Sports and Development: An Economic Perspective on the Impact of the 2010 World Cup

1. Sports and Development:An Economic Perspective on the Impact of the 2010 World Cup Jo Swinnen & Thijs Vandemoortele Cape Town Conference March 2008

2. Overview • Introduction • The Impact of Infrastructure Investments • Sports, Migration & Development • Concluding Comments

3. 1. Introduction • Development: • Physical development (Vanden Auweele, 2006) • Social development (UN, 2006) • Development of sports infrastructure/competition • Economic development • Focus: Economic Development • income growth • poverty alleviation

4. 1. Introduction • How important is sports in the economy ? • Data are poor and ad hoc • 2 million people (1.3%) employed in the sports economy in EU-15 (Andreff & Szymanski, 2006) • 1 to 3% of GDP is accounted for by sports expenditures in Europe • Currently in UK: 2% of GDP • (3 times as high as agricultural economy … )

5. 1. Introduction • Leading sports teams : • large commercial enterprises • Value of Manchester United = 1.4 billion dollars( ~ total annual output of Sierra Leone) • Value of richest US football & baseball teams = 1 billion dollars(average US football team > 0.5 billion dollars)

6. 2. The Impact of Infrastructure Investments • Bids to host mega-event: increased over time • Growing demand from emerging and developing countries and quasi-fixed supply

7. Large perceived economic benefits is a popular argument to host a mega-event • and to lobby for public funds (Porter, 1999; Noll & Zimbalist 1997): • Supported by consulting reports: irrespective of country and event, always large positive economic impact (Johnson & Sack)

8. Academic critiques on these studies: • Net benefits are heavily overestimated • (Kesenne, 1999; Porter, 1999; Lee, 2001; Matheson, 2002; Szymanski, 2002; Bohlmann, 2006; Matheson 2006; Brenke & Wagner, 2006; Madden, 2006) • Because the studies ignore • Substitution effects • Crowding out effects • Leakages • Opportunity costs of public funds • …

9. Always prospective studies, few ex-post • no incentives for government, consultants or bidding company (Coates & Humphreys, 2003) • Ex-post analyses yield much lower (if at all) benefits. E.g.: • Siegfried & Zimbalist (2000): review of several studies, no significant evidence that building sports facilities stimulates economic development • Baade & Dye: presence of new stadium has uncertain impact on income, possibly even negative (relatively to the region)

10. World Cup 2006 Germany Ex-post study by Brenke & Wagner (2006) • Predicted benefits were overestimated • Additional employment only temporarily • Overall economic performance boosted by 0.02% to 0.07% • Main beneficiaries: • FIFA (187 mio Euros) • German Soccer Association (21 mio Euros)

11. World Cup 2010 South Africa • Report of Grant Thornton (July 2003)Predictions: • Direct expenditure: R12.7 billion • R21.3 billion (1.2%) increase in GDP of South Africa • 159,000 new employment opportunities (3.5% of South Africa’s unemployed active population) • R7.2 billion additional tax revenue • New report: R51.1 billion (2.7% increase in GDP)…. because more tickets available for sale

12. Four Reasons for Skepticism • Inclusion of domestic resident’s expenditures as direct benefits→ merely reallocation of expenditure, does not add to GDP (see Baade, 2006) • Questionable and overly optimistic use of multipliers (Bohlmann, 2006)

13. Much higher investment costs than assumed (International Marketing Council of South Africa, 2008) • R8.4 billion (instead of R1.8 billion) on building and upgrading stadiums • R9 billion (instead of R0.5 billion) on upgrades in infrastructure • Interpretation of 159,000 new employment opportunities: • Recruitment of volunteers by LOC • Many jobs only temporarily • Due to bad economic situation in Zimbabwe, huge inflow of skilled and semi-skilled migrants (construction workers)

14. Impacts & Level of Development • Be careful comparing South Africa to Germany to assess economic impact of World Cup due to differences in development and level of income (Matheson & Baade, 2004)

15. Reasons: • Costs of infrastructure investments • South Africa needs to build several new stadiums, more than Germany • Much higher general infrastructure requirements in South Africa (e.g. transport capacity) • Differences in cost of capital and cost of labor • Opportunity cost of capital higher in developing countries • Comparatively lower wages in developing countries • Lower labor opportunity costs because of large unemployment

16. Post-World Cup use of stadiums • Uncertainty about demand for football stadiums in South Africa • Low use and high maintenance costs may lead to a negative ‘legacy’ of the World Cup • Concern justified for South Korea and Japan (World Cup 2002), low use and high costs (Watts, 2002) • General infrastructure investments • Potential effects large in South Africa:Infrastructural deficiencies = constraint to growth • Infrastructural improvements due to World Cup could provide a productivity boost

17. But … Money is not everything • Several reports point at the intangible effects • Szymanski (2002): no economic growth from organizing World Cup, but improvement of overall well being because of intangible effects (like increased confidence and pride of local population) • However, intangible benefits : from winning or from organizing ?

