The Economic Effeects of the Soccer World Cup 2006

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The Economic Effects ofthe Soccer World Cup 2006in Germany with Regard toDifferent FinancingGerd AhlertPublished online: 01 Jul 2010.

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Economic Systems Research, Vol. 13, No. 1, 2001

The Economic E ects of the Soccer World Cup 2006

in Germany with Regard to Di erent Financing

GERD AHLERT

(Received October 1999, revised June 2000)

Abstract This paper presents some results using the sport economic simulation modelSPORT. This model is based on a sport-speci c input output table for the year 1993,which has been integrated into the German INFORGE model. The performance of thismodel founded on the INFORUM philosophy. The results illustrate the importance ofmodelling sport-economic activities in deep detail, especially the integration of the systemof national accounts. In addition, the results also show that it is possible to calculate themacroeconomic e ects of the soccer World Cup, which may perhaps be hosted by Germanyin 2006, with regard to the di erent nancing of necessary extensions of public sportsinfrasfructure. Under favourable conditions independent of the type of nancing of thesenecessary investments the staging of the soccer World Cup positively in uences incomeand employment. Such calculations allow the decision-maker to estimate the opportunitycosts of their decisions and can be the basis for an extended cost bene t analysis.

Keywords: Sport-speci c input output table, soccer World Cup, sport economic analysis

1. Introduction

In July 1999, the German Football Association (DFB) applied o cially to theInternational Football Association (FIFA) to host the soccer World Cup in theyear 2006 in Germany. On account of the high social role of soccer in Germany,the DFB has placed a research order to analyse the socio-economic impact of thesoccer World Cup 2006 in Germany. The study is based on a cost bene t analysisand tries to give arguments for the economic possibilities of such an event(Rahmann et al., 1998). The results of this study are crucially in uenced by themodel for calculating the macroeconomic impact. For their study, Rahmann et al.had neither an adequate dynamic model linking sport economic activities to theeconomy, nor did they have a model linking these activities in detail to thestate. Consequently, they were not able to give information about the potential

Gerd Ahlert, University of Osnabrueck, Department of Economics, Rolandstrasse 8, D-49069Osnabrueck, Germany. Tel: +49 541 969 2772; Fax: +49 541 969 2769; E-mail: [email protected]. The author wishes to thank Bernd Meyer, Marc Ingo Wolter and the two anonymousreferees for their invaluable help and suggestions. The paper has also bene ted from the comments ofthe participants of the 7th INFORUM World Conference (Beijing, 22 29 August 1999). All remainingshortcomings remain the authors sole responsibility.

ISSN0953-5314 print; 1469-5758 online/01/010109-19 DOI: 10.1080/09535310120026274 2001 The International Input Output Association

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110 G. Ahlert

macroeconomic cycle e ects on production, income and employment with regardto alternative types of public nancing of the soccer World Cup 2006.

In this paper, the results of an analysis with the econometric forecasting model,SPORT, are presented. The econometric simulation and forecasting model SPORT,with a special focus on analysing sport economic activities, has been constructedwithin the framework of a research project nanced by the Ministry of the Interior(Meyer & Ahlert, 2000) and is equipped with a highly disaggregated sporteconomic database.

The results illustrate the economic e ects of the soccer World Cup withregard to the di erent means of nancing the indispensable public World Cupinfrastructural investments. Under favourable conditions (medium to low publicWorld Cup infrastructural investments, and relatively high capacity of the stadiumsowing to high numbers of visitors) the staging of the soccer World Cup willgenerate an increase in the gross domestic product as well as a positive e ect onemployment. The level of the e ect will, of course, be determined by the additionaldemand by foreign visitors. This additional foreign demand will cause a strongexpansion in production and income in the year 2006. Although the exogenousconsumptive impulse of the foreign visitors will be limited to the short period ofthe World Cup, due to the manifold multiplying links of the economic cycle, thisadditional demand will generate a noticeable additional demand in the followingyears.

2. Database and Structure of the SPORT Model

For this study, a consistent database for the year 1993 has been prepared, whichgives manifold information about sport economic connections, especially themutual interindustry relations with the rest of the economy. This sport economicdatabase has been integrated in an existing econometric model for the FederalRepublic of Germany. It is the deeply disaggregated model INFORGE (INter-industry FORecasting GErmany) that has been extended for sport economicactivities in the framework of this study.

2.1. The Sport-speci c Input Output Table

Within the framework of this study a database has been developed the satellitesystem sport which gives a detailed and consistent description of the economicrelevance of sports in 1993. This database is a sport-speci c extension of theGerman system of national accounts. The `heart of this database is the inputoutput table of sports. Because of its complexity (a 76 3 81 matrix) Figure 1 solelyshows it as a frame without empirical information. This sport-speci c input outputtable illustrates the importance of the di erent sport-economic activities, especiallythe mutual interindustry relations with the di erent sectors of economy. It is fullyintegrated into the German input output table of the Federal Statistical O ce forthe reference year 1993 (Ahlert & Schnieder, 1997). Some results have beenupdated until 1998 (Meyer & Ahlert, 2000).

