World Cup Economics and Financial Institutions…

Good Morning (if you live in the U.S.).  No matter where you live, we are now just about 48 hours away from kickoff of the opening match between the host nation South Africa, and Mexico who have looked very impressive in their warm-ups.  I know home crowd helps, but I’m thinking that Mexico will walk away with the win in the opener.  I do not remember where I saw the statistics, and I do not know if they are accurate, but I believe that around 80% of teams which win their opening match in the World Cup advance to the next round.  A draw in the first game gets a team through about 50% of the time, and a loss gets a team through about 13% of the time if I remember correctly.  The first match is an important one, and really does set a tone for the following weeks.

I understand the World Cup is a big deal, once every four years I rearrange my schedule to allow myself to watch every match of the World Cup (a streak that dates back to 1990, when local TV where I lived did not show every match).  What I find curious is the number of financial institutions which seem to think it is important to release an economic report about the World Cup as well as predictions of who will do well and who will not over the next month.  Just a few days ago I discussed one such report released by Goldman Sachs.  Well Goldman Sachs is not alone, I just came across a blog discussing a similar report released by JP Morgan.  The author of the blog who holds a degree in economics says he shudders at the degree of quantitative analysis done in the report.  He notes that JP Morgan uses this analysis to predict the strongest teams and that JP Morgan foresees a Spain vs England final.  Reading through the blog some more, you’ll notice that some of these reports are claiming that if certain countries (such as Australia) make it to the final, there will be a sudden $8 billion of spending by individuals which magically appear in the economy.  I can’t help but think that a good deal of this money is just money that would normally be spent on some other leisure activity within the economy, and is not necessarily a giant influx of spending by consumers.  That said, a good World Cup by some countries could help certain businesses out such as pubs and sporting goods stores selling World Cup replica Jerseys (I’m wearing my Japan 2001 Confederations Cup jersey at the moment, so I know there are people who go out and buy these things).

Curiously, it appears I’m not the only one asking questions as to why several of the great financial institutions of the world are spending time, money, and effort of some of their best employees to publish World Cup reports which most individuals will have a hard time understanding exactly how the predictions are being calculated.  This article makes some interesting comments comparing Goldman Sachs report with actual betting odds, while also making fun of the extent to which investment bankers should be trusted in making predictions in our current economic climate.  It is curious to not that the betting odds for the top teams do match up very neatly with the Goldman Sachs predicted odds.

Update on the 49ers Stadium Vote

Santa Clara voters hit the polls today to vote on a number of issues, one of which is to give a lease for stadium development for the billion dollar stadium project to move the San Francisco 49ers out of Candlestick Park to a newly proposed stadium site in Santa Clara (about 45 minutes away from San Francisco).  Earlier this week Jed York, the owner of the 49ers had promised that the team would stay in the Bay Area no matter what the outcome of the vote, though other news sites were reporting the possibility of a 49ers move to another location.  The stadium, which is estimated to cost around $937 million dollars is in need of a site, and currently a large lot is trying to be made available next to the Great America theme park in Santa Clara.  If the deal passes, the 49ers will be allowed to lease this site, and will be allowed to move forward on the construction of the new stadium.  From a personal standpoint, I have ridden the lightrail from San Jose to Great America, and it was a rather convenient trip, and seems to be a rather smart location to build a stadium in the cramped Bay Area.  There is abundant parking, transportation, and there should be very little overlap between Great America and the new stadium as they operate mostly during different seasons.  The plan has taken some criticism from locals, who have called the economic impact analysis provided by the team to be too optimistic, and that the city really can not afford to give the team $114 million dollar to build a new stadium (though a good chunk of this money is coming directly from hotel taxes) in the midst of an ongoing economic crisis in California.

The newest results from vote counts are showing the stadium site lease proposal is currently passing with about 66% of votes voting in favor.  There are still 48 out of 58 precincts which need to be report, but polls are reporting that this proposal will go through, and the 49ers will be one step closer to a new stadium.  I will admit that as a 49ers fan I am happy to see a new stadium, but at the same time the economic impact analysis which have been provided by the team are way too optimistic.  Of course this is nothing new, teams always over-estimate, and researchers continuously point that there is really little to no true economic impact.

* A quick Edit – The measure passed.  The 49ers also are now believing that the NFL will help finance part of the stadium under a new collective bargaining agreement.  Makes me wonder when an owner is banking on a CBA which doesn’t even exist at the moment…