Article / 05 June 2012 at 7:08 GMT

Ukraine and Poland - are their Euro 2012 investments worth it?

Partner - Senior Portfolio Manager / PP Capital Asset Management
Denmark

It has been a bumpy road for Ukraine and Poland towards hosting the 2012 Euro Championship finals. After being awarded the tournament in 2007, these nations were hit by the financial crisis and their preparations slowed. Despite some turbulence (also political) along the way, the two nations will host the competition starting later this week.

The economic benefit of hosting such mega-events is usually overestimated by politicians and local governments that need to justify their bids for them. Just like hosting the Olympics, both the World Cup and the Euro Championship have given hosts the impression of delivering great economic benefits. But most economists disagree! The story is usually the same no matter what the event, i.e. governments initiate several expensive infrastructure projects improving roads, railways, stadiums etc. which normally fail to deliver long-term benefits to their economies.

It is true that several local industries benefit from hosting such events, like tourism and particularly hotels, retailers, supermarkets and transportation. Overnight stays in host cities (and surrounding cities) will increase dramatically during the tournament, giving hotels a nice profit as they are able to charge above average prices. Furthermore, Poland and Ukraine should strongly benefit from the appearance of openness and safety during the Euro 2012, much the same as South Africa benefited from the World Cup in 2010. Despite several individual industries benefitting during the weeks of the tournament, the total economic benefit might not be as positive as is initially assumed.

Costs & benefits of Euro 2012
In both Poland and Ukraine, significant amounts of money have been spent on building and refurbishing the stadiums which are to be used during the event. The cost of only refurbishing the stadiums is estimated to be EUR2.3 bn. Putting that into perspective, total ticket sales amount to as much as EUR150 m, according to my estimates.

Stadium and tickets

Of course you can add to this revenue from merchandise, food and beverages etc. sold around the stadiums. Nevertheless, you would need visitors to spend quite a significant amount on these items to narrow the gap. My personal experience is that people spend the equivalent of their ticket price on goods sold at the matches, which would add another EUR150 m to total revenue. However that leaves a further EUR2 bn to compensate for the refurbishing of the stadiums alone.

And my estimates don't take into account other infrastructure costs related to improving roads, railways, buildings and more. If we add this to the bill, the estimated total cost of infrastructure projects for the two nations is estimated to be roughly EUR25 bn (16 bn for Poland and 9 bn for Ukraine).

Saxo Bank’s stock screener helps in looking closer at the typical local sectors which will most likely benefit from Poland and Ukraine hosting Euro 2012. For Poland, out of the 115 Polish stocks tradable on Saxo Bank’s platform, we narrow the stock selection to 10. One stock of particular interest is Orbis, a hotel services provider, which should get a temporary boost to its revenue as tourists flock to Poland. The company earns 96 percent of its revenue from hotels.

Stock screener

A bit of excess…
The expensive Euro Cup for 2012, is not much different to most Olympics or World Cups. South Africa, the host of the 2010 World Cup in soccer spent about USD40 bn on infrastructure projects. The estimated benefit was however in the range of USD7.6 bn to 21.3bn. The massive difference indicates the high level of uncertainty related to such events, with even the upper range being well below the total cost!

Austria, the host of the 2008 Euro Championship finals estimated the value added impact of hosting the event to around EUR640 m. Austria however did not go on a massive spending spree like many other event hosts often do. It ‘only’ spent around EUR900 m. Such spending versus estimated benefit makes sense - at least the spending wasn't way off.

The most outrageous example of all is the amount of money anticipated to be spent by Qatar, which will host the 2022 World Cup. The estimated cost of infrastructure investments to be made by the government in Qatar leading up to the games is a whopping EUR56 bn! For a population of 2 million people, this accounts for roughly USD 35,000 per person… That is simply insane!

Looking on the bright side, the infrastructure projects initiated in Poland and Ukraine have created quite a few jobs in recent years, and some of those will continue to exist beyond the tournament. Furthermore, so-called legacy projects will of course benefit both nations in the longer term. The main road and railway systems have been upgraded significantly which will make all local transportation easier and in fact represents a long-term investment for the nations. The 2012 Euro championship is just a great excuse for the government to actually start these projects.

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