Figure 1 shows the composition of the sport-speci c input output table. Thegrey bars show the added sport-speci c sectors. In the rst quadrant of the inputoutput matrix, seven additional sport-speci c production sectors are integrated.For the sports articles, cycles, sports equipment, sports shoes and sportswear, itwas possible to open additional rows and columns. For the services, the same is

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Economic E ects of the Soccer World Cup 2006 111

Figure 1. Input output table of sports.

done for the sector `commercial sports facilities ( tness centres, private sport-schools, athletes etc) and sport-speci c services of sport clubs and associations. Inaddition, the production sector 56 `Services of the local and regional governmentsis divided into a sport-speci c sector as it is especially local goverment that hasconstructed and maintained a large part of the sport-speci c infrastructure.

In the second quadrant of the input output matrix, which contains the naldemand components, every component is divided in a non-sport-speci c and sport-speci c column. The vector of the sport-speci c private consumption comprises theconsumption of the sport-speci c goods and services of the seven additionalproduction sectors. In the sport-speci c private consumption vector, all thosegoods and services are included that are used while practising sport activities.

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112 G. Ahlert

Sport-speci c investments comprise the investments of the seven sport-speci cproduction sectors. Sport-speci c imports and exports are handled in the sameway. The sport-speci c government purchases include the goods and services thatare given to people without paying any money.

Some empirical facts indicative of the economic relevance of sports in Germanyare the following. In 1998, the sport-related gross domestic product amounted intotal to almost 53 billion DM, according to the input output table of sport. So thesport-related productivity amounted to 1.4% of the total gross domestic productof 3.799 billion DM in 1998.

The German citizens spent almost 40.6 billion DM on sport in 1998. This isnearly 1.9% of the overall household consumption. German citizens spend aboutas much money on sport as they do on tobacco or personal care products.

General government with its regional administrative bodies (federal, state andlocal governments) provided nearly DM 11.5 billion for sport, free of charge fortheir citizens. This means that 1.5% of the overall nal consumption of generalgovernment is allocated to sport. Apart from this, the government granted subsidiesto the sport clubs and sport associations worth about DM 1.4 billion, thusrecognizing the social and health importance of sport for the community.

The total volume of xed capital formation of nearly DM 7.3 billion wasprimarily distributed among the three sport service providers, whereby the commer-cial sport institutions made the largest investment with about DM 3.1 billion,followed by the regional administrative bodies (DM 2.8 billion). The xed capitalformation of sport clubs and sport associations amounted to almost DM 1.3billion. This relatively small amount is in line with the provision of a large part ofthe sport infrastructure by the local government and the observation that theconstruction of the clubs own sport infrastructure is achieved by having the nancing shared between the states, communities and sports clubs.

Through the sport-related activities covered in the input output table of sport,more than 783 000 people, or 2.4% of all employees, were employed in the categoryof sports in 1998. This means that sport employs about as many people as bankingdoes. This high number also includes people employed in jobs where socialinsurance was not compulsory, especially paid exercise therapists and secondaryoccupied trainers. However, since this group of employees in particular guaranteesthe high quality sport services o ered by the sports clubs, they should be includedin the total number employees in sport.

2.2. The Econometric Input Output Model, SPORT

The sport-speci c input output table with its additional sport-speci c sectors hasbeen fully integrated into the sectoral econometric simulation and forecastingmodel, SPORT which was especially developed for sport economic analysis. It isa sport-economically extended version of the German INFORGE-model (Meyeret al., 1999).

Its performance is founded on the INFORUM philosophy (Almon, 1991) tobuild econometric input output models bottom up and fully integrated. Thebottom-up principle says that each sector of the economy has to be modelled ingreat detail (about 150 variables for all 65 sectors, including 7 sport-speci csectors) and that the macroeconomic aggregates have to be calculated by explicitaggregation within the model. The principle of full integration implies a modelstructure that takes into account the input output structure, the complexity and

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simultaneity of income creation and distribution in the di erent sectors, itsredistribution among the sectors, and its use for the di erent goods and servicesthat the sectors produce in the context of globalizing markets. In this way, onesucceeds in describing properly the role of each sector in the interindustry relations,its role in the macroeconomic process as well as its integration into internationaltrade (see Figure 2).

These conceptual advantages end up in a consistent and powerful processingof sectoral and macroeconomic information. The approximately 36 000 equationsof SPORT describe the interindustry ows between the 65 sectors, their deliveriesdistinguishing between non-sport-speci c and sport-speci c deliveries to personal

Figure 2. The structure of the SPORT model.

