The Beautiful Game and the Dismal Science

Today’s post is from Eva Marikova Leeds of the Department of Economics and Business, Moravian College and Michael A. Leeds of the Department of Economics, Temple University.

But is it level?

Every four years, economists around the world turn their attention to something of true interest to the world’s population – predicting who will win the World Cup.

Studies of what it takes to succeed in international football have confirmed that it pays to be big and it pays to be rich.

Countries with large populations and high GDP per capita have higher FIFA rankings and have more success in World Cup competition. 

By that standard, the United States should be an odds-on favorite for this year’s World Cup.  Of the 32 countries currently competing in South Africa, the United States is the most populous and has the highest GDP per capita (after adjusting for purchasing power). 

Obviously, population and income are not the sole determinants of success, as only the most wildly optimistic fans of Team USA expect it to get anywhere near the final round.  In a paper that was published in the August 2009 issue of the Journal of Sports Economics, we confirmed the finding that large, rich nations have greater success in international soccer competitions than small, poor nations. 

But we find that the importance of income and population – and hence the United States’ advantage – fall as they become larger.  More importantly, we also found that a variety of other economic, political, and institutional factors play an important role in a nation’s soccer prowess: 

  • It pays to be a well-to-do democracy.  Even when one controls for GDP per capita, countries that are members of OECD do better than other nations.  More than half of the teams in this year’s World Cup Finals belong to OECD. 
  • Currently communist countries have more success in soccer.  Thus soccer is one of the few venues in which North Korea’s regime has helped its country.
  • The old colonial order continues to hold when it comes to soccer, as the former colonial powers – England, France, Netherlands, Portugal, and Spain (all of which are in this year’s World Cup Finals) – do better than other nations.  
  • Oil-exporting countries do better in international soccer competition.  In this year’s final, that would give an advantage to Mexico and Nigeria.  
  • Perhaps the most important indicator of international success is a nation’s commitment to soccer.  We measured this commitment in two ways.  First, we found that nations that had hosted the World Cup (which 13 finalists have done) did better in international soccer.  Our second measure used the number of teams to reach the quarterfinals of Confederation competitions, such as the UEFA Champions League or the Copa Libertadores.  We found that a country’s national team did better as more of its club teams (which might or might not feature home-grown talent) reached the confederation’s quarterfinals.  This gives a big edge to England and an even bigger edge to Brazil.

What does all this mean for the upcoming World Cup Competition?  We applied our econometric results to data for 31 of the 32 nations competing in the finals (missing data led us to exclude North Korea) and found that the favorite is – surprise of surprises – Brazil. 

It just goes to show that economic analysis sometimes predicts the obvious.

Useful links

The OECD looks at Competition Issues Related to Sports (Yes, that really is the title).

And the World Cup winner is …

Allez les Bleus!

As the World Cup gets underway in South Africa, excitement is at fever pitch among soccer fans. For the rest of us, there will be nothing to do over the next month but wait to see how the financial sector reacts.

Even before the kickoff, some big names are already in action. Swiss giant UBS scored back in 2006 when it predicted that Italy would win the World Cup. Two years later, it used the same model to predict the winner of the European Championship: Sadly, it just wasn’t the Czech Republic’s year. This time round, UBS is offering only percentage likelihoods of victory. Its top four: Brazil, with a 22% chance of success, Germany on 18%, Italy on 13% and The Netherlands on 8%.

Goldman Sachs is also in cautious mood, and is predicting only the semi-finalists: England, Argentina, Brazil and Spain. But just for fun, it has also carried out a probability exercise based on FIFA rankings and bookmakers’ odds. Under that rubric, its top picks are Brazil, with a probability of success of just under 14%, Spain on just over 10%, and Germany and England neck-and-neck on just under 9½%.

And then there’s J.P. Morgan which has applied quantitative analysis to the problem. It sees  Brazil as the strongest team, but believes the fixture schedule will deprive it of the title. Instead, it predicts 3rd place for The Netherlands, 2nd for Spain and … a win for England (huh!).

But will markets respond to what happens on the pitch? Some believe they may, partly because testosterone-fuelled share traders are just the sort of guys who like to stay up all night watching big matches. In soccer-mad Hong Kong, China, for instance, trading is predicted to be light during the football festival, which can make for extra volatility in share prices.

In the United Kingdom, a study by a group of academics suggests shares in London fall when England loses or draws and rise when it wins. “Stockbrokers, like everyone else, can be carried away in the depression associated with an England loss at the World Cup,” Professor Robert Hudson told The Daily Telegraph.

 And then there are the business winners and losers. A good run for Portugal or Brazil might boost shares in Nike, which makes the teams’ kits. By contrast, success for Spain could be good news for Adidas. As HSBC’s Erwan Rambourg told Forbes, “The further your team goes in the tournament, the more jerseys, footwear and footballs you will sell.”

 The bigger question: Will the World Cup mark the beginning of a new era for Africa on the world stage? If you can tear yourself away from the soccer action, you’ll find regular postings here on the OECD Insights Blog over the next few weeks examining that question and, more broadly, the challenges facing Africa and its prospects for success in the post-World Cup era.  

 Useful links

 African Economic Outlook

 Africa at the OECD Development Centre

Photo courtesy of Steindy