Business of Sport July 2016 Russia Macro & Population Trends 2012 2017E 2025E Can World Cup 2018 be a game changer for the GDP, $bln $2,010 $1,640 $2,610 Population* 143 146.5 149.6 business of football in Russia? GDP p/capita, $ $14,056 $11,195 $17,447 GDP p/cap PPP $ $24,880 $23,896 $30,000 “Football – a game in which everyone gets hurt and every nation Source: State Statistics Service, Macro-Advisory Ltd has its own style of play which seems unfair to foreigners.” * 2017E and 2025E includes 2.3 mln in Crimea Russian Advert Spending, 2008-16, US$ mln George Orwell, English writer 2008 2012 2016 TV $559 $461 $225 . Confederation Cup ran smoothly. The recently concluded Radio $60 $47 $23 Confederation Cup was effectively used to test systems and Press $303 $133 $29 procedures which will be used during the World Cup. There are no Out of home $184 $121 $57 reported problems or concerns. Internet $71 $181 $203 Other $13 $16 $6 . WC2018 is on track. Russia’s stadia are either ready or will be by year BTL $287 $259 $141 end. There are perceived risks associated with, for example, Source: Russia Communication Agencies hooliganism and racism, but the Russian authorities are preparing Key Macro Forecasts - Base Case and are expected to handle any such incidents. 2017E 2018E 2020E . Advertisers and sponsors have concerns. The tournament is Growth, real % YoY 1.4% 1.9% 3.0% struggling to attract sponsorship, partly because of the tainted image Retail sales, % YoY 2.0% 3.0% 5.0% CPI - year-end, % YoY 4.0% 3.8% 3.5% of FIFA and partly because of the scandals involving Russian sports. Budget balance, % GDP -2.3% -1.5% 0.0% There is also a concern of a repeat of the international criticism of Current account, % GDP 1.9% 1.9% 4.0% Russia’s LGBT legislation which resulted in a wave of negative Russia Unemployment, % eop 5.5% 5.4% 5.4% coverage in the lead up to the 2014 Sochi Olympics. RUB/US$, year-end 62.0 65.0 70.0 . Football is big business in Russia. The Russian Football Premier RUB/EUR, year-end 71.0 74.0 77.0 Av. Brent, US$ p/bbl $51 $58 $60 League (RFPL) is the sixth largest in Europe in terms of revenues, Source: Macro-Advisory estimates despite the recent fall in income. The sport is easily the most popular in Russia, which has the largest population in Europe, in terms of For full list refer to Appendix 1 & Appendix 2 attendance and TV audience. Russia's National Team Ranking Ranking Place . Healthy base with room for growth. The business associated with FIFA 61 football could be much bigger. There is potential for innovations, such Power Ranking 34 as Monday night live games, to boost viewing figures. Source: FIFA . Economic barriers to growth. The five privately-owned clubs in the Ready for the World Cup RFPL have better sporting and economic results than the other eleven municipally-owned clubs. Weather challenge. The RPFL recently moved to a winter schedule to overlap with the European league timetable. This has reduced attendances but should be solved as stadiums are upgraded. TV revenues are low. The total TV revenues of the RFPL in 2016 are estimated at EUR40 million, which is very small, compared to many EU leagues. The main challenge and opportunity for the RFPL will be to generate content for the fast-growing internet advertising market, which had advertising revenue of US$203 million last year, compared Source: RIAN.ru to $142 mln five years ago. Tom Adshead +7 916 510 3753 . WC2018 and economic recovery. Russia had the world’s fifth biggest [email protected] consumer economy in 2013 and spending patterns were following the http://macro-advisory.com/ trends of developed Western economies. Now that the economy has returned to growth the hope is that the 2018 tournament may act as a catalyst for growth in the business of football, opening up Aaron Schwartzbaum contributed to the opportunities in such areas as sponsorship, advertising, research and preparation for this report merchandising and other areas of sports spending. No warranties, promises, and/or representations of any kind, expressed or implied are given as to the nature, standard, accuracy, or likewise of the information provided in this material nor to the suitability or otherwise of the information to your particular circumstances. Macro-Advisory Limited does not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the content contained in this note. © Copyright Macro-Advisory Limited Business of Sport Summary points This is the first of a series of reviews looking at the economic potential and opportunities for investors and businesses from Russia’s sports sector. Sport is already big business in Russia but, as the economy