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consumption, government, equipment investment, construction, inventory invest-ment, exports as well as prices, wages, output, imports, employment, labour costs,pro ts, taxes etc.; for each sector as well as for the macro economy. In addition,the model describes the income redistribution in full detail.

The non-sport-speci c side of the SPORT-model (the core INFORGE-model)is estimated econometrically over the period 1978 1995. The transition from WestGermany to Germany in 1991 is achieved using additive and multiplicative dummyvariables. The experience with this approach is very positive. There is no reason tothink that this structural break prohibits econometric modelling for Germany formany years (Meyer et al., 1999). A more precise description of the INFORGE-model is given in the appendix.

The sport economic activities are consistently implemented into the structureof the model. The system of equations for the additional sport-speci c sectors hasthe same de nitions as the one for the non-sport-speci c sectors. On account ofmissing time series for the sport economic activities, it is only possible to connectthe behaviourial equations of the non-sport-speci c sectors via their relative sharesto the corresponding sport-speci c sectors for the year 1993. The national accountsare extended in the same way for sport-economic relations. Even the speci cinstitutional organisation structure of sports in Germany sport is especially organ-ized by the the local government and non-pro t sport clubs is embodied (Ahlert,1998).

Besides the interindustry relations, the income reactions and redistribution inthe di erent sectors and among the sectors such as the use of income of theprivate households for the di erent goods and services have been extended forsport economic activities. This SPORT-model, with its sport economic extensions,has been used for analysing the economic impact of the soccer World Cup 2006 inGermany.

3. Soccer World Cup 2006 in Germany

The soccer World Cup, which may be hosted by Germany in 2006, will requireabout 10 high-standard stadiums dispersed across the whole country if theconditions for the World Cup 1998 in France are taken as a reference for futuresoccer World Cups. The spatial allocation of these 10 locations is still unknown,but they are necessary to run a match schedule with 32 teams and 64 matchesorganized in two rounds of 16 days (Kurscheidt & Rahmann, 1998). The wholeduration of the World Cup will be about four weeks.

The calculations using the simulation model SPORT for analysing the macro-economic impact of the soccer World Cup in the year 2006 are based on the WorldCup study `Social economic analysis of the soccer World Cup 2006 in Germanyby Rahmann et al. (1998). To make the simulations, rst of all, some results fromthe World Cup study with reference to possible nationwide but speci c localinvestment costs among 10 locations within the scope of preparing the World Cuphave been extracted. Within the framework of the model calculations we referto the investment scenario demanding medium-to-low pre-event infrastructuralinvestments and granting a secure and su cient further use. Following thisapproach, investments will be necessary to the amount of approximately DM 0.69billion (based on 1996 prices) under these favourable conditions. These invest-ments will be made during the years 2003 to 2005 (pre-event phase). It is presumedthat this investment volume will spread evenly over this 3-year period and will not

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necessarilly be carried out at all in the next few years in case of a negative decisionby FIFA against Germany. Consequently, the investments considerd do not havethe character of bunching infrastructure investments that would have occurredanyway.

This scenario was chosen especially because the authors of the World Cupstudy identify it as situated in the centre of the realistic range. Moreover, it maybe said that, with a view to the current discussion about planning or buildingspecial soccer or sports arenas (Munich, Hamburg or Schalke), we can presumethat new stadiums will be errected during the next few years, independent of apositive decision of FIFA that Germany will host the soccer World Cup 2006. Inmany cases, funds will be privately raised to build the stadiums, or there will beso-called private-public-partnerships (Dietl & Pauli, 1999). This shows that only apart of the investments will be directly related to a possible World Cup. Therefore,the model calculations do not consider a higher investment volume because part ofthe investments will be, or might be, nanced under private economic participationduring the next few years.

In the framework of these simulations, the public sector is solely responsiblefor nancing the yearly investments to the amount of DM 0.23 billion (based on1996 prices) assigned for the World Cup (see Figure 3).

In contrast to the investment costs during the years 2003 to 2005, additionalrevenues may be expected as a result of the expenditures of World Cup tourists in2006. Due to the great importance of soccer in Europe, the framework of thepresent simulations considers the optimistic evaluation of the number of visitors.This is re ected by the results of the utilization of stadium seats for the soccertournaments in Europe during the last decade (96% for EURO 1988 in Germany,90% for EURO 1996 in Great Britain or 88% for the World Cup 1998 in France;see Rahmann et al., 1998). With a utilization rate of 90%, more than 1.1 millionforeign visitors (including sports journalists) are expected, spending approximatelyDM 1.765 billion (see Figure 3) or DM 1.463 billion (based on 1996 prices) inthe tournament year 2006. The complete spendings of the foreign World Cupvisitors are based on the spendings of an average World Cup tourist for travel,

Figure 3. Investments to provide for the World Cup infrastructure in the years2003 to 2005 and consumption expenditure of foreign visitors in 2006 (billion

DM at current prices).

