Economic Match-Ups of the 2010 FIFA World Cup

With the 2010 FIFA World Cup soccer matches set to begin this week, the mainstream media's economic angle revolves almost entirely around the fact that South Africa is hosting the soccer World Cup for the first time on the African continent. According to Reuters, the South African government expects the World Cup to add as much as 0.5% to Gross Domestic Product (GDP) this year, and the government has reportedly spent $5.17 billion dollars since 2006/2007 on World Cup-related projects.

Closer to Wall Street, more than a handful of banking analysts are doing their part to handicap the matches as well, some even using the traditional quantitative approaches found in equity research departments. For example, JPMorgan's (JPM) Europe Equity Research group released a report a little over a month ago modeling the tournament on a number of quantitative factors, including market prices, FIFA ranking, and something called a "JPMorgan Team Strength Indicator" to predict the match results. (Their winner? England. It is the Europe Equity Research Group, after all!)

Danske Markets' Emerging Markets research group is also in on the World Cup handicapping action, taking a more traditional macroeconomics-based approach, utilizing factors like population size, income level, football history and tradition and the presence of "superstars"; players who "have the ability to decide a football match on their own" -- think Pelè, Diego Maradona, or France's infamous head-butter Zinedine Zidane. (Perhaps this year, USA's Landon Donovan?) The main problem with the Danske report is that it contains equations like this:
 

The model is estimated using OLS and yields the following result:
ΔGoals = 0.18*ΔGDP/capita of US + 0.19*ΔPop (100mill.) – 0.02*ΔPop2 (100mill.)
+ 0.05*ΔWC participations + 0.17*ΔBallon d’Ore nominee
– 0.01*ΔFIFA ranking + 1.12*ΔHost – 0.85*ΔAsia/Oceanic/North America

Their predicted outcome? Brazil. (This prediction is from the Emerging Markets group, remember.)

If you like your analysis with a heavy dose of quantitative finance that's one thing, but Minyanville has decided to provide a more straightforward handicapping breakdown of the World Cup, using more familiar economics factors that are understandable by regular people like us. After all, soccer, football, "The Beautiful Game," is a game of the people.

In our World Cup matches (see chart below and click to enlarge), we pitted the teams in each group against one another on a variety of economic factors that are easily discoverable. (Note: For sake of convenience, we used a straight single-elimination formula.) We used the handy CIA World Factbook for data. The categories we selected were as follows:

• GDP (real growth rate)
  
  
• GDP per capita
  
  
• Unemployment rate
  
  
• Percent of population below poverty line
  
  
• Investment (gross fixed)
  
  
• Public debt as a percentage of GDP
  
  
• Inflation rate
  

Now, about the comparisons. You'll note on the expanded graphic (below) that if you rollover the groups and the quarterfinals, semifinals, and finals, we've included a brief write-up of how each match played out. Occasionally, the categories were too close to call... just like soccer matches! In these instances (indicated by an asterisk on the graphic) we relied on the 2010 Index of Economic Freedom rankings to decide the "penalty shoot-out." Hey, somebody's gotta decide the match, and this index seems likely to us to be just as flawed as letting penalty kicks decide a World Cup game.

So here it is -- our picks versus the heavyweight geniuses at JPMorgan and Danske Markets. Let us know your predicted outcomes in the comments section and enjoy "the beautiful game."

CLICK ILLUSTRATION TO ENLARGE AND MOUSE OVER THE GROUPS AND FINALS FOR EXPLANATION AND COMMENTARY.