SOCIOECONOMIC DETERMINANTS OF WIN MAXIMIZATION AT THE FIFA WORLD CUP A THESIS Presented to The Faculty of the Department of Economics and Business The Colorado College In Partial Fulfillment of the Requirements for the Degree Bachelor of Arts By Sydney Elizabeth Fetter May 2011 SOCIOECONOMIC DETERMINANTS OF WIN MAXIMIZATION AT THE FIFA WORLD CUP Sydney Elizabeth Fetter May 2011 Economics Abstract This study examines the effect of socioeconomic factors on winning games at the FIFA World Cup. This study identifies various macroeconomic, geographic, and soccer- specific characteristics that impact World Cup success. Determinants of World Cup success were largely identified through examination of performances measured at the Olympics and international soccer games. Ordinary Least Squares regression method is used to determine the significance of these factors for the countries that participated in the 1994-2010 World Cup tournaments. The results of this estimation method indicate that hosting, international rank, as well as regional origins and cultural traditions significantly impact wins. A country‟s wealth and population are not significant factors in winning games at the World Cup. KEYWORDS: World Cup, win maximization, sports economics TABLE OF CONTENTS ABSTRACT ii ACKNOWLEDGEMENTS viii I INTRODUCTION 1 II LITERATURE REVIEW 7 Influential Factors in the Olympic Games............................................................ 9 Theories of National Soccer Performance Predictors........................................... 20 Predicting and Analyzing World Cup Success..................................................... 25 Conclusion………………………………………………………………………. 27 III THEORY 28 Production Possibilities Frontier........................................................................... 28 Theoretical Determinants of Win Maximization………………………….......... 31 Financial Capital............................................................................................ 31 Physical Capital.............................................................................................. 32 Human Capital................................................................................................ 33 Labor.............................................................................................................. 35 Geographic Determinants............................................................................... 35 Cultural Preferences....................................................................................... 36 Conclusion 37 IV DATA AND METHODOLOGY 39 Data Set……………………................................................................................. 39 Dependent Variable............................................................................................... 41 Independent Variables........................................................................................... 42 Estimation Method…………................................................................................ 49 V RESULTS AND CONCLUSIONS 52 Ordinary Least Squares Results............................................................................ 52 Conclusion…………………................................................................................. 62 Future Research……………................................................................................. 64 Implications.……………….................................................................................. 67 SOURCES CONSULTED………………………………………………………… 69 LIST OF TABLES 1.1 FIFA Cash Prize in 2006 and 2010… ………. ……………………………... 3 4.1 Description of Variables………………………….…………………………. 40 5.1 OLS Estimation Results…...………………………………………………… 53 LIST OF FIGURES 3.1 Production Possibilities Frontier……………….…………………………… 29 5.1 Relationship between FIFA Rank and Wins…………………………………. 59 5.2 Relationship between Years Affiliated with FIFA and Wins.………………... 60 8 ACKNOWLEDGEMENTS Writing a senior thesis has been a trying and fulfilling process. I thank Aju Fenn for his advisement during this process. His understanding and insights into sports economics offered valuable guidance, and his unwavering patience was encouraging throughout. I also thank Molly Gross for her aid. Both offered appreciated criticism and support which turned the senior thesis requirement into a manageable and rather enjoyable experience. CHAPTER I INTRODUCTION The World Cup captures the attention of millions of people worldwide. During the 2006 World Cup in Germany, there were 26.29 billion television viewers over the course of the tournament. Ninety-nine percent of the games sold out, and a total of 3,359,439 spectators attended the sixty-four games.1 The United States has the reputation for avoiding the international soccer frenzy that has grabbed