cup’s effect on the international perception of a host country. While not all factors affect every host nation to equal degrees, the World Cup as a whole, can turn out to be positive.

In the case of Russia in particular, Moody’s is of the view that the World Cup will have limited impact on rated Russian companies, including banks, regional governments, and the sovereign itself. They argue the economic benefit will be short-lived because much of the economic gain has already been attained through infrastructure spending, and even that impact is limited because World Cup-related investments in the 2013-17 period have accounted for only 1 percent of total investments in Russia. They argue that the games will last just one month and the associated economic stimulus will pale in comparison to the size of Russia’s USD 1.3 trillion economy.

Image result for russia world cup stadiums

(source: https://www.footyheadlines.com/2018/04/all-russia-2018-world-cup-stadiums.html)

The second component is the cost of a ticket to attend the games. Here records have been broken because for the first time at a FIFA World Cup, some tickets will cost more than USD 1,000. CNN reports that fans will have to pay at least USD 1,100 for the most expensive ticket at the final, an increase from the USD 990 charged at the last World Cup final held in Brazil. The cheapest tickets for non-Russian fans will cost USD 105, a USD 15 increase on the equivalent ticket in 2014.

The third element is payments made to participating teams. FIFA announced they have allocated USD 791 million for prize money, payments to clubs and player insurance fees as part of the World Cup. USD 400 million will be awarded to 32 national federations depending to how they finish in the tournament and the FIFA World Cup 2018 winners will pocket USD 38 million.

In short, either way you look at it, the World Cup speaks money, and this is likely to only amplify over time.

Anzetse Were is a development economist, anzetsew@gmail.com

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