The Animal Spirits of Sport Events: the Effect of the UEFA European Championships on GDP and Economic Confidence

1 Introduction
Mega sport events are considered to be a showcase for the host country and an opportunity to
strengthen and shape their cultural identity for participating states (Boyle, 2009; Roche, 2000). They
are able to attract the attention not only of fans and aficionados, but also of more casual viewers,
as they are perceived as a moment of "collective identification and community expression" (Boyle,
2009). Indeed, mega sporting events had high and steadily growing international media coverage in
the past decades (Müller, 2015), while also attracting a considerable flow of those who the UNWTO
defines as "sport tourist"
1
. For example, the recent men’s FIFA World Cup held in Qatar broke the
previous record of TV audience number
2
, the Olympic Games of Tokyo 2020 have been watched by
more than three billion people
3
and the tourism impact of the last mono-host UEFA European Cham-
pionship of France 2016 is estimated arounde500.6m (Gouguet & Lepetit, 2017). As such, many
believe that these events might boost the economy of the host’s and the winner’s countries: from one
side, the host enjoys both the showcasing effect of high media coverage and the tourism multiplier
(Archer & Fletcher, 1991; Archer et al., 1990); from the other side, winning a prestigious competition
as the UEFA European Championship (EC from now on) or the FIFA World Cup (WC from now on)
can boost both consumers and businesses’ optimism
4
, increasing their confidence and possibly trig-
gering an economic expansion
5
moved by these self-fulfilling beliefs called "animal spirits" (Akerlof
& Shiller, 2010; Bidder & Smith, 2012; Carroll et al., 1994; Dos Santos Ferreira & Dufourt, 2006;
Farmer & Guo, 1994; Howitt & McAfee, 1992). On the other hand, Forbes argues that the economic
contraction following the short-term boost is so strong that it results in a "Winner’s Curse" for the
winner of the FIFA WC
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.
This thesis follows the paper "A Kick for the GDP: The Effect of Winning the FIFA World Cup"
(Mello, 2022) and it will focus on the effects of the UEFA EC on the host and the winning country
through an econometric approach. The goal is to establish the presence of a causal link between host-
ing and/or winning the UEFA EC and the economic fluctuations following it. In particular, this thesis
will first be focused on whether the GDP growth rate increases in the quarters after winning and/or
hosting the UEFA EC and it will later shift the analysis on the change in Business- and Consumer-
Confidence Indexes in the months after the tournament was held. I will follow an approach similar to
Mello (2022), in which the author provided causal evidence of a short-term boost for the winner of
the FIFA WC: I will first start with a preliminary analysis in a dynamic setting by pooling and com-
paring treated and untreated countries; then I will implement the Synthetic Difference-In-Differences
approach (SDID) proposed by Arkhangelsky et al. (2021) in order to compare winning and hosting
countries to their respective synthetic counterfactual, which are generated through the time series of
the controls specifically to ensure the parallel trends assumption. This strategy will be applied to both
the quarterly GDP growth rate data and the monthly BCI and CCI data.
1
https://www.unwto.org/sport-tourism
2
https://www.fifa.com/tournaments/mens/worldcup/qatar2022/news/fifa-world-cup-delivering-record-breaking-tv-
audience-numbers
3
https://olympics.com/ioc/news/olympic-games-tokyo-2020-watched-by-more-than-3-billion-people
4
https://www.bloomberg.com/news/newsletters/2022-12-24/world-cup-win-lifts-up-argentina-s-economic-mood-
new-economy-saturday
5
https://www.bloomberg.com/news/articles/2022-12-16/winning-2022-fifa-world-cup-could-bring-gdp-boost-to-
france-or-argentina#xj4y7vzkg
6
https://www.forbes.com/sites/allenstjohn/2014/07/13/world-cup-gdp-curse/?sh=2771f9447db0
3
Overall, the results on GDP place themselves between the common belief around mega sporting
events and the "Winner’s Curse" theory proposed by Forbes. Indeed, a positive and statistically sig-
nificant effect of winning on GDP growth is registered in the quarter of the final. Nonetheless, this
effect is offset by the decrease in growth registered in the two quarters after, resolving without any
short-term effect on the economy. On the other hand, hosting the event seems to actually slow down
the economy in the three quarters since the beginning of the European Championships. Lastly, the
Consumer Confidence Index is not affected by either hosting or winning the event, while the positive
results of the analysis on the Business Confidence Index shall be taken cautiously due to some critical
issues in the available time-series.
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2 Literature Review
The question on whether mega sport events affect the host country’s economy is not new. Indeed,
there is the common belief that hosting these tournaments can boost the economy via extra tourism in-
jections and improvements in the host’s infrastructures. However, even if these investments are partly
covered by the entity organizing such events (like the Olympic Committee, the Fédération Interna-
tionale de Football Association, the Union of European Football Associations, etc.), the expenditures
might be too much to be recovered from tourism, merchandising and broadcasting
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. For example,
Mitchell and Fergusson Stewart (2015) argue that "it is difficult to find an economic justification for
hosting these events" as they find little positive effects on only some of the event-studies. Rather, they
justify it in terms of local happiness and political opportunism as it is usually well perceived by the
public (Mitchell & Fergusson Stewart, 2015). This finding in turn relates to the theory of animal spirits
(Akerlof & Shiller, 2010; Bidder & Smith, 2012; Carroll et al., 1994; Dos Santos Ferreira & Dufourt,
2006; Farmer & Guo, 1994; Howitt & McAfee, 1992). According to this theory, economic expansions
and contractions are also driven by changes in the thought patterns of the economy’s agents (Akerlof
& Shiller, 2010; Howitt & McAfee, 1992). Hence, contrary to conventional economic theories, eco-
nomic fluctuations are imputable to seemingly irrational self-fulfilling beliefs (Farmer & Guo, 1994;
Howitt & McAfee, 1992) due to changes in the agents’perception of one or more of the five aspects of
animal spirits: confidence, fairness, corruption and antisocial behavior, money illusion and story (i.e.
the narration of the time the agent is living) (Akerlof & Shiller, 2010). In fact, agents’ fears and hopes
can predict the future business cycle both when modeled as endogenous (Bidder & Smith, 2