As you read this, the whole world - bar large swathes of the US population, who still view football, or soccer, as a minority sport - will be gripped to their TV sets, computers and radios, following the opening group stages of the 2006 FIFA World Cup in Germany.

While non-football fans probably view this as one of the longest, most tedious months ever, with wall-to-wall media exposure ranging from acres of newsprint on formations, tactics and a certain Englishman’s broken metatarsal, to blanket TV coverage worldwide, to many it is the most eagerly awaited sporting event in the world. And even though the World Cup is a runner-up to the Summer Olympic Games in terms of worldwide TV advertising revenue (with again, Americans’ relative indifference to the game being a major contributor to this phenomenon), it is widely accepted as the greatest single sporting event on earth - and certainly the most watched, with a cumulative audience of close to 30 billion in 2002.

What’s equally fascinating, however, is what happens off the pitch, and the driving economic forces behind the World Cup, and indeed football in general.

So in this week’s column I’ll try to show how the activity of 22 men kicking a ball around has become one of the world’s biggest leisure industries, with its governing body FIFA the main beneficiary; and in parallel, how the World Cup competition can help drive economic growth in the countries that host it.

Big game spending
From its humble beginnings in some muddy English field many centuries ago, football is now an undisputed global affair, with money sloshing around it by the bucketful. For the last event in 2002, FIFA took its cash cow to Asia for the first time, where it was co-hosted by Japan and South Korea. While many doubted the ability of the hosts to pull off the event, it was a success at least off the field, generating a $260 million profit for FIFA.

The 2002 competition also gave a timely boost to South Korea’s growing economy, and helped offset Japan’s 12 years of economic stagnation. Japan spent a reported $4.5 billion to build nine World Cup stadiums, while the Koreans spent $2.5 billion on new stadiums, most of which were in rural areas far from the capital Seoul, thus giving a shot in the arm to the local construction industry.

By comparison, for the 2006 World Cup in Germany, local, regional and federal governments have spent a total of around $350 million to improve roads and link the stadium area in Munich to highways and the subway system, and around $1.7 billion in total to bring all Germany’s World Cup stadiums up to 21st century standards.

In terms of boosting economic growth and consumer spending, Germany, Europe’s largest economy and the world’s number one exporter per capita, is forecasting an influx of over three million incoming supporters. Besides spending on air and other forms of travel, tickets and related merchandise, the bottom line is that they will all need somewhere to sleep, and plenty to eat and drink. So far, according to Munich’s Ifo Institute for Economic Research, the positive effects of the World Cup have seen business confidence rise to a 15-year high this April without a ball being kicked.

According to another study recently published by the Association of German Chambers of Industry and Commerce (DIHK), the World Cup will lead to the creation of some 60 000 new jobs and boost Germany’s flagging economic growth. Of all these jobs created, every third is expected to be permanent, the survey noted, while Germany’s small businesses expect their total revenues to increase by 2.2 billion euro during the course of the championship.

Other obvious beneficiaries of the World Cup are sporting goods manufacturers, with Adidas, for one, expected to shift 10 million footballs this year. However, there are other areas of economic life that get a fillip from the event. Korean electronics company Samsung, for example, is expecting sales of HD-enabled LCD and plasma televisions to increase as soon as the games start. For the telecoms industry, this World Cup is being seen as an unprecedented opportunity to promote 3G services.

Overall, according to UK media agency ZenithOptimedia, the cup is expected to generate over $1 billion in total worldwide advertising revenue for the first time.

Extra time, extra cash
Today, the power of the governing body of football, FIFA, is overwhelming. This power has grown exponentially since the 1950s, and is in the main tied to the rise of television set ownership and the attendant rise in advertising based around an event that touches all corners of the globe.

Recent developments in technology, not least the internet and mobile phones, have further fueled growth in this revenue stream. Indeed, according to FIFA’s 2003 financial report, event-related revenue generated 96 per cent of its income of 712 million Swiss francs that year, with over 422 million Swiss francs coming from future TV broadcast rights and advertisements for the 2006 World Cup alone. (Note: Unlike most companies, FIFA essentially has a four-year fiscal year, ending with a World Cup.) Marketing rights accounted for approximately 175 million Swiss francs, and hospitality events generated over 65 million Swiss francs in 2003.

