World Cup-onomics 2022

Posted by George Smith, CFA, CAIA, CIPM, Portfolio Strategist

Wednesday, November 16, 2022

We look, through an economic lens, at the biggest sports event on the planet that kicks off on Sunday November 20 in Doha, Qatar – the soccer World Cup. We take a lighthearted look at some of the eye-popping financial costs coming out of this World Cup and some correlations, some non-spurious, some fun, relating to World Cup data. Do countries with more World Cup experience have more valuable squads of players? Is global warming leading to more penalty shootouts? Will higher bond yields yield more hat-tricks?  Do global markets perform better if a team from South America or Europe wins the cup? We explore these and more in these excerpts from our upcoming LPL Research “World Cup-onomics 2022” Report.

Taking place in a tiny fossil fuel rich country in the Middle East (that is smaller than Connecticut, and has a population less than Kansas) it had virtually none of the stadiums or infrastructure needed to host the games and the million plus fans expected to attend. As a result it has turned into the most expensive World Cup ever by a huge margin. In fact, it’s costing Qatar over four and a half times the total cost of the prior 8 World Cups combined, as they have built 7 new stadiums, a new airport, a new metro system, 100 hotels, multiple new highways, and even a whole new city to host the final match:

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First a correlation that makes logical sense, the estimated current value of the World Cup squads appears to have a fairly strong positive correlation to the prior number of appearances that teams have made at the World Cup. Teams with more World Cup history have had more time to develop the sport, leading to development of better, and hence more valuable players. A few anomalies in the data appear to be the elevated values of the England and Portugal squads, perhaps influenced by outsized global popularity of the English Premier League inflating player values (25 of England’s 26 man squad play in the English Premier League, as do 10 of Portugal’s squad). The Mexico squad shows a relative lack of value compared to the team’s 16 prior World Cup appearances, probably a consequence of only 4 of their players plying their trade in one of Europe’s top domestic leagues (England, Germany, Spain, Italy, Portugal).

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Now one that’s not so logical: there’s spurious correlation between the average 10 year U.S. treasury yield and the number of hat-tricks (three goals in a game by one player) scored at the World Cup finals. Yields had been falling since the early 1980s, as have the number of World Cup hat-tricks (there were actually none in 2006). Though it’s still trending upwards, the average 10-year yield for 2022 so far is actually pretty similar to 2018 when we saw a slightly above-trend two hat tricks, so one or possibly two looks to be the prediction for the 2022 edition that is spurious correlation yields!

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If you are stuck for a team to support this time round (or want to know who to support once (if!) your favorite gets eliminated) we took a look at global stock market returns and how they do in the four calendar years after a team’s World Cup win. The average post World Cup annual return when France are champions has been under 1%, compared to an average for all teams of 6.5%. France managed to catch the Dotcom Bust, Covid-19, and 2022 equity bear markets during their time as defending champions. Overall the best market performance followed Spain’s win in 2010, at just over 9% annual returns. Brazil is not far behind, with annual returns just under 9% following their wins in 1970, 1994 and 2002, and a South American win on average is followed by better returns than a win from a European team.

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For more light-hearted entertainment as well as a touch of economic insight please check out the full LPL Research “World Cup-onomics 2022” report that will be released later this week. It includes a closer look at the hosts Qatar, a look at whether the World Cup really is the biggest sporting event, more spurious correlations, a full preview of all the World Cup groups and teams (from an economic and sporting perspective), and our attempts to predict the winner of the 2022 World Cup by applying our investment based analysis to the World Cup data.

Good luck to all of our advisors and their clients whichever team you will be cheering for.


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