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116 G. Ahlert

entertainment, catering etc., and are a foreign demand for German goods andservices. Thus, they are treated as sport-speci c exports in the simulations. Thisshort-term increase in consumption for the various commodities during the 4weeks of the event will not only be spread over the 10 World Cup locations, but asubstantial part of the spendings of the foreign visitors will also be spent nationwide(for example public transport, fuel, hosting or catering).

The probably increased expenditure on sport-speci c consumer goods of theGerman people are not considered as it is unclear whether the increased expenditurefor visiting the World Cup games will be nanced by a reduction of non-sport-speci c expenditures or by a reduction in the savings ratio and thus a higherconsumption quota. There is certainly a lot of research that speaks for a reductionin savings to nance the increased expenditure on sport-speci c consumer goods,but its amount can hardly be determined. The net e ect on the German economywill only be positive if the national marginal propensity to consume increases atleast during the staging of the World Cup.

Looking at the investment and the consumption impulse in a macroeconomicperspective, it must be pointed out that the direct impulse for the German economyis only relatively small (less than 0.03% of overall investment and 0.06% of overallconsumption). Besides this, these small direct impulses are spread nationwide overmany sectors of the economy. It is probable that many people will not directlyassign the additional revenues to the World Cup. These are the reasons why thesame parameters that were estimated are also used in the simulations for this `one-time shock due to the soccer World Cup 2006.

4. The Soccer World Cup 2006 from the Point of View of AlternativeFinancing

The section gives some simulation results using the SPORT model. The resultsdi er on account of the di erent means of nancing the necessary public WorldCup infrastructural investments. As opposed to the results of the World Cup study,the induced production and price e ects of the additional impulses to demand canbe found endogenously through the dynamic SPORT-model, whereby all possiblestimuli, promotion and feedback e ects are considered.

The results will be shown as deviations from the base solution for the forecastedperiod. The base calculated by the SPORT model suggests a continuation of thebehavioural patterns observed in the past.

Before discussing the simulation results, by comparing the base with a secondforecast, we want to look at some macroeconomic results of the base (compareTable 1). The sport-speci c gross domestic product shapes up with more than 4%,

Table 1. Average growth rates per year for the basein the forecast period from 1999 until 2010

Sport-Total speci c

Gross domestic product + 2.3% + 4.1%Expenditure of households + 1.9% + 4.5%Fixed capital formation + 2.4% + 5.1%Expenditure of general government + 3.3% + 2.9%Employment + 0.5% + 2.2%

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which is almost twice as fast as the total gross domestic product. The main reasonfor this strong development is the already historically observed increase in the shareof sport-speci c expenditure of households as compared to the total expenditureof households. In the forecast period, an increase of this share from 1.9% to 2.4%is assumed. The main reasons are the expected demographic changes (Dowd et al.,1998) and their positive in uences on sporting activities. For example, a highervitality of the older population or a healthcare system that is much more stronglyfounded on prevention. These expected future trends in sports naturally have apositive in uence on sport-speci c xed capital formation, with an average growthper year of about 5% in the forecast period 1999 2010.

The sport-speci c expenditures of the general government will grow (with 2.9%per year) a little less than the total expenditures of the general government becauseof the assumed moderate increase in government expenditures. The strongerdevelopment of the sport-economic sphere results in a relatively strong developmentof sport-speci c employment (+ 2.2%).

4.1. Financing by Means of Increased Public Borrowing

Within the framework of this simulation, the funding of investments for sportinfrastructure to the amount of DM 0.69 billion in the years 2003 to 2005 will bemade through an increased raising of public net borrowing. Moreover, it ispresumed that the additional public investments in sport infrastructure will notresult in a displacement of private investments. With regard to the relatively lowinvestment volume, this seems to be a realistic hypothesis, above all because theyearly investments are distributed to the 10 sites of the World Cup and the variousgoods producing sectors of the economy.

Figure 4 shows that the overall e ect is positive for the gross domestic productduring the whole period of the simulation from 2003 to 2010. The gross domesticproduct will increase by DM 0.33 billion in 2003, as compared with the base and

Figure 4. Change in the gross domestic product with regard to the nancing theWorld Cup by means of increased public borrowing (deviations from the base

solution in billion DM at current prices).

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118 G. Ahlert

will be about DM 0.74 billion higher at the end of the forecast period in the year2010. During these years on account of expanding multiplying e ects there willbe a considerably higher increase in the gross domestic product, especially in theyear of the World Cup. In comparison with the base in 2006, the gross domesticproduct will increase by more than DM 2.9 billion caused especially by thedemands for goods by foreign World Cup tourists.

