The World Cup and Economics 2014 The World Cup 2014 Dream Team (as selected by you!) Sergio Ramos (ESP) Manuel Neuer (GER) Thiago Silva (BRA) Philipp Lahm (GER) Real Madrid Bayern Munich Paris Saint-Germain Bayern Munich The Real Madrid defender The Bayern Munich keeper The Brazilian central defender The most popular can play central defender as was a comfortable choice in who will be hoping to play in defender, chosen by well as right back, and is also goal – beating Iker Casillas this World Cup after missing almost half of you. With the highest-scoring defender into second place. out in the 2010 tournament. Alves in the team, the in La Liga. utility player has reverted to left back for us. Dani Alves (BRA) Barcelona Andrés Iniesta (ESP) One of the four players to Barcelona keep his slot from our The most popular 2010 Dream Team, the Neuer (GER) Brazilian again comes in at midfielder, who scored right back. the winning goal for Spain in the 2010 World Cup final against the Eden Hazard (BEL) Netherlands. Ramos (ESP) Silva (BRA) Chelsea The lightning-fast Hazard is the first Belgian ever to Alves (BRA) Lahm (GER) Franck Ribéry (FRA) play for our Dream Team. Bayern Munich Along with Alves, Ronaldo Neymar (BRA) and Messi, the Bayern (Neymar da Silva Santos Munich midfielder is one Junior) Barcelona Hazard (BEL) Iniesta (ESP) Ribéry (FRA) of the four players who keep their place from our Neymar replaces Rooney 2010 Dream Team. from our 2010 Dream Team. Cristiano Ronaldo (POR) Lionel Messi (ARG) Messi (ARG) Real Madrid Barcelona Neymar (BRA) Ronaldo (POR) Despite winning FIFA’s The first name on the team Ballon D’Or in 2013, sheet, Messi was chosen Ronaldo was pipped to the in almost 64% of teams. post as most popular player Along with Alves, Ribéry in our 2014 Dream Team by and Ronaldo, he is one of Lionel Messi. But only the four players from our three votes separated the 2010 Dream Team. world’s two best players. Here is our 2014 Dream Team, selected by you the client! Once again the team was selected in a strict 4-3-3 formation, which means that some players who otherwise might have appeared didn’t quite make it. For example, Yaya Toure was runner-up for the midfield even though he received almost 200 fewer votes than striker Luis Suárez. In any case, our Dream Team would clearly have no problems scoring. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html May 2014 The World Cup and Economics 2014 The World Cup and Economics 2014 Welcome to our 2014 book on the World Cup and Economics. This is our fifth edition since the 1998 Paris competition and the first without Jim O’Neill, who pioneered the previous versions over all those years. While it is hard to match Jim’s football craziness, the group globally is still full of fans of the beautiful game. And it is now possible to acknowledge open support for teams such as Liverpool and Chelsea. We present this guide as a companion to the upcoming Rio Cup, with the usual unnatural mix of football and economics. We have turned again to famous guest contributors to help guide you through the competition. Franz Beckenbauer, German legend and World Cup Winner as both player and coach, talks about what it takes to succeed. Four of Chelsea’s Brazilian players – Oscar, Ramires, Willian and David Luiz – talk about the excitement and pressure of playing for the host nation. Angel Ubide of DE Shaw talks about the intersection of finance and football, looking at the impact of Spain’s crisis on the restructuring of Spanish football. And Paulo Leme, now Chair of Goldman Sachs Brazil, discusses the parallels between the economy and football in Brazil. We also include our latest version of the World Cup Dream Team, selected by you, our clients from around the world. Based on the 1,700 votes submitted, Dirk Schumacher has narrowed the list down to a line-up of 11. Alongside our regular country pages from our economists around the world, we have been busy working on beefing up our analytical capability. We have invested much more intensively this year in a model of the probability of success in a match between any two given teams, based on their track record and characteristics. Jan Hatzius, Jari Stehn and Donnie Millar use this to map probabilities of progress through the competition both game by game and to the final. Excitingly, we will be able to update the output as the game comes in. Brazil will be pleased to see it emerges as the clear favourite, helped by a home team advantage, but the likely semi-finalists are Brazil, Germany, Argentina and Spain. Peter Oppenheimer and our Portfolio Strategy team have also looked at the links between World Cup performance and equity markets and the ‘honeymoon bounce’ that follows the winners in the weeks after the final. Yu Song and Vishal Vaibhaw look at the two missing giants – India and China – from the World Cup line-up and their hopes for the future. José Ursúa and Kamakshya Trivedi highlight some key macro trends from the history of World Cups, including disinflation in goals and the importance of land as a factor of production in World Cup victories. Seriously. We could only wish for this level of dedication from our team around the world to their regular tasks. We hope you enjoy the read, the World Cup and these challenging markets. May the best team win! Dominic Wilson and Jan Hatzius May 27, 2014 Groups and Key Statistics FIFA World GS FIFA World GS Team Odds Team Odds Ranking Probability Ranking Probability Group A Group E Brazil 3/1 4 48.5 Switzerland 100/1 8 0.4 Croatia 125/1 20 0.1 Ecuador 125/1 28 0.4 Mexico 125/1 19 0.1 France 20/1 16 0.8 Cameroon 750/1 50 0.0 Honduras 2500/1 30 0.0 Group B Group F Spain 13/2 1 9.8 Argentina 9/2 7 14.1 Netherlands 25/1 15 5.6 Bosnia and Herzegovina 125/1 25 0.2 Chile 33/1 13 0.5 Iran 2500/1 37 0.1 Australia 1500/1 59 0.1 Nigeria 200/1 44 0.1 Group C Group G Colombia 22/1 5 0.6 Germany 11/2 2 11.4 Greece 300/1 10 0.3 Portugal 20/1 3 0.9 Côte d’Ivoire 125/1 21 0.2 Ghana 200/1 38 0.0 Japan 150/1 47 0.0 USA 250/1 14 0.5 Group D Group H Uruguay 28/1 6 1.1 Belgium 16/1 12 0.6 Costa Rica 3000/1 34 0.0 Algeria 1000/1 25 0.0 England 33/1 11 1.4 Russia 80/1 18 0.5 Italy 22/1 9 1.5 Korea Republic 300/1 55 0.1 Source: Ladbrokes.com, May 20, 2014; FIFA, Goldman Sachs Global Investment Research Goldman Sachs Global Investment Research 1 May 2014 The World Cup and Economics 2014 Contents The World Cup and Economics 2014 ............................................................................................................................................................ 1 A Statistical Model of the 2014 World Cup .................................................................................................................................................. 3 The World Cup and Equity Markets .............................................................................................................................................................. 8 An interview with Franz Beckenbauer ....................................................................................................................................................... 10 An interview with Chelsea’s Brazil quartet: David Luiz, Ramires, Oscar and Willian ........................................................................... 12 When will China and India Play in a World Cup Final? ............................................................................................................................ 14 Algeria ............................................................................................................................................................................................................. 16 Argentina ......................................................................................................................................................................................................... 17 Australia .......................................................................................................................................................................................................... 18 Belgium ........................................................................................................................................................................................................... 19 Bosnia and Herzegovina .................................................................................................................................................................................. 20 Brazil (includes a contribution from Paulo Leme, Chairman of Goldman Sachs Brazil) .................................................................................. 21 Cameroon ........................................................................................................................................................................................................ 24 Chile ................................................................................................................................................................................................................ 25 Colombia ......................................................................................................................................................................................................... 26 Costa Rica ......................................................................................................................................................................................................