Does the World Cup Stunt Economic Growth?

New research suggests the World Cup may stunt economic growth. Is this really true?

Jul 5, 2014 at 6:43AM

Soccer is the world's favorite sport, and the World Cup is its apex in terms of popularity. More than 3 billion people will take in at least one minute of this year's action, if past tournaments are any indication. But there may be a downside to this fervor. A team of economists suggest the productivity loss that occurs during a World Cup could be significant enough to -- don't freak out -- stunt economic growth. Could this really be true?

Digging into the data
Professors Craig Depken and Dennis Wilson analyzed this issue as part of a working paper series titled "The Long-Run Impacts of the World Cup." The research takes over 50 years of nations' economic data, and compares it with their Cup success over the same time period.

Wc

Mexico vs. Brazil-2010 WC. Celso Flores, Flickr.

Depken and Wilson hypothesize that in countries where football is in high demand, "individuals ... might 'purchase' their enjoyment of the World Cup with reduced GDP growth in the year the finals take place." And the examples aren't hard to find. In Argentina, the duo points out, the 2004 World Cup appears to have lowered real per-capita GDP from $12,000 to $10,000. Fourteen years earlier, in 1990, a title game appearance likely lowered Argentineans' per-capita income by $600, the study also says.

So naturally, this means per-capital GDP should fall further the deeper a team makes it into the World Cup, right? That's just what Depken and Wilson found. In a subset of countries, including Brazil, economic growth is stunted by Cup success. They write:

For instance, suppose Brazil advances from the round-robin first round to the second round of play ... the single elimination tournament now invites Brazilians to watch other matches in anticipation that one or the other participants might eventually square off against their team. Thus, the further the Brazilian team advances in the tournament the more time is spent watching soccer, by some number of people, and less time is necessarily spent in productive activities.

In other words, the final stages of the tournament become a bigger distraction. During the 2002 World Cup, for instance, Depken and Wilson report Brazil's victory coincided with a per-capital GDP shrinkage of -2.2%. If Brazil wouldn't have participated in that year's tournament, they write, this growth rate would've likely been positive. 

What about Brazil this year?
According to the study, the World Cup's effect on per-capital GDP also appears to vary by country, which makes sense. Some areas of the world adore football to a greater degree than others do. Depken and Wilson find little relationship between Cup success and economic growth in Oceania, in particular. In Europe, North America, and South America, on the other hand, there's a measurable link between both variables. In the latter three continents, per-capita GDP growth falls by about one percentage point during World Cup years.

The obvious question is: What about Brazil this year? If history is any indication, the country won't avoid a productivity loss. This flies in the face of assertions that the World Cup will lead to a net economic gain for the country. Its tourism minister, for example, tells The Wall Street Journal that nearly $3 billion in extra spending is expected. 

Although Brazil could always buck the trend this year, Depken and Wilson reject the notion from a theoretical standpoint. "While individuals watching sports might spend on beer, food, and other services, it is unlikely that they are spending more (in the short run) than they are worth in terms of national production," they write. In fact, as The Economist points out, the São Paulo Federation of Commerce reports Brazil's total "output lost" from this year's tournament may hit $14 billion.

The bottom line
To be clear, Depken and Wilson don't suggest countries should ban the World Cup. Rather, they interpret their findings as a measure of fans' willingness to pay for the tournament. Those in some countries, like Brazil or Argentina, are simply more willing to give up productivity -- and thus, income -- to keep track of the sport.

At the end of the day, though, further research is needed. Is there truly a cause-effect relationship between the Cup and productivity? Do other major sporting events, like the NCAA Basketball Tournament, drain economic growth? What about the Super Bowl?

And of course, sociological impact must be accounted for as well. Given the record levels of television viewership and social media interaction surrounding this year's World Cup, it's possible cultural unification is worth a little productivity loss.

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