The considerable increase in the gross domestic product caused by the addi-tional sport-speci c investments (pre-event-phase) or expenditures of the WorldCup tourists (event-phase) is, however, not limited to the sport-speci c sectors.Even from the beginning of 2004, the expanding e ects will radiate very much tothe non-sport-speci c sectors of the economy. This is visible in Figure 4, showingthat the increase in the gross domestic product lies completely above the sport-speci c gross domestic product. This is especially true for the years after the WorldCup (post-event-phase) where the expanding business cycle e ects are nearlyexclusively applicable to the non-sport-speci c areas of the economy. The e ectson the sport-speci c gross domestic product may be disregarded.

Figure 5 shows the development of three components of the gross domesticproduct. On the one hand, of course, investments will be directly expanded by theWorld Cup infrastructural investments in the years 2003 to 2005. The increasinginvestments generate growing wages and pro ts through an expansion of productionwithin the economy, and thus inducing further investments and increased privateconsumption. This is con rmed by a comparison of the development of theinvestments in Figure 5 with the given infrastructural investments in Figure 3during the years 2003 to 2005. The multiplying increase of the investments will beampli ed by the additional foreign demand resulting from World Cup tourism in2006, reaching its maximum at DM 0.56 billion in the year after the World Cup.

Figure 5. Development of some components of the gross domestic product withregard to the nancing the World Cup by means of increased public borrowing

(deviations from the base solution in billion DM at current prices).

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Owing to weakening multipliers in the following years, the additional investmentswill decrease to DM 0.2 billion by the year 2010.

Private consumption will develop dynamically over the whole period of simula-tion. In the years 2003 to 2005, it will be stimulated by increasing incomeresulting from the positive multiplying e ects of the public investments in sportinfrastructure. In the following years, there will be the positive income e ectscaused by the additional foreign demand for consumer goods for the year 2006.The additional increase in private consumption will reach its peak at DM 1.4billion in 2007 and will decrease to DM 0.56 billion by the end of the forecastperiod.

The increase in the gross production, however, will not only result in risingwages and pro ts and thus in increasing disposable income of the private house-holds, but also in expanding public revenues as a result of increasing taxes. Thesewill rise over the entire period, the increase being extraordinarily strong at DM 0.6billion, as compared with the base in the years 2006 and 2007 (compare Figure6). The additional tax payments will be made by companies and private householdsin about equal shares.

On account of increasing public revenues caused by increased taxes (compareFigure 6) there will be an increased public demand over the whole simulationperiod. Figure 5 shows the expansion of the government purchases in comparisonto the base exhibiting a considerable increase, especially through the expansiveimpulse in demand in the year 2006. The additional public revenues will merelylead to a slight reduction of the public net borrowing.

Despite a contractive nancial e ect of the credit funded public investments inthe World Cup infrastructure caused by a marginal increase in the interest rate,the gross domestic product will develop positively. The World Cup infrastructuralinvestments as well as the additional demand caused by World Cup tourism inGermany during the year of the World Cup will create further income spreadingover several periods of decreasing waves into the whole economy. All in all, there

Figure 6. Developement of taxes with regard to the nancing the World Cup bymeans of increased public borrowing (deviations from the base solution in billion

DM at current prices).

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Figure 7. Development of employment with regard to the nancing the WorldCup by means of increased public borrowing (deviations from the base solution).

will be positive e ects on employment over the whole forecast period. More than2400 jobs an annual average will be additionally created each year. In the yearof the World Cup, more than 7000 jobs will be created (see Figure 7).

4.2. Financing by Means of Increased Direct Taxes Paid by Private Households

In the following simulation, we consider how the results will change when theadditional yearly pre-event investments in the years 2003 to 2005 will be nancedby increased tax payments by private households (Figure 8).

In comparison to the base solution, the gross domestic product will rise overthe whole period. However, compared with the forecast discussed in Section 4.1

Figure 8. Change of the gross domestic product with regard to nancing theWorld Cup by means of increased direct taxes paid by private households (deviation

from the base solution in billions DM at current prices).

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Figure 9. Development of some components of the gross domestic product withregard to nancing the World Cup by means of increased direct taxes paid byprivate households (deviations from the base solution in billions DM at current

prices).

(credit nanced investments in World Cup infrastructure) the increase in grossdomestic product over the whole forecast period will be about 25% lower. Thereis, of course, a direct relation here to the nancing of the World Cup infrastructuralinvestments. The additional taxes paid by private households will slow down thee ect of expanding the payments of additional public investments because a partof the created income is taken out of the circular ow. Obviously, this leads to amarked decrease in private consumption (compare Figure 9) if compared with thebase solution in the rst years of the forecast. This decrease is especially strong forthe non-sport-speci c private consumption. It is much stronger than the expandinge ect of the World Cup infrastructural investments.

