A Euro 2012 bonanza?

Research has shown that major sports competition can lead to a considerable economic development in the years following the event.  For example, after the Summer Olympics in Barcelona in 1992, there was a significant impact on tourist traffic, with the number of tourists visiting the city doubling to 3.5 million eight years later; a benefit referred to as the “Barcelona effect”.

As Euro 2012 got underway in the midst of a European economic crisis, the focus on economic benefits was as relevant as any action on the football field. For the two host countries, Poland and Ukraine, staging the European championship is more than the football, since it has already given both countries an economic boost, which their Governments hope will be long-term. Research firm Capital Economics has reported that preparation for the tournament has already boosted GDP growth for both countries by 1.3% and 1.7% respectively. However, it is worth noting that the last two winners of the competition – Spain four years ago and Greece in 2008 – are now in dire economic straits. This year’s victor must be hoping there is no connection.

History has shown that hosting major sporting events does not always equate to big earnings for host nations, but according to Capital Economics:

“The economic benefit of Euro 2012 for Poland and Ukraine are more significant than is usually the case with major sporting tournaments”.  

Poland and Ukraine invested heavily on infrastructure leading up to the opening fixture, particularly on stadiums and road and rail links, with Poland spending 25 billion euros and Ukraine 11 billion euros.  Benefits are likely to include improvement of the quality of life, an inflow of foreign tourists and a growing interest of foreign investors. The imperative of getting ready for the tournament has broken down barriers of bureaucracy, corruption and political infighting in the former Soviet bloc countries that had blocked projects for years.

As a result, the Polish economy is set to grow 2.7% this year, the fastest pace in the EU, the European Commission said on May 11. Greece, which joined the euro in 2001, is predicted to shrink by 4.7% in 2012, the fifth straight year of recession. Poland, however, still has a way to go to catch up with Greek living standards. Although moving in opposite directions, per capita gross domestic product in Poland is still about 26% below what it is in Greece, based on Organisation for Economic Cooperation and Development statistics.

In visitor terms, Ukraine has gained the most receiving fans from Germany, England and the Netherlands in the Group Stages. Poland hosted Greece, Ireland, Italy and Spain – countries where the crisis is biting deepest, hitting visitor numbers and how much they spend.

As the Euro 2012 European football championship enters the knockout stages, it is still anyone’s guess which team will walk away with the cup. Most sporting analysts have ended up with far from earth-shattering tips, backing favourites Spain or Germany. However, German economists have used a variety of tongue-in-cheek models, usually applied to complex questions of bond markets or credit default swaps, to predict the result. In their ‘Soccernomics’ analysis, researchers at ABN Amro cross-checked each country’s footballing record with its credit rating and concluded that Germany would be triumphant come the final of Europe’s top footballing competition on July 1. The research concluded:

From an economic perspective, the best outcome would be a French victory” as it would boost confidence in one of the shakiest “core” eurozone nations.

At the same time, economists at UniCredit fed macroeconomic data into complex mathematical models to predict the winner, calculating the worth of each individual team based on the transfer market value of their players. They concluded that the two semi-finals would be “genuine classics” pitting traditional rivals against each other. “Portugal (338 million euros) against Spain (658 million euros) and Germany (459 million euros) against England (392 million euros)” was the final prediction…not accurately as we already know.

It is not only the host countries that will profit economically from the competition. UEFA will benefit from selling the rights to TV stations around the world. For transmission of matches alone UEFA will get over a half billion euro. UEFA will also benefit from selling the license for the use of championship logo, colours and the name.

UEFA global partners Adidas, Orange and McDonald’s are bolstering their Euro 2012 sponsorship activity with a flurry of tactical advertising campaigns in a bid to tap into the growing excitement around the tournament. McDonald’s, for example, used the start of the tournament to launch its new football-themed Championship Menu, which includes the Cheese & Bacon Striker and the Chicken Maestro burgers. It is hoped the tactical campaigns will allow the brands to tap into the worldwide coverage of the championship, which UEFA predicts will rival FIFA’s World Cup and draw an average of 150 million fans per match.

Unfortunately, Olympics and football tournaments have a history of leaving host countries with little to show for the huge investments. Greece was left only deeper in debt by the Athens Olympics and Portugal has followed it to the brink of bankruptcy, eight years after its own Euro finals were supposed to revitalise football and a tourism-based economy. In the immediate aftermath of euro 2012, economists say layoffs of staff taken on for the tournament and the completion of many projects could bring the Polish and Ukrainian economies down to earth with a bump. Ukraine’s public debt stands at about $61bn with the cash-strapped government facing more than $10bn in debt obligations this year, raising questions about whether Euro 2012 spending was worthwhile.

IB-style questions

1. Define the following terms:

  • tactical advertising campaigns
  • investment

2. Explain why the investment in infrastructure in Ukraine and Poland should lead to future economic growth.

3. Analyse the role of market research for Ukraine and Poland and for sponsoring firms in the decision to invest in Euro 2012.

4. Discuss how the UEFA partner organisations can use the sporting event to differentiate themselves and their products from competitors.

Classroom Activity

Students are placed in groups and each group selects one of the sponsoring organisations for Euro 2012 and produces a report or presentation covering some, or all, of the following:

  • a brief history of the success of past sponsorship partnerships, such as those established for the Barcelona summer Olympics.
  • the sponsor’s present financial and commercial situation e.g. market share, revenues and profits
  • the potential synergies between the sponsor’s products, corporate image and aspirations and its relationship with the competition.
  • a commentary on the sponsor’s commercial activities related to Euro 2012 and an investigation into success criteria and any tangible returns to date.
  • an evaluation of sponsorship of sporting events using specific examples.

Sources

No Comments Yet.

Leave a Reply

Your email address will not be published. Required fields are marked *


*