Football promotions, Buffett and the IMF World Cup

With the latest Beckham injury hitting both the front and back pages of our national newspapers, the FIFA Football World Cup will soon rival talk of elections and budgets for headlines. We are about to be bombarded with messages from numerous corporations eager to use the tournament to expand their profile within the consumer psyche.

Apart from the usual car, razor and fast food companies vying for attention, financial institutions will also use some astute advertorial and promotional techniques in order to court new customers. For example the Spanish bank, Banesto, is using the World Cup in South Africa to push three new financial products; Firstly, a mortgage which offers €1,500 worth of appliances from another corporate partner of the Spanish football side. Secondly, a credit card that gives you a Spanish scarf and T-shirt to support the national team after an initial spend. And finally, Banesto are offering a deposit account with a 3% interest rate that will jump to 4% should Spain win the World Cup.

Interestingly, renowned investor Warren Buffett has recently let it slip that he will be hoping France doesn’t win. It turns out that an insurance company that Buffett has an interest in underwrote a large bet on the French side. To quote – “If France wins the World Cup, I think we’re going to lose about 30 million bucks or something like that”.

In addition to looking at what a World Cup can offer the individual investor it is worth noting how an event of this magnitude may impact the local economy and also that of the countries participating.

The South African treasury estimate that GDP will be boosted by 0.5 per cent as fans follow their teams to the country for the world’s most watched tournament. South Africa has spent 33 billion rand (almost £3 billion) and more than 130,000 jobs have been created between 2007 and 2010. At the previous world cup in 2006 the German Government estimated over €3 billion was added to the economy with €400 million pumped into the country during the month of the world cup . It is estimated that this boosted German GDP by around 0.4%, the direct result of a large increase in consumption.

The impacts of the world cup are not only felt in the host nation. Studies by the Centre for Economic and Business Research estimated that the cost of England missing the European Football Championships in 2008 was around £1 billion. ABN AMRO economists estimate that winning a world cup can add 0.7% to a country’s economic growth. They note that “good performances on the soccer field often go hand in hand with performances in the stock market and economy”. Additionally, after the last three tournaments the winning finalist’s stock market has outperformed the losing finalist’s. Has Thierry Henry’s handball cost not only Ireland’s place at the World Cup but also it’s chances of an early exit out of recession?

And who does the IMF think will be the best performer of the 32 finalists? As we can see in the chart, the IMF estimates that Ghana will grow by 5 per cent in 2010 closely followed by Nigeria.

I suppose this adds a little more pressure on those penalty kicks!

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Stuart Liddle

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