In the year 2006, the additional demand by foreign World Cup visitors to theamount of DM 1.765 billion will cause a noticeable expansion in production andan increase in the disposable income of private households. In its turn, this againwill generate an additional demand for consumption, for investments, or theincrease in disposable income will ow back to the state as additional taxes. Afteran initial decrease in government purchases due to the contractionary nanciale ect, these processes will provide an increase in goverment purchases. Due to themultiplying e ects, the state can obviously nance additional expenditures. Figure9 also shows that additional investments are induced by the consumption expendi-ture of the foreign visitors.

Owing to the increased direct taxes to create a new infrastructure speci callyfor the World Cup, there will be a noticeable expansion of the gross productionand its components only in the year of the World Cup. This delayed developmentcan also be seen for the disposable income, which is decreasing due to the tax nancing in the years 2003 2005 and only rising strongly through the exogenouspush in demand from abroad. The increase in gross production as well as inincome will amplify the favourable development of the public revenues. If taxes are

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Figure 10. Development of the taxes with regard to nancing the World Cup bymeans of increased direct taxes paid by private households (deviations from the

base solution in billions DM at current prices).

increased during the rst three years to provide nance, the increasing disposableincome will especially generate additional tax revenues in the following years(compare Figure 10).

However, the additional tax revenues can only reduce public net borrowingmarginally. On the one hand, they will be originally levied to fund the public WorldCup infrastructure investments. On the other, owing to circular e ects, theadditional tax revenues will be spent as additional public expenditure, i.e. they willnot be explicitly taken to pay o the public debt. Only in the year of the WorldCup will the additional tax revenues cause a slight decrease in new public liabilities.

The expansion of the sport-speci c public expenditure in the pre-event phase, nanced by means of increased direct taxes, will have a positive e ect on employ-ment. After a decrease due to the contractionary nancing e ect of the World Cupinfrastructure investments at the beginning of the year 2003, employment willincrease slightly during the years 2004 2009 and reach its maximum at nearly7800 additional jobs in the year of the World Cup. In comparison with the forecastdiscussed in Section 4.1., the total employment e ect will be about 20% weaker.Nevertheless, the total e ect on gross domestic product and employment is positive.

4.3. Financing by Means of a Public Coin Programme

Finally, we want to analyse how the results will change if the government does notwish to levy the required means for the infrastructural investments necessary forthe World Cup by borrowing (as in Section 4.1) or by higher taxes (as in Section4.2) but exclusively by a public coin programme. Such a coin programme wouldgive soccer fans the opportunity to take a share in their World Cup. It is obviousthat the investments in the pre-event phase are probably far too high for such anexclusively public coin programme (Maennig, 1992) but analysing it reveals thelimits of this often discussed nancial proposal.

Private households buying World Cup coins just means a transfer of assets fromthe private households to the state. This ow of payments will be additionallyconsidered in the simulation for the World Cup year. It is presumed that privatehouseholds will interpret the World Cup coins as an alternative way of saving. Thus,

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Figure 11. Developement of employment with regard to nancing the World Cupby means of increased direct taxes paid by private households (deviations from the

base solution).

no reduction in consumption results from their purchase, but there is a substitutionof other saving forms (World Cup coins against savings accounts balances).

Comparing the gross domestic product caused by this scenario (see Figure 12)with the result from the framework of credit nanced investments in the WorldCup infrastructure (see Figure 4) shows that they di er only slightly. Despite amarked decrease in the public nancial balance due to additional revenues fromcoin purchases from private households in the World Cup year 2006, coin nancinggenerates only a small di erence in the results. These similar results, which maysurprise at a rst glance, can be explained by the two types of nancing (loans andcoins) these being claims of the private households on the state and thus leadingto a payment in later years.

Figure 12. Change of the gross domestic product with regard to nancing theWorld Cup by means of a public coin programme (coins are interpreted as analternative way of saving) (deviations from the base solution in billions DM at

current prices).

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124 G. Ahlert

Figure 13. Change of the gross domestic product with regard to nancing theWorld Cup by means of a public coin programme (coins are not interpreted as analternative way of saving) (deviations from the base solution in billions DM at

current prices).

However, there is a di erence in quality between the funding by coins and byloans. While, for the credit funding a repayment including adequate interest isagreed at the time of making the loan, neither interest nor pay-back delay will beagreed in case of coin nancing. The state, as well as the coin collector, are hopingthat the value of the coins will rise in the future or that these coins will be kept foridealistic reasons (as memorabilia).

If, however, the World Cup coins issued by the state are not interpreted as analternative form of saving, but as very special sport-speci c private consumptionexpenditure, the result changes considerably. In this case, the private householdsreduce their consumption expenditure in the World Cup year to the amount ofWorld Cup coins issued by the state. This will lead to a marked contraction of theaggregate demand in the following years (see Figure 13). In comparison with thepublic coin programme, where private households interpret the coins as an alterna-tive means of saving, the increase in gross domestic product over the whole forecastperiod will be about 27% lower.

