Enjoy the World Cup and don’t worry about the economics

What is the economic impact of?

I suspect I am in the minority when I say that I was pleased to see the back of the Royal Wedding. More accurately, I was happy that there would be no more requests for estimates of the economic impact of the event. However, I should not have relaxed, as queries about the potential impact of the World Cup are now flooding in. While there is scope for good headlines, the reality is that these types of impact are very difficult to identify. There is, however, scope to have a bit of fun – not something economists are usually accused of.

Football does have economic and social benefits …

Readers of my blog will most likely know that football can generate significant economic and social benefits. As our report on the Premier League demonstrated, the organisation and its clubs have been very effective in generating economic benefits across the UK. In addition, when we analysed Stoke City’s contribution to its locality, we found evidence of significant social gains through the club’s community programme with every pound invested generating ￡11 of social benefit.

… but the World Cup is a difficult impact to estimate …

I am indebted to Howard Archer, Chief Economic Advisor to the EY ITEM Club, for his thoughts on this topic. Howard’s analysis has helped ease us back into talking about football again - Howard was coming to terms with Shrewsbury Town’s failure to get through the play off to The Championship, while I was coming to terms with Stoke City’s relegation from the Premier League.

What is clear is the transmission mechanism, through which the World Cup could impact the UK economy, is different to the way the Premier League has an effect. The World Cup only runs from mid-June through to mid-July, takes place in Russia and comprises 32 teams – only one from the UK’s nations. The potential impact on the UK will also principally be determined by how well (or badly given recent experiences!) England do in the tournament.

The better that England do, and the more matches they play in the tournament, the greater the potential positive impact on the economy. The economic benefits come from the lift to retail sales (spending on World Cup merchandise and on food and drink to enjoy during the matches) and the temporary lift to consumer confidence by generating a “feel good” factor.

However, if England repeat their recent disappointing performances in major tournaments and crash out early, there will likely be a lot of reduced priced World Cup merchandise and replica England shirts on offer. There may also be a lot of temporarily depressed consumers!

… though with some obvious places to look …

A recent survey by my colleagues in EY’s Technology, Media and Telecommunications team finds that 59% of UK consumers will watch at least some of the 2018 FIFA World Cup, with 88% of people planning to watch the matches on a TV at home.

The World Cup tends to boost retail sales through people buying World Cup merchandise and replica England shirts (I popped out to buy my wall chart and flag this weekend for example). There is also an increased demand for snack foods and drink as people look to maximize their enjoyment of the matches.

The World Cup also usually gives a lift to sales of televisions as some people look to upgrade their sets and get bigger screen TVs in order to maximize their enjoyment of the tournament. Indeed, it may be well be significant that a major UK retailer reported in their weekly sales for the week ending 26 May that electricals and home technology sales were up 5.6% year-on-year – partly helped by a strong demand for TVs.

However, it needs to be kept in mind that the boost to purchases of TV’s may be largely just bringing forward sales of TV’s that would have eventually been made anyway – although the World Cup may tempt people to upgrade their sets.

Similarly, some of the retail sales related to World Cup merchandise may just be diverting sales from other areas e.g. the buying of a football magazine instead of some other magazine.

The pub sector will likely benefit from the World Cup as many people look to enjoy watching the matches in a convivial atmosphere. EY’s survey reveals 19% of fans plan to go to a pub or bar to watch games. Only 7% of fans say they would choose to watch matches on screens in public spaces, but this figure doubles to 14% for those aged 18-34.

One concern is that the World Cup could have some negative impact on productivity through people watching the matches rather than working. However, there will be little risk of this, at least in England’s group matches. While the matches against Tunisia and Belgium both take place mid-week, they kick off at 7pm and the match against Panama is on a Sunday.

… but not much to see … unless

We believe that the forthcoming football World Cup could have a marginal positive impact on the UK economy – although I would stress the word marginal. As mentioned, the size of any impact will likely be determined by how well England do in the tournament. So if things go well, the impact will be larger but, as I have said before, it’s the hope that kills you.