There are many opinions, reports, and methods of thought circling the soccer industry regarding the financial impact of the 2014 FIFA World Cup on the host country, Brazil.
Some hope hosting the World Cup will help lift Brazil out of economic slowdown, but the associated economic activity ultimately pales before the country’s $2.2 trillion economy, the usual levels of investment spending and the annual revenues of most companies. The 32-day event will provide short-lived sales increases that are unlikely to materially affect earnings and disruptions associated with traffic, crowding and lost work days will take a toll on business.
– Barbara Mattos, Moody’s Vice President–Senior Analyst
The spectrum ranges from mild or no impact, sharing the opinions of Ms. Mattos, all the way to $13.6 Billion in 2014 alone, as predicted by Brazil’s tourism Minister, Vinicius Lages.
The cost of the tournament have been somewhat more consistent amongst experts, leveling out at approximately $11 Billion. The real question that matters for the Brazilian economy, is what the net impact of the tournament will be – not just focusing on the cost and revenue streams as separate entities. If we examine the cost vs revenue the impact of the World Cup is better understood. Looking at the estimates from around the industry, the immediate net impact on the Brazilian economy could fall anywhere between flat to +$2.6 Billion.
The majority of the anticipated revenue generation from the World Cup, at least in the short-term, will come from the estimated 3.7 million domestic and international tourists that will come to partake in the festivities in the month-long event. According to a report from nerdwallet, these 3.7 million tourists are expected to spend approximately $11.1 Billion, which would be +0.5% increase to the country’s total GDP ($2.435 Trillion). However, if we take cost into account and look at the net result, generously speaking the impact on Brazil’s economy would be a meager +$100 Million, or a +0.004% net increase to the country’s GDP.
That only looks at the short-term impact, however, to be fair we need to look at what the potential long-term impact could be. Ernst & Young and the Getulia Vargas Foundation predicted that the World Cup and the Olympics would combine to create an estimated 3.6 million new jobs in Brazil and would add 4% a year to the country’s economic growth. This would be quite impressive indeed, seeing how in the last 5 years, Brazil’s highest quarterly GDP growth rate topped out at 2.5%, and that was back in 2010.
For Brazil to fully realize the financial potential of hosting these two historic and prestigious events, they have to translate the benefits across all socioeconomic levels – something Ernst & Young also echoed in its report. Brazil is a country of approximately 200 million people, of which 32 million, or 16%, live in poverty. A large factor in Brazil’s economic success and “emerging market” status over the last decade has been the increase in buying power of its middle class. To throw this gap into perspective, nerdwallet crunched some numbers and found that the 32 million impoverished people in Brazil were expected to spend about $1.3 Billion collectively during the month-long World Cup. During that same time, the 3.7 million tourists, 3.1 million of which are domestic, are expected to spend $11.1 Billion as mentioned above.
As nerdwallet notes, a population one ninth the size will spend nine times as much as the 32 million impoverished Brazilians during the World Cup this month. One of the main benefits of the World Cup is the job generation inherent in the preparation and maintenance of the country’s infrastructure before, during, and after the tournament. Hopefully, for Brazil’s sake, at least some of those 32 million living in poverty can take advantage of these new jobs, which will increase disposable income, and increase spending…you get it. This is the unknown that is particularly difficult to project with regard to the overall financial impact of the World Cup. The only real way to know is to wait and see.