Thursday, July 08, 2010

The Economic Effects of the 2010 World Cup

The 19th World Cup has captivated the hearts and minds of people all over the world. In America, the games have drawn the attention of sports lovers – like myself – as well as millions of Americans simply curious about the hype. In fact, the viewership of the first four games this year was double what it was for the last World Cup, which took place four years ago.

Although it is fun to watch the game, and root for your favorite teams, I could not help but wonder about the economic affect of the World Cup on both its host country as well as the rest of the world.

South Africa's Downturn

Unfortunately the FIFA World Cup is being hosted by South Africa while the country is experiencing their first economic downturn in seventeen years. When first proposed, many South Africans were hopeful that their economy would see a boost from both the symbolism of hosting the world wide sporting event, as well as the visitors it would bring. However, many experts warned that this was wishful thinking, and that sporting events have a tendency to harm the economies that support them, often for the long term. Not only does the preparation that goes into hosting a massive sporting event cost the hosting government, but also local businesses often lose loyal customers when crowds take over.

New Infrastructure = New Jobs

The creation of new infrastructure to support the World Cup did create hundreds of jobs in South Africa, although many were only temporary. In order to satisfy FIFA officials, South Africa was required to refurbish or build 10 new soccer stadiums in time for the World Cup. They also had to repair highways, and take actions to increase security, specifically in the area of transportation. While the stadiums were costly and the construction efforts were not cheap, these buildings will remain for years to come and ideally bringing additional revenue to the country.

However, Beijing was expecting to reap the economic benefits for years to come after hosting the 2008 Olympics and is now suffering what experts refer to as “post-Olympic blues,” due to the lack of long-term revenue from their significant investment. It is unclear if South Africa will experience the same problem or not, as the amount of money spent to host the World Cup was not on the same level as the investment Bejing made to host the Olympics.

Increased Tourism, Economic Troubles

Many tourist related businesses, such as hotel chains are profiting off of the huge increase in visitors to South Africa because of the World Cup. However, these tourists will leave once the games are over, and many other local businesses are not as lucky. According to reports, some service based industries offering local services have seen an 80-90% decrease in business since the World Cup began.

Long-Term Implications

In order to reap the long-term benefits of hosting the World Cup, South Africa will need to use the opportunity as a launching pad for an ongoing increase in tourism. Sydney was able to successfully use their hosting of the 2000 Olympics as a world wide branding opportunity, which resulted in significant tourism increases. It is too soon to see what the long-term implications of the World Cup will be on South Africa’s economy, but they do have a significant opportunity to benefit from the costly sporting event.

Benefit to U.S Businesses

Although the World Cup was held outside the United States, it is an International sporting event that millions of Americans are following closely. Therefore, many American businesses have used the opportunity to benefit from the interest in the games. Local bars, restaurants, and casinos across the country are hosting viewing parties, and many larger corporations have also been able to benefit from the World Cup. For example, Jack in the Box offered a customizable “Jack” antenna ball, allowing customers to outfit Jack with a sweatband to show support for a country playing in the World Cup. This small promotion brought additional revenue to the company’s thousands of franchised locations.

World Economy

Unfortunately, financial experts are split on their predictions regarding the impact of the World Cup on the global economy. An analysis of the world markets during and after the previous 18 World Cups shows that stocks declined during the games, and once again in the few months following their conclusion. However, the global economy is showing some signs of recovery from the banking and financial crisis, and it is too early to tell if the World Cup will slow down the recovery or not.

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