With a coin nancing programme, the di usion of the additionally createdincome into the whole economy will be determined by the behaviour of the privatehouseholds towards saving. If the coin nancing leads to a reduction in theconsumption by private households, no additional demand will be stimulated. Onlyby replacing di erent types of savings through the special World Cup coins canevident expansive income e ects be expected, because they are interpreted as analternative means of saving. This shows that such coin programmes only makesense if their volume as well as their form do not lead to additional savings andthus do not lead to a reduction in private consumption expenditure.

These results illustrate that nancing by coins bears certain risks and thusshould be thoroughly prepared by the public money or the nance controllingauthority. If this is not guaranteed, the desired expanding e ect of a WorldCup coin programme to nance the necessary public World Cup infrastructuralinvestments is not ensured.

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5. Conclusions

The results of the di erent simulations show that in general independent of thetype of nancing of the necessary investments in World Cup infrastructures thehosting of the World Cup positively in uences both income and employment. Evenin the most restrictive nancing scheme if taxes are increased between 2003 and2005 to nance the governmental investment in World Cup infrastructures thetotal gross domestic product would increase signi cantly by about 0.05% due tothe consumption expenditures of foreign World Cup tourists in 2006. Althoughthe additional taxes paid by private households will slow down the e ect ofexpanding payments of additional public investments in the rst year of thesimulation, in the following years the total e ect on gross domestic product andemployment is positive. The level of the e ect will, of course, be determined bythe additional demand of foreign visitors to the soccer World Cup event. Thisadditional foreign demand will cause a strong expansion of production and incomein the year 2006. The exogenous impulse of the foreign visitors will be limited tothe short period of the World Cup with regard to the consumption of goods andservices. However, owing to the manifold multiplying links of the economic cycle,this additional demand will generate, directly and indirectly, a noticeable additionaldemand in the following years.

In addition, the results presented enable the decision-makers in sports, politicsand business to determine the opportunity costs of the alternative means of nancing the necessary World Cup speci c infrastructural investments. With theaid of such model calculations the responsible decision-makers are able to minimizethe potential losses of future earnings. The impact analysis with the SPORT-modelmeasures the bene t impacts of public investments and of the additional demandof foreign visitors as well as the economic costs of the alternative nancial strategiesfor public investments. Normally, impact analyses invariably measure only thebene t impact but decision makers need information on both sides of the equationto make informed decisions (Howard & Crompton, 1995).

This paper also illustrates the wide scope of application of such model-basedcalculations. The special performance of the SPORT-model is the complete linkageof the national accounts to the input output system and consideration of the sporteconomic activities in detail. Only this complex approach makes it possible to studythe induced intertemporal production and price e ects of the additional impulsesto demand as they can be found endogenously through the SPORT-model. Suchan approach may give valuable additional information for explaining decisions tothe public.

Naturally, the results of these model calculations may be the basis for furtherinvestigations in the framework of an extended cost bene t analysis. Such a costbene t analysis supplements the quantitative economic impact analysis presentedwith the qualitative e ects from a social or political viewpoint.

References

Ahlert, G. (1998) Sports and Economy. Paper presented at the Sixth INFORUM World Conference, ElEscorial, Spain, 13 18 September, 1998.

Ahlert, G. & Schnieder, C. (1997) Integrating Sports in the German Input Output Table. Paper presentedat the Fifth INFORUM World Conference, Bertinoro, Italy, 15 20 September, 1997.

Almon, C. (1991) The INFORUM Approach to Interindustry Modeling, Economic Systems Research,3, pp. 1 7.

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Dietl, H.-M. & Pauli, M. (1999) Wirtschaftliche Auswirkungen o entlich nanizierter Stadionprojekte,Arbeitspapiere des Fachbereichs Wirtschaftswissenschaften der Universita t-Gesamthochschule Paderborn,Nr. 61 (Paderborn, Universita t-Gesamthochschule Paderborn).

Dowd, T. A., Monaco, R. M. & Janoska, J. J. (1998) E ects of future demographic changes on the USeconomy: evidence from a long term simulation model, Economic Systems Research, 10, pp. 239 262.

Howard, D. R. & Crompton, J. L. (1995) Financing Sport (Morgantown, Fitness Information Techno-logy Inc).

Kurscheidt, M. & Rahmann, B. (1998) Local investment and national impact: the case of the footballWorld Cup 2006 in Germany, in: C. Jeanrenaud (ed) The Economic Impact of Sport Events, (Neucha tel,International Centre for Sport Studies), pp. 79 108.

Ma, Q. (1997) A bilateral trade model for the INFORUM international system, in: L. Tomaszewicz(ed) Proceeding of the 3rd World INFORUM Conference (Lodz, Absolwent), pp. 135 183.