18. Conclusion Brenke & Wagner (2006): • Minor economic effects, • but • positive country-image for Germany and …. • “it was great fun, nothing more, nothing less”

19. Economic implications of intangible effects? • Graham et al. (2004) show that happier people perform better and earn more income • Relevant for World Cup in South Africa, because Graham et al. (2004) show that this effect matters more for the poor. • Hence, ensuring poor local people access to the games is important

20. 3. Sports, Migration & Econ Dev • Large share of migrants in main sports leagues in Europe and North America • (relative to average economic sector standards) • The pattern varies considerably across sports: • (Ice) Hockey: East Europe to US and Canada • Baseball: Central America to US and Canada • Basketball: Europe and Latin America to US (top) US to Europe (below) • Football: The rest of the world to Europe, and within Europe

21. Migration of African players to Europe has grown strongly over the past decades

22. % change of total number of African players in the Belgian First Division (10% average)

23. Literature on migration of athletes or sports players emphasizes negative aspects (e.g. Andreff, 2004; Poli, 2006; Darby, Akindes and Kirwin, 2007) • “Muscle drain”: • negative effects on education and competitiveness of the local sports system • undermines the sporting capacity of developing countries • explains the “poor performances of developing countries in world sport events” (Andreff, 2004) • Wage dumping: • low wages for developing country players

24. Literature on migration of athletes or sports players emphasizes negative aspects (e.g. Andreff, 2004; Poli, 2006; Darby, Akindes and Kirwin, 2007) • Muscle drain • Wage dumping • Modern Form of Slavery & Neo-colonialism • Illegal nature of migration and exploitative nature of transfers (Modern form of slavery) • Football Academies = neo-colonialist structures • Cause underdevelopment • Unequal distribution of the gains • Decline in education enrolment • Creating social problems(Darby, Akindes & Kirwin, 2007)

25. “… this process […] of neo-colonial exploitation and impoverishment of the developing world by the developed world.”Darby, Akindes, and Kirwin, 2007, p 143 “… neo-colonialists who don’t give a damn about heritage and culture, but engage in social and economic rape by robbing the developing world of its best players.”Sepp Blatter, FIFA president (cited in Bradley, 2003)

26. Sports Migration • Summary : A very negative assessment • Contrasts strongly with general literature on economic effects of migration

27. “… international migration […] has a strong impact on reducing poverty.” (Adams and Page, 2003)

28. Evidence ? • Sports literature : hardly any data, no representative empirical evidence • General migration literature: very extensive empirical studies • Issues : • How important is migration from Africa ? • Mechanism of migration effects • Effects on national performance • Functioning of “sport academies”

29. Q: How important is African player migration to Europe ?

30. Q: How important is African player migration to Europe ? • A: Relatively minor compared to migration from other regions

36. Migration Effects : General • Absence • Diaspora (trade & remittances & …) • Return of migrants • Prospect of migration (dynamics) [Kapur & McHale (2005): “Brain Drain & Brain Gain”]

37. Remittances : positive effect on development • Remittances reduce the level, depth and severity of poverty in the developing world because of income transfers to poor households (although not necessarily the poorest) • (Adams & Page, 2003; 2005) • Remittances have a positive impact on investment in education and entrepreneural activities • (Edwards & Ureta, 2003; Yang, 2005; McCormick and Wahba, 2001; Page, Cuecuecha, and Adams, 2008) => Little known about impact of remittances from sports migrants, but no ex ante reason for difference

38. Remittances are important

39. Source: Kapur and McHale (2005)

40. “Muscle Drain” or “Muscle Gain” ? • “[…] since the world at large values education, allowing migration of the ‘best and brightest’ from a developing country may actually increase the incentive to acquire education. … this would encourage the average level of education of the remaining population to rise.” Kapur and McHale (2005): Brain Drain or Brain Gain ?

41. “The average level of schooling in the migrant-sending villages increases with internal migration. […] The dynamic investment effects reverse the static, depletion effects of migration on schooling.” Boucher, Stark & Taylor (2005) – Mexico

42. Muscle Drain or Muscle Gain ? Empirics : very little • Ad hoc evidence can be used both ways • Performance of African teams with migration ?

44. Wage Dumping ? • Similar argument in general migration literature. • However: Careful statistical analyses yield no clear evidence either way • (eg. despite massive immigration from poorer countries very little impact on US wages) (Aydemir & Borjas, 2007)

45. The role & effect of Football Academies ? Let’s take a look in one of the major player exporting countries : Senegal …

46. Football Academies in Senegal

47. Source: own surveys & interviews in summer of 2007 in Senegal • Two different types of “Football Academies” : • ‘Ecoles de Foot’ (football schools) • ‘Centres de Formations’ (training centers)

48. Football schools • Importance : Nearly 300 in the region of Dakar alone • (according to FSF – Fédération Sénégalaise de Football) • Boom in the wake of Senegal’s outstanding performance at World Cup 2002 • Organization : One man (without education in football training), three balls and the children from the neighborhood on a plot of barren land • Academic approach: no education involved

49. Training Centers (Centres de formation) • Importance: Five in Dakar Region • (according to FSF) • Organization: • More means at disposal • Professional approach • Academic approach: • Offers besides football training: academic education, equipment, medical support, etc.

50. Training Centers (Centres de formation) • Diambars (Supported by (ex-)top players in EU: Patrick Viera, Bernard Lama, … ) • Elite Foot • CASE • (former Minister of Senegal) • …