The World Cup kicks off this week, with Russia hosting FIFA’s quadrennial footballing spectacle. An estimated 3.4 billion viewers are set to tune in to watch some of sport’s biggest stars vie for international glory. On the surface, that type of exposure would appear to be invaluable to the host nation. However, most studies do not find any material economic benefit to hosts of large international events such as the World Cup. Asset prices are a slightly different story. Hosts’ equity markets tend to rally ahead of the event. Of the five previous hosts, only one, Brazil, did not experience a gain in its benchmark equity index in the twelve months before the tournament. And the average increase is 22%. However, these rallies tend to fade after the trophy has been handed out, perhaps providing investors with some additional post-tournament withdrawal. The average gain in the twelve months after the World Cup kicks off drops to 9%, albeit with a maximum and minimum of +40% and -21%.
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Enough about the hosts, what really matters is victory. There are commonalities among the eight previous World Cup winners. For one, they are concentrated geographically, with all located either in Western Europe or Latin America. Meanwhile, prior research by Fathom Consulting has found that a country’s population and average income tend to be the primary drivers of success at the Summer Olympics. A similar trend seems to hold in football. All previous winners have an average GDP per capita above the global norm, with that gap particularly large for European winners, who all enjoy a GDP per capita above the OECD average. It is reasonable to think that increased funds are used to finance productive football infrastructure.
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Previous winners also tend to have large populations, giving them a large pool of talent to choose from. The average population among prior winners is 71 million, which if it were a country of its own, would place it 20th in the world. However, there is some diversity within that. Brazil tops the group, with a population of over 200 million, which helps to explain how the seleção routinely find superstars such as Pele, Ronaldo and Neymar. By contrast, Uruguay is an impressive outlier. With a population of 3.5 million, they have managed to lift the trophy two times, albeit their last victory was in 1950.
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So as the world’s attention focuses on Russia for the next few weeks, it might not be crazy to think that the increase in Russian equities over the past year will lose some of its steam in the months ahead. Meanwhile, on the pitch, fans of underdogs would be advised to cheer for Iceland or Senegal. The former is the least populous participating nation, with a total population of just 334,000. Meanwhile, the latter has the lowest GDP per capita. Those looking to back favorites could do worse than choosing Brazil or Germany. Together with Italy, that golden trio have won the World Cup on 65% of occasions. With the azzurri missing this year’s tournament, it would not surprise many if we see a Brazil versus Germany final. Indeed, according to the bookmakers, those are the top two favorites.
You can find more football-related charts in the ‘2018 World Cup’ hot topic folder in Chartbook hosted by Thomson Reuters.
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