resumes growth and lifestyles evolve towards international norms, the business of sport in Russia has very considerable potential for growth. For our clients, we provide more detailed analysis and forecasting and carry out tailored research projects to help them best position to profit from the expected expansion. The Confederation Cup tournament, held in several Russian cities in June-July, went very well and without incident. It was used to successfully test procedures, both for staging and broadcasting the games and managing the expected volume of visiting fans, to be used at the 2018 World Cup. It is expected that all facilities for the World Cup will be ready on time. The 2018 tournament has struggled to attract sponsorship deals. Partly that is because of the poor image of FIFA and partly it is because of the perception of Russia, both in terms of hooliganism and racism risk, but also generally because of the continuing controversy over the US election allegations and sanctions. Russia and Chinese sponsors and starting to fill the gap and will benefit longer term from that exposure in the domestic game. The cost of staging the tournament is estimated at US$11 billion but, for that, Russia will get a number of upgraded stadiums and improved facilities, which should help grow the appeal of the sport and the fan base, especially as the new stadiums will be more comfortable for fans in the winter months. Football is already the most popular sport, in terms of game attendances and TV audience, and while it is the sixth biggest league in Europe, it has significant potential to grow as a business compared to many other leagues in the continent. Russia’s consumer economy grew to be the fifth biggest in the before the start of the slowdown from late 2012. Over the past five years, the government has accepted that the country needs a different growth model, one that is much less dependent on hydrocarbons and other extractive industries. That new model is now starting to emerge* and will be the core policy during the next presidential term. The economy is again starting to grow but, as is illustrated in the long-range macro-forecast table in Appendix 2, the next phase of growth will be slow. But it will happen, and Russia, with the largest population base in Europe, should again challenge to be a top-four consumer economy. That expected growth, i.e. as sport and football in particular, starts to replicate the business models of the large European leagues, will offer significant opportunities for businesses. Russia is quite unique in many respects but, as is seen already across many areas of the economy and in terms of lifestyle, the evolution of the country is not much different to that seen elsewhere. The key difference is that Russians go straight to the latest technology or methods. One example is in advertising where the fastest segment is in online spending. This reflects the fact that Russians are increasingly watching sports, and other programming, online and via hand-held devices as well as computers. *Macro-Advisory provides updated reviews for forecasts for the Russian economy on a monthly basis and for the other major economies of the CIS-Eurasia region on a quarterly basis. To see these reports or to ask for a trial subscription, please visit www.macro-advisory.com 2 Business of Sport World Cup countdown Venues are on target. WC2018 is scheduled to begin on 14 June 2018 and finish on 15 July. The tournament will be held across 11 cities in European Russia in 12 stadiums – Moscow, where the final is to be held (Luzhniki Stadium) has two. Three stadia that will host matches are completed, one (Saint Petersburg Arena) has been declared completed but work remains ongoing. Work on all stadia is targeted to finish for completion by the end of 2017. Important tournament for the country. Despite delays, cost overruns, and familiar allegations of corruption/misallocation, WC2018 remains a project of strategic importance for the Kremlin. The chances of stadia not being ready on time for the tournament is very low and the general level of readiness is much better than for Sochi. Visa-free travel for fans. Russia has instituted a visa-free entry regime for WC2018 ticket holders, who will be allowed to enter the country within 10 days of the beginning of the tournament and remain until ten days following the tournament’s conclusion. Instead of the usual complicated and costly visa process, fans will be able to register in advance for FAN ID cards that will grant benefits for local transportation as well. The Confederations Cup 2017 was used to uncover any bugs in the system and to resolve them.