Jack Mintz: Don’t expect a World Cup economic bounce

Vancouver and Toronto co-hosting the World Cup might boost sales and expectations about a better Canadian economy. But will this year’s GDP be higher because we hosted the World Cup?  Photo by Emilee Chinn/Getty Images

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The World Cup not only entertains fans of football, or as Canadians have traditionally known it, soccer. It also provides megabucks for FIFA, retailers, service providers and even manufacturers.

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This quadrennial burst of spending has encouraged sports-minded economists to see if big football tournaments have any impact on the economy. A slew of studies has shown mixed results, ranging from nil to a three per cent increase in consumer spending.

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Underwhelming results shouldn’t really be surprising. People who spend more on World Cup tickets, merch and services will likely spend less on other consumption goods, assuming their household budgets remain the same. The only way for consumption to increase overall is for incomes to grow as demand for services to support World Cup activities pushes up wages.

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But what about the idea that tournaments like the World Cup improve business confidence and lift an economy that way? Jonas Hennrich and Klaus Wohlrabe of German’s Ifo Institute for Economic Research published a well-timed paper in June that tries to answer that question.

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John Maynard Keynes is credited for the idea that “animal spirits” are an important factor in business decisions. As he wrote in his 1936 classic, The General Theory of Employment, Interest and Money, “Most, probably, of our decisions to do something positive … can only be taken as a result of animal spirits — of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” What’s key are the expectations and emotions consumers and businesses harbour when making decisions.

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Hennrich and Wohlrabe test business sentiment and expectations using the comprehensive business survey Ifo has been running since 1949. They look at whether business sentiment about the state of the economy and people’s expectations about what’s going to happen to the economy vary during football championships.

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Their data set runs from 1991 to 2024, covering eight World Cups and nine European Cups. It includes almost 18,000 European companies that appear in the survey for at least 24 months. In total, that gives them 2.2 million observations for analysis, which is massive.

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Their most important result is that business sentiment does not change in the months surrounding a tournament. But expectations do. In the six months before a tournament, expectations are slightly more pessimistic, as companies have not yet anticipated the tournament’s impact. This finding includes host countries, which bear most of the costs and disruption of a tournament. Two months before the event, however, animal spirits pick up and a better economy is predicted. But the effect is short-lived: six months after the tournament, expectations are back to their original level.