Sport’s Economic and Positive Psychological Impact

Aside from the Winter Olympics, the FIFA World Cup is the first major sporting event to be held since many of world’s major economies fell into recession. It is also the precursor to a string of others, including the Commonwealth Games in New Delhi and the Olympic Games in London.

As the World Cup captures the imagination of the world’s population and anticipation builds for the other Games, we asked our members for their views on the economic and feel good impact of sport as an ‘antidote’ to the global downturn.

Football, probably the most popular sport in the world, has a long history of sponsorship deals and fans willing to spend hard-earned money on tickets and associated merchandise.

You don’t have to look far to see businesses also taking advantage of World Cup fever. From electronic shops to restaurants, this tournament is being used as a means to increase consumer spend during a time when spending has been less prevalent.

Indeed, increased consumer spending and tourism are the reasons often cited by countries when looking to host a major sporting event. However, studies have shown that the economic benefits of major sporting events are negligible.

Professor Stefan Szymanski, author of “Why England Lose” and the Director of the Sports Business Network Research Centre at Cass Business School says:  “There has been a sustained intellectual argument in recent years between economists and ‘punters’ of all kinds about the alleged economic benefits of major events, and the balance of evidence points to the conclusion that these benefits are negligible or non-existent.”

“There are two problems – first, the infrastructure constructed for an event typically has limited use afterwards. Sports infrastructure is not often used at the best of times (a stadium might typically host one game a week throughout a season), and the crowds for other events are usually much smaller. Often the best economic choice is to tear down the buildings after the event to eliminate maintenance costs. Second, while there may be a short-term influx of visitors who contribute to the local economy, the figures are often overstated and many visitors are people who were planning a trip to the region anyway.”

Although the boost to economy may be slight, businesses (for example in the run-up to London 2012) will be looking to capitalise. Martin Balaam, Managing Director at BT Engage IT, says: “These events only come around once in a generation for a country/city and it gives both an opportunity for significant short-term growth but also longer lasting association especially with the infrastructure which may outlast the event for a long time. The important thing is to accept that it will be a short-term increase and thus managing the reduction back to normal operating levels is crucial if you are to hold onto the incremental profits you have made.”

If improvement to the economy is limited, then why would a city or country want to host an event such as the World Cup or the Olympics? Stephan’s research shows that there is a ‘feel good’ factor associated with the population of host countries. In fact, it has been shown that if a nation’s sports team performs well, then there is corresponding drop in suicide and homicide rates.

Is such a ‘feel good’ factor enough to quantify the vast sums of money put into organising such an event?

There is no doubt that the morale of those countries most greatly affected by the recession has been low. High unemployment and business failures have not helped the situation.  We asked if large sporting events can be an antidote to the doom and gloom created by the financial crisis?

Charles Sutton, Senior Partner at Organizational Edge, explains why major sporting events can lift the spirits of a nation: “The impact of physical competitive activity between groups and individuals, with whom we, as people and society, identify is hugely important to our psychological and physiological state and well-being. This is true regardless of whether we compete, actively support, show interest in or simply ‘hear’ what happens. Many a Briton, for example, will feel their heart rate increase at the news that England, or a British athlete, has achieved a defined success.  The psychological and physical impact is almost unstoppable.

“Sports events, starting with the football World Cup in South Africa and moving through the Commonwealth and Olympic Games, provide real opportunity for government and business.  This opportunity is to step away from the new world of logical and rational explanations of the economic needs to rebalance the economy, and use the old world of hard-wired competitive instincts and emotions, deeply linked to our evolutionary past, to provide an alternative perspective on the future.”

A happy nation in turn is a nation that spends more, and makes better business decisions – a benefit to everyone, not just sport fans.

Peter Cheese, an Independent Talent, HR and Change Specialist, says, “The real impact appears to be on consumer sentiment, but sentiment is fickle and, not surprisingly, the greatest benefit is to those nations that do well in competition. The FIFA World Cups in France in 1998 and Germany in 2006 saw a measurable GDP impact of increased consumer spending as much as 1-2 per cent, particularly driven by the additional benefit of the success of the home nations. Consumers were spending up to the start of the World Cup on new televisions and World Cup merchandise, and then more broadly during and after the tournament. In France, private consumption grew by as much as 1.5 per cent in the spring of 1998 and was sustained for several months afterwards. This benefited France at a time when the wider economy was struggling.”

For non-host nations, however, the consumer feel-good factor of the FIFA World Cup this summer should have a noticeable positive impact given the huge widespread support and following of football, but its duration and real economic impact is unlikely to impress the economists.

Whether the feel-good factor extends to the wider economy and, for example, impacts workforce productivity and consumer confidence, is very hard to judge. There is, however, no questioning the sheer enjoyment of watching great athletes battle it out for glory and the unity it provides throughout participating nations.

Perhaps we should treat it as an antidote after all!

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

 

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