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Sports and Development: An Economic Perspective on the Impact of the 2010 World Cup. Jo Swinnen & Thijs Vandemoortele Cape Town Conference March 2008. Overview. Introduction The Impact of Infrastructure Investments Sports, Migration & Development Concluding Comments. 1. Introduction.

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sports and development an economic perspective on the impact of the 2010 world cup

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

Jo Swinnen

&

Thijs Vandemoortele

Cape Town Conference March 2008

overview
Overview
  • Introduction
  • The Impact of Infrastructure Investments
  • Sports, Migration & Development
  • Concluding Comments
1 introduction
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
1 introduction1
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 … )
1 introduction2
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)
2 the impact of infrastructure investments
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
slide7
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)

slide8
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
slide9
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)
slide10
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)
world cup 2010 south africa
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
slide12
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)
slide13
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)
impacts level of development
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)

slide15
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
slide16
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
slide17
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 ?
slide18
Conclusion Brenke & Wagner (2006):
  • Minor economic effects,
  • but
    • positive country-image for Germany and ….
    • “it was great fun, nothing more, nothing less”
slide19
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
3 sports migration econ dev
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
slide23
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
slide24
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)
slide25
“… 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)

sports migration
Sports Migration
  • Summary : A very negative assessment
  • Contrasts strongly with general literature on economic effects of migration
slide27
“… international migration […]

has a strong impact

on reducing poverty.”

(Adams and Page, 2003)

evidence
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”
slide30
Q: How important is African player migration to Europe ?
  • A: Relatively minor compared to migration from other regions
migration effects general
Migration Effects : General
  • Absence
  • Diaspora (trade & remittances & …)
  • Return of migrants
  • Prospect of migration (dynamics)

[Kapur & McHale (2005): “Brain Drain & Brain Gain”]

slide37
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

slide40
“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 ?

slide41
“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

slide42
Muscle Drain or Muscle Gain ?

Empirics : very little

  • Ad hoc evidence can be used both ways
  • Performance of African teams with migration ?
slide44
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)

slide45
The role & effect of Football Academies ?

Let’s take a look in one of the major player exporting countries : Senegal …

slide47
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)
slide48
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
slide49
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.
slide50
Training Centers

(Centres de formation)

  • Diambars

(Supported by (ex-)top players in EU: Patrick Viera, Bernard Lama, … )

  • Elite Foot
  • CASE
    • (former Minister of Senegal)
diambars official statements
Diambars – Official statements
  • Diambars focuses first and foremost on the education of its pupils: about 70% of their time is dedicated to schooling.
  • Graduates from the school are sold to clubs, but not before they turn 18, and their "transfer fees" are reinvested in the school, and in funding the roll-out of academies across Africa.
  • Ensuring the scholars receive a good education also helps prevent the exploitation of the boys.
  • Should a player's goal of playing professional football not work out, they have a good, solid education to fall back upon.
  • The institute offers them protection against unscrupulous agents.
  • Even if boys are fortunate enough to secure a contract with a club, Diambars keeps close tabs on their progress, with the staff of the academy, including the professional players that support it, continuing to provide guidance and protection.
slide53
Collège Africaine Sports Etudes (CASE)
      • Recently also basketball and tennis education
      • Provides official academic (secondary) education
      • Strong emphasis on academic education
      • Initially co-funded by AS Monaco (collaboration ended now)
      • After Monaco stopped funding, asks registration fees (high!) and survives on proceeds of sales of some players
slide58
Elite Foot
    • Established by foreign Senegalese internationals
    • Education less official than CASE (no complete package, only informatics, English, French, some mathematics)
    • Registration fee (lower than CASE, still high)
    • Funds from private American partner
slide60
Kenza Mariste
    • No academic education
    • But ! Students are required to show their monthly school reports → if bad grades: banned from training until performance at school again at level
    • No submission fee
    • No strategic partnerships
migration the world cup
Migration & the World Cup
  • Potential effects of the World Cup on migration
    • Long-term boost to football from World Cup: may increase demand for players from other African countries (more in-migration)
    • World Cup may inspire young South Africans to become international players and may thus increase investment in youth football (surge in football academies, see Senegal after World Cup 2002) (more out-migration)
diambars sa
… Diambars SA
  • French star Patrick Vieira, announced the institute's intention to open the second Diambars academy in South Africa.
  • "We want to build on the momentum behind the World Cup to promote the idea that football can be a great instrument to advance education and promote social and human development".
concluding comments
Concluding comments
  • Research on infrastructure effects well established
  • Research on other economic development mechanisms not
    • Migration literature
    • I-O & international organization literature
ad