Viva FIFA
Monday, April 12, 2010
The most anticipated event of the year, the FIFA World Cup, is approaching. With 32 national teams competing in 64 matches this June and July in South Africa, the world has a good reason to slow down and enjoy the games.
While in the financial world investors are concerned with the sovereign-debt troubles of the PIIGS (Portugal, Italy, Ireland, Greece and Spain), most of these countries are indeed top contenders in the football world.
The PIIGS, excluding Ireland, currently rank 10th, 5th, 23rd, and 1st, respectively, in the likelihood of bringing home the iconic World Cup trophy. That trophy stands at 36.5 centimeters tall and weighs 5 kilograms. It is made of 18 carat or 75 percent gold.
It is worth mentioning that the melt value of the trophy has increased dramatically over time.
When the trophy was first presented at the 1974 World Cup to West German captain Franz Beckenbauer, gold was trading at US$155 (HK$1,209). The trophy's melt value was US$20,500.
Now that gold has been hovering at around US$1,100, the same trophy could be liquidated for more than US$145,000. That said, the World Cup has an overall estimated brand value of US$120 million for every day of the event.
Despite the champion being showered in glory and returning home to outpourings of national pride, the ultimate winner of the tournament is the Federation Internationale de Football Association or FIFA.
According to Citigroup economist Jean Francois Mercier, FIFA, the monopoly organizer, is the main beneficiary while the host nation always carries a disproportionate share of the cost burden.
Using the 2006 World Cup in Germany as an example, FIFA was responsible for the prize money, travel compensation for participating teams, and preparation costs.
The total expenses were roughly 222 million euros (HK$2.32 billion). FIFA's profit from television and marketing rights, in contrast, amounted to over 1.4 billion euros.
According to Forbes magazine, this year's World Cup is expected to top 2006 in terms of advertising and media revenues by as much as US$600 million. With FIFA pocketing most of the revenues, not much will be left for the South African economy.
Although the World Cup generally casts the host nation in a positive light, its economic impact tends to be minimal.
In 2006, Germany generated an extra 300 million euros from tourism and 2 billion euros from retail sales during the tournament. Its infrastructure spending in preparation for the competition, on the other hand, was 3.7 billion euros.
If history provides a hint, the result this year will be somewhat similar in South Africa.
The economic benefit of the event for the host country will probably be small, but the intangible benefits, such as increased levels of tourism through an enhanced national image, could be enormous.
According to the International Monetary Fund journal, hosting a mega event such as the World Cup mainly sends a signal that a country is serious about opening up for trade and entering the world stage.
With an expected 450,000 visitors to join the World Cup frenzy, South Africa has spent an estimated 33 billion South African rand (HK$35.29 billion) on infrastructure for the tournament. Most of the spending has gone into building five new stadiums and upgrading five existing stadiums.
Other spending has included airport expansion, extra lanes on highways, and minor fix-ups such as streetlights and so forth.
Yet, this spending has been relatively insignificant as the government already has a 846 billion rand budget for infrastructure projects to be completed over the next few years.
The World Cup spending could be seen merely as a way of accelerating at least some existing projects.
Economists have predicted that South Africa will add only an extra 0.5 percent growth to its GDP due to the World Cup in the second quarter, followed by a slight dip in the third quarter.
Nevertheless, with the global economy gradually recovering, investors may soon set aside their concerns with the PIIGS as long as these teams put on a good show at the World Cup. Viva la FIFA!
Ronald Chan is the founder and chief executive of Chartwell Capital, a private investment company.
E-mail: ronald@chartwell- capital.com.hk
posted @ 8:45 AM,
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