The reason I give these figures in Swiss francs is that FIFA is registered in Switzerland as a non-profit organisation, and incidentally pays just 4.25 per cent business tax. However, anyone who thinks FIFA might be a money laundry, or that profit is skimmed off, is mistaken, as the bulk of its 2003 profit of 141 million Swiss francs was put into the upcoming tournament, with the rest invested in development programs and continued promotion of the game, a practice that happens every year.

FIFA’s power basically boils down to a good old-fashioned copyright and image issue. FIFA, FIFA World Cup, and - this year - 2006 FIFA World Cup Germany are all registered trademarks of the organization. By extension, FIFA “owns” every minute of the matches played, and can sell them to whomever it likes, just as it can sell the name of the event to anyone willing to pay.

(To be fair, I’d point out that 2006 television rights contracts contain clauses guaranteeing that certain World Cup matches will be broadcast on free TV, including the opening match, both semi-finals, the play-off for third place and the final, as well as all matches involving the home nation in the respective contracting country.)

To even begin to understand FIFA’s image and trademark monopoly, try imagining a film production company that does not pay its world-famous actors but simply borrows them for free, then sells tickets to the films they produce exclusively through its own channels, and takes the lion’s share of the profit from the sales. Then imagine that far from paying theatres to show their films, outside companies fall over each other to pay for the right to sponsor the cost of the theatre, the construction cost of which is provided by the local municipal authority or another corporation. Add in the fact that the concession stand in the theatre sells only official products paid for by outside sponsors, and that our original production company takes a hefty slice of every kernel of popped corn, then you have a vague idea of the goldmine FIFA currently sits on.

Indeed, the list of 15 official sponsors of the 2006 World Cup reads almost like a who’s who of the top brands in the 21st century: Adidas, Coca-Cola, McDonald’s, Yahoo, Anheuser-Busch, Avaya, Deutsche Telecom, Continental, Toshiba, Philips, Hyundai, MasterCard, Fuji, Fly Emirates and Gillette.

As an example of how powerful an official sponsor is, at the 2006 event Anheuser-Busch has paid $40 million for Budweiser to be the official beer of the tournament. While German brewer Bitburger may sell its beer in certain stadiums, it is not allowed to market it in any way inside the grounds.

In addition, so strong is FIFA’s hold over the game and its image that despite the fact that many of Germany’s newly kitted-out stadiums have had major contributions from corporate sponsors, the original sponsors’ names will be removed for the World Cup in favor of the official sponsors. Hence, for example, the Commerzbank-Arena simply becomes the FIFA World Cup Stadium Frankfurt.

Blowing the whistle?
While it’s clear that football is now much more than the game itself, and has become a billion-dollar industry with a multitude of beneficial knock-on effects for the wider economy, there is also the fear that the rampant commercialisation of the game will eventually see the hand that feeds getting bitten.

As a keen football fan, I can see this point clearly. The World Cup is the pinnacle of the sport, but like any pyramid it needs a firm and wide base. That base is children playing football in the street, the organisation of junior leagues, coaching, etc - all of which millions of people provide free of charge simply out of a love of the game. It’s also about supporters turning up to watch unglamorous matches, week in week out, at the other end of the football spectrum.

As I’ve touched upon in previous columns, there’s nothing intrinsically wrong with paying someone like David Beckham millions to play football; it’s a simple question of supply meeting demand and rising prices for scarce goods. But there is a point where the cost of supporting a football team will start to outweigh the benefits it brings, and where the game at some levels could have its essential heart and soul removed and replaced by a team of accountants simply picking the players that generate the greatest off-field revenue.
Of course, that’s the irrational, emotional football fan in me writing, whereas the economist simply sees - in the case of the World Cup - a near-perfect monopoly being skilfully exploited.

* This article was published on June 9 2006 in Budapest Business Journal, a Hungarian English-language business weekly, and is reprinted here with their kind permission. The article is part of Macro Scope - a regular column that examines key economic issues from a jargon-free perspective.