Maennig, W. (1992) Kosten und Erlo se der Olympischen Spiele in Berlin 2000 (Berlin, Berlin 2000 OlympiaGmbH).

Meyer, B. (1999) Research-statistical-policy co-operation in Germany: modelling with Panta Rhei,in: European Comission (ed) From research to implementation: policy driven methods for evaluatingmacroeconomic environmental performance (Brussels, European Commission), pp. 39 56.

Meyer, B. & Ahlert, G. (2000) Die o konomischen Perspektiven des Sports. Eine empirische Analyse fu r dieBundesrepublik Deutschland (Ko ln, Bundesinstitut fu r Sportwissenschaft).

Meyer, B., Bockermann, A., Ewerhart, G. & Lutz, Ch. (1999)Marktkonforme Umweltpolitik (Heidelberg,Physica-Verlag).

Nyhus, D. (1991) The INFORUM international system, Economic Systems Research, 3, pp. 55 64.Nyhus, D. & Wang, Q. (1997) Investment and Exports: A Trade Share Perspective, Paper presented at theFifth INFORUM World Conference, Bertinoro, Italy, 15 20 September 1997.

Rahmann, B., Weber, W., Groening, Y., Kurscheidt, M., Napp, H.-G. & Pauli, M. (1998) Sozio-o konomische Analyse der Fu ball-WM 2006 in Deutschland (Ko ln, Bundesinstitut fu r Sportwissenschaft).

Appendix

The INFORGE-model

Figure 2 gives a rough impression of the structure of the model. The selectedINFORGE-model for the sport economically extended SPORT-model is part ofthe older INFORUM International System (Nyhus, 1991) that links 13 national I-O models on the sectoral level via export and import ows as well as the correspond-ing foreign trade prices. The INFORUM international system delivers the vectorof world import demand for product groups, the vector of world market prices forproduct groups and the US rates of interest. The International System forecasts theeconomic development of Belgium, Germany, France, Great Britain, Italy, theNetherlands, Austria, Spain, USA, Canada, Mexico, Japan and South Korea in fullsectoral disaggregation. This world trade model is being developed steadily (Ma,1997; Nyhus & Wang, 1997). Besides the goods markets, the INFORUM Inter-national System also represents the international nancial markets, although in aless detailed way. American interest rates as indicators for the international capitalmarket condition have a weighty in uence on German interest rates and thus onthe German goods markets.

Final demand distinguishes the components private consumption, public con-sumption, equipment, construction, exports, inventories and imports of nishedproducts in the disaggregation of 58 product groups. The most important determi-nants of nal demand are the world trade variables (explaining exports), disposableincome of private and public households (explaining private and public consump-tion), the interest rates and pro ts (investment) and the relative prices for allcomponents and product groups of nal demand.

For all intermediate inputs the model distinguishes deliveries from domestic

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production and imports. In general, the input coe cients are variable and dependon relative prices and time trends.

The most important determinants of employment are production and the realwage rate of the sector. Wage rates are estimated by productivity and prices. Pro tsand unit costs are given by de nition equations. Unit costs of the product groupand the prices of competing imports are the most important determinants ofsectoral prices.

Besides the deeply disaggregated input output account, the model contains theSNA for Germany with the institutional transactors (i.e. public households, privatehouseholds, corporations and rest of the world) and the functional transactors (i.e.production, generation of income, distribution of income, redistribution of income,capital account and nancial account). This system contains the whole incomeredistribution of social security and taxation between the government, privatehouseholds and corporations and thus allows us to calculate disposable income gures of public and private households, which are the central determinants of nal demand. Another important outcome of the SNA part of the model is the netlendings/borrowings of the institutional transactors, which have an in uence onthe interest rates. Interest rates are further determined by the US rate of governmentbonds and monetary policy variables, which react on price signals.

Therefore, the model has a high degree of interdependency. In addition to thecommon interdependencies of income generation, the interdependencies of vol-umes and prices and the wage price interdependency are relevant. Furthermore,the model is marked by non-linearities, which appear as multiplicative combinationsof variables in de nitions and estimated equations and double-log speci cations.The consequence of the overall interdependency and the non-linearity is necessityto solve the model as one simultaneous block. Of course, such a structure producesdi culties in handling the system, but on the other hand each run of the model isa strong test. A bad hypothesis will produce instabilities and the solutions will notconverge.

The INFORGE model has a high degree of endogenization. Exogenously givenare only some tax rates, labour supply and the world market variables of theinternational INFORUM system. Since INFORGE itself is part of the internationalsystem, the world market variables are also endogenous in a linked run of allmodels. The high degree of endogenization has the advantage that, in simulations,the e ects are completely depicted (Meyer, 1999).

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The Economic Effeects of the Soccer World Cup 2006

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Transcript of The Economic Effeects of the Soccer World Cup 2006