Some World Cup Economics and News

Dr. Humphreys passed along this interesting article to me discussing a recently released report from Goldman Sachs discussing the 2010 World Cup, which is now less than one week away.  Included in the report is a breakdown of each national team participating in the World Cup, as well the current economic, political, and soccer infrastructure within each of these countries.  The report also discusses which countries it predicts will become better countries in the future using what is called a “Growth Environment Score” as well as UN predictions of the 18-34 year old male population of countries over the next half century.  The article claims that Nigeria is going to be very good in the future if this report is to be trusted.  What is very intriguing is if one compares this article to a recently published book entitled “Soccernomics” written by sports journalist Simon Kuper and notable sports economist Stefan Szymanski.  In this book Kuper and Szymanksi look at the economics of football, how clubs are run, as well as what teams they predict will be the strong teams of the future.  In these predictions Kuper and Szymanski come to various conclusions which agree with some parts of the Goldman Sachs report, and contradict others.

Also included within the Goldman Sachs report is discussion of future hosts for the 2018 and 2022 World Cups.  Notably Goldman Sachs predicts that the cup will be hosted in Europe, which is analogous with the discussion in Soccernomics which states that FIFA attempts to hold the World Cup in countries where prime time games can be viewed in Europe, where there is the highest concentration of individuals who watch soccer.  While the U.S. and China now have the two biggest markets in regards to soccer participants worldwide, the Goldman Sachs report and Soccernomics both note that unless these markets grow in terms of casual spectators, FIFA will continue to try and capitalize its revenue by choosing countries which have the highest potential payout in terms of viewer numbers.  I recommend reading both the Goldman Sachs report and Soccernomics to get a more in depth look at more of the economics of football, especially with the World Cup coming up.

On a more tragic note, the question of whether South Africa really should be hosting the World Cup took a turn for the worse, as 15 people were injured, including one police officer who was severely injured as fans stampeded and trampled one another at the gates before the Nigeria vs North Korea match this morning in Tembisa, South Africa.  More details on the incident can be found here, and does raise the question about whether security will be stepped up and better crowd control put into place in the next week.

Be on the lookout for more posts in the coming weeks, I’m sure the World Cup will provide a plethora of interesting articles and topics.

Jazz Lawsuit

A very interesting lawsuit, from a sport finance perspective, was filed last week in Utah. A group of VIP Jazz ticket holders, called “the 100 Club” are suing the team for $19 million because of a change in the team’s policy about the transfer of season tickets.  The 100 Club has between 50 and 60 members who own the rights to tickets in the first five rows in the arena.  It was formed in the late 1980s to raise capital for the team when it needed money.  At that time, the members paid a one time membership fee based on location and received the rights to their seats, along with the right to sell or bequeath the seat after paying the team a $1,000 fee.  In effect, the 100 Club agreement converted a selected number of seats in the arena into assets under the control of the seat owner, not the team.  It’s basically a PSL.  100 Club members are also able to buy other season tickets at a 20% discount.  Presumably, these 100 Club seats appreciated significantly in value, but I have not seen any information about how valuable – the market for these seats may be quite thin.

Until recently, 100 Club seats were the only seats in the arena with this sort of property rights structure.  In January, the team started something called the “Transfer Marketplace” program that allowed other season ticket holders to sell the rights to their seats, as long as the team got 30% of the sale price.  The emergence of this substitute for Club 100 seats led to a decline in the value of Club 100 seats by 90%, according to the suit.  That amounts to $16 million in losses to Club 100 members, and led to the lawsuit.

The economics of this case are quite interesting.  The existence of these Club 100 seats represents a significant external financial benefit that the team would clearly like to capture.  I can’t imagine what was going on in the late 1980s that led the Jazz to form the 100 Club in the first place.  If they needed more revenues, why not just raise ticket prices?  Or take out a loan?  The creation of the new secondary market for season tickets, the “Transfer Marketplace” program, implies significant excess demand for season tickets to Jazz games, which implies that the team is not correctly pricing season tickets.  In addition, the team appears to have alienated their loyal VIP ticket holders in the process.

Details about the lawsuit can be found in this article from the Salt Lake Tribune.