the rest of the world. However, even in the country that tends to prefer watching the National Football League or the National Basketball League, American viewers watching the final match increased from 19 million viewers in 2006 to over 24 million in 2010.2 The World Cup has international appeal that continues to grow. Professional soccer occurs through international competitions and club soccer organizations. Club soccer is more business-like than national federation soccer. Popular club soccer federations such as Manchester United of the English Premier League (EPL), Barcelona FC of La Liga in Spain, or Bayern Munich of the Bundesliga 1 FIFA.com, “2006 FIFA World Cup in Numbers”, FIFA, http://www.fifa.com/aboutfifa/marketing/factsfigures/ (accessed May 10 2010). 2 Todd Lamansky, “2010 FIFA World Cup Draws Record Ratings in USA, Europe, and Beyond”, Bleacher Report, http://bleacherreport.com/articles/419916-2010-fifa-world-cup-draws-record- ratings-in-usa-europe-and-beyond/page/2 (accessed November 18, 2010). 1 2 in Germany bring in high levels of revenue, but produce little profits.3 Prominent leagues usually have various divisions based on the varying degrees of wealth and talent of each club. The world of club soccer offers a range of tournaments, such as the FA Cup and the UEFA Cup, that aim to identify the best club teams. Any professional registered soccer player can play for these clubs if he has the talent to compete at high levels. There are a great number of talented foreign players who play for prominent club teams outside of their native country. Movement from team to team is not restricted by nationality as it is with national federations. Because of this free movement, many soccer fans prefer watching club matches over international matches because the talent level and competition is so strong. Very wealthy teams can attract the best players in the world and in doing so, they create extremely appealing games to watch. Club programs with a greater capacity to buy talented players would seem to possess a financial advantage to winning. National soccer federations do not possess the same financial means to attract talent, and their potential player choices are restricted by citizenship. Therefore, what influences the success of national soccer teams at the FIFA World Cup? With player movement and financial incentives restricted, what economic, social, and soccer resources give one country a more successful soccer team than other countries? World Cup viewers revel in the tournament excitement as their teams progress, but what does success at the World Cup offer in return that makes it attractive? 3 Simon Kuper and Stefan Szymanski, Soccernomics: Why England loses, why Germany and Brazil win, and why the U.S, Japan, Australia, Turkey and even Iraq are destined to become the kings of the world’s most popular sport (New York: Nation Books, 2009), 75-95. 3 As stated, club programs can offer large financial wages and incentives to their players through contractual agreements. National federations do not offer the same incentives. However, alongside money the players and national teams receive from sponsors, participating World Cup teams also receive a cash reward based on their success at the World Cup tournament. The global soccer governing body, Fédération Internationale de Football Association (FIFA), offers a substantial monetary cash prize for participating teams. Table 1.1 offers a breakdown of the prize money in millions of US dollars awarded to the participating teams in the 2006 and 2010 tournaments. FIFA gives various endowments to the subsequent clubs of the participating countries, as well as one million dollars to each country for preparation costs. TABLE 1.1 FIFA CASH PRIZE IN 2006 AND 2010 Rank No. of teams 2006 FIFA World Cup 2010 FIFA World Cup Winner 1 19.3 30.0 Runners-Up 1 17.7 24.0 Third Place 1 16.9 20.0 Fourth Place 1 16.9 18.0 5th-8th Place 4 9.1 14.0 9th-16th Place 8 6.7 9.0 17th-32nd 16 4.7 8.0 Preparation 32 0.8 1.0 Clubs 0.0 40.0 TOTAL 32 261.4 420.0 Source: FIFA. “FIFA Financial Report 2009”. FIFA. http://www.fifa.com/mm/document/affederation/administration/01/18/31/86/fifa%5ffr09 %5fen.pdf (accessed November 18, 2010). National soccer federations can use this money to continue developing talent and competitive advantages that will hopefully lead to sustained success. Although these 4 figures do not compare to what individual players can make playing for professional club teams, a monetary enticement exists to support the emotional incentives. Club federations offer huge financial incentives. But the international games have a more emotional focus. Like the Olympics, the World Cup provides an international platform to maintain or introduce a country‟s power and dominance. The