Thursday, June 24, 2010

2011 World Cup Fever

With an impending game against Paraguay tomorrow morning, the New Zealand All-Whites are about to face one of the toughest games they have had in the 2010 World Cup. If they lose we will all pat them on the back but if they win they will be the nation's heroes and we will lavish them with praise and all the accolades they rightly deserve.

A great deal of those accolades will be over-hyped and far short of the mark - it is only a game (please don't hurt me)after all but I cant help compare the exploits and hype that has gone along with the All-Whites over their last two games and the expectations from some over the economic spin-offs from the Rugby World Cup in 2011 when it is held in New Zealand.

It has been suggested by Government (since when has any Govt been accurate with facts and figures) that the economic benefits to New Zealand of the 2011 Cup will be around $NZ 1.25 billion. Without a calculation as to how this figure is arrived at it is best to take this estimate with a large grain of something (salt is bad for you now apparently) because it is likely to be over-hyped.

The returns for New Zealand are likely to be negligible at best and loss making at its worst.

When one looks at just how much taxpayer and ratepayer money has gone into building stadiums and associated infrastructure you don't really have to grab a calculator to see that the Government's own estimate of a $1.25 billion gain is quickly gobbled up.

Ahh but your answer to my apparent negativity (I would say I am a realist though) would be that all this spending stimulates the economy. Well, it does if you own shares in Fletcher Building [FBU.NZ] or Steel & Tube [STU.NZ] or have a financial interest in Fulton Hogan but this money has been taken off you to simply circulate around the economy. No foreign exchange was earned and nothing productive sold - very incestuous stuff.

There are other direct beneficiaries too. The bars and eateries around the game towns will get more patronage, the hotels and motels will be booked out, Sky City Entertainment Group [SKC.NZ] are planning for an influx of rugby heads and companies like Tourism Holdings [THL.NZ] should get a shot in the arm.

Indirect benefits are difficult to quantify and a merely guess work without the facts and figures to support them. Government are saying that there will be exposure to new tourists from the 4 billion that will watch (another dubious figure) but how do you calculate that if there are benefits and how do you know any increase in tourist numbers might be from having staged the World Cup?

You simply don't.

Taxpayers and ratepayers are going to be saddled with paying off the giant stadiums that have been built for years and the drain from the ongoing running costs will only be eclipsed by the fact that these large holes with many seats in them will rarely be used to capacity.

South African taxpayers will find this out in the years to come and as with the 2010 World Cup the big winners will be the officials who oversee the world game. FIFA for Football and the IRB for Rugby.

They will make big quantifiable profits that are black and white on the balance sheet.

The proletariat are subsidising them.

Good luck to the All-Whites !

Disclosure : I own FBU, STU & SKC shares in the Share Investor Portfolio

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  1. You seem to have missed a number of important points.

    The $1.25b economic impact of the Tournament was calculated by economists at Horwath Asia Pacific in 2006 so there is some rigour to the analysis.

    Around $600 of public money - local and central is being spent on stadia redevelopments, transport improvements etc. These are capital investments which will have long term benefits to the communities that will use them. Most are improvements that would have happened anyway - Eden Park, Christchurch and Dunedin were overdue for upgrades and had long been talked about. By the way, Eden Park's permanent capacity will only be a few thousand more than pre-redevelopment so its not an unnecessary giant stadium as you put it. The Dunedin stadium will have similar capacity to Carisbrook, but be more useable given that it is enclosed. Then there are much needed improvements to numerous training facilities.

    Then there is the international exposure NZ gets from holding the world's third biggest sporting event. The 4b television audience is a cumulative figure during tournament time. You need to also factor in all the other exposure we are getting from rising international media interest in the lead-up to the Tournament and during it. Plus the endorsement of the expected 60,000 plus visitors. RWC 2011 provides many valuable showcasing opportunities for New Zealand around the world.

    Then there are other intangibles - more than 5000 volunteers will be recruited for the Tournament. We hope many go on to serve their community further. We are training people to provide great service at major events. We are building confidence in the ability of NZ to host major events. There are many other intangibles - how the new generation of kids inspired to take up Rugby as a sport? How about reinvigorated national and community pride? Hard to put a price on that.

    RWC 2011 is probably the last time NZ will be able to host an event of this magnitude. It was an opportunity too good to be missed.

    Hope this provides food for thought.
    Mike Jaspers
    Communications Manager
    Rugby New Zealand 2011

  2. Whoops, that should read around $600 million of public money!

  3. Thanks for your comments Mike but let me counter some of your points.

    I have little faith in economists taking stabs in the dark on behalf of politicians at economic impacts, good or bad. Ask two different economists an opinion and they will give you 2 different answers.

    The $1.25 billion cannot be quantified by facts and figures. It is guesswork.

    The $600 million spend also ignores the inevitable cost overruns of public building and also ignores the interest costs to be paid on the considerable debt used to build stadiums and other infrastructure.

    The stadia built or rebuilt will also require annual running costs which also will be sadly paid from the public purse and this is not factored into the $600 million.

    The opportunity cost lost from not spending that $600 million on something productive is also not accounted for in your figures.

    If building stadiums was a money spinner private business would be funding them.

    Also to say that this event is the world's 3rd largest is just not factual.

    The Olympics is first, World Cup second, Formula one third, Rallying probably forth with a whole host of others that come before the Rugby World Cup.

    I wouldn't argue that the 2011 Cup will have some impact overseas but it is certainly not going to be as much as all the hype would have us believe. It is a relatively small event with limited exposure.

    Most of the world will not know that it is being held, let alone being held in New Zealand.

    Thanks again for your comments and I wish you well in 2011.

  4. Darren,

    You are being Harsh again.
    The RWC is a world class event,no doubt about that.

    It does not need to be a money spinner because it is purely entertainment, that is what sport is, an entertainment.
    Think of it like going to see a movie.

    We are hosting a giant entertainment extravaganza !
    The feel good factor alone will be priceless!

    Good on RNZ for hosting it.
    I am looking forward to it Immensely.

  5. Hey RJ, at last we disagree!

    Hey the RWC might have a feel good factor but I don't feel good about paying for it.


    Will you feel good when the All Blacks don't win the cup?


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