Why England’s World Cup qualification could mean a boost to the economy

Rich Stevens at IG explains the positive spillover effect that England’s World Cup qualification could give rise to this summer.

In less than six months the 20th FIFA World Cup, Brazil 2014, will get under way. Top international players, sponsors and fans alike will descend on this emerging economy to indulge in a 30-day football feast under the watchful eye of the world’s media.

Among the 32 participating nations, for the group stage at least, will be the England national team – much to the relief of both supporters and domestic businesses.

For researchers have noted, when England fails to qualify for football tournaments there are serious economic ramifications. In contrast, it is argued when the national team does well there is a buzz and consequently a positive spillover effect which manifests itself in people spending more and productivity rising to match this extra spending.

Take for example England’s failure to qualify for the Euro 2008 Tournament. Back then their kit manufacturer Umbro (now owned by Iconix Brand Group; ICON:US) confessed to sales being ‘considerably down’.

It is clear why: with no England campaign for the public to immerse themselves in, fewer replica kit were sold, ultimately resulting in less revenue and large quantities of unsold stock being marked down and sold off at a discount.

Having topped analysts’ projections for second quarter profits at the end of 2013, England’s current kit manufacturer Nike Inc. (NKE), is one of many firms that stand to benefit from England’s qualification for the 2014 World Cup.

With its share price having cooled from an early December high of $79.89, and the fact it manufactures and provides kit to several of the major teams at the World Cup (Brazil, England, France, Netherlands, Portugal) it’s easy to see why Nike stock is currently an enticing investment proposition and rated a ‘Strong Buy’ by many analysts.

The British Retail Consortium estimated the British economy lost £600 million when England failed to qualify for Euro 2008. Of course, it is virtually impossible to fully quantify such a figure, but it is abundantly clear the failure to qualify was detrimental.

Now England has secured qualification for the 2014 World Cup this should mean a corresponding boost to the economy. If we analyse both our behavioural and consumption habits during sporting events it becomes evident how this economic benefit might arise. Let us do so by means of a hypothetical example.

In the week running up to England’s first group game against Italy at 23h00 on Saturday June 14, you receive an invitation to a World Cup themed BBQ at a friend’s house.

Like many other fans you decide to get into the spirit of the event and purchase a replica England kit, an act that will boost replica kit sales and benefit manufacturers such as Nike (NKE) and domestically retail outlets such as Sports Direct (SPD).

Saturday comes and you begin the journey to the BBQ. En route you and several friends spot a few ‘World Cup Specials’ on offer in the high street branches of Ladbrokes (LAD) and William Hill (WMH).

You decide to take advantage of the odds and stake £50 on ‘England to win 1-0 and Rooney to score’ at 15-1 to liven up proceedings. This in turn will benefit domestic bookies like Ladbrokes (LAD) and William Hill (WMH), as it turns out, England play out a dour nil-nil draw and you lose the bet.

Upon arrival at the BBQ the host proudly presents to you his latest acquisition, a 60-inch plasma TV purchased from his local Dixons (DXNS) store.

You complement the friend on his purchase and tuck into the BBQ food while quenching your thirst on a few Carlsberg’s (CARLA) you’ve bought from your local Sainsbury’s (SBRY).

During the course of the tournament you attend several such events and regularly visit the local Greene King (GNK) owned pub to catch some of the midweek games.

Although this anecdote is an oversimplification of the positive spillover effect and corresponding investment opportunities that England’s World Cup qualification will give rise to, it demonstrates the potential impact grass roots consumer behaviour can have on specific companies and the wider economy.

Indeed, when England failed to qualify for Euro 2008, Dixons (DXNS) reported that sales of TVs suffered in comparison to other big tournament summers while Carlsberg (CARLA) estimated England’s failure to qualify cost brewers an estimated £15 million in British sales.

As Peter Lynch famously said: ‘If you like the store, chances are you’ll like the stock.’

It will therefore be interesting to see how the aforementioned stocks fare over the coming months and how they reward those among us that are willing to invest.

For those that are, you can take a Spread betting/CFD position in any of the companies mentioned in this article with IG (IGG), along with a range of over 7000 other stocks.

Spread bets and CFDs are leveraged products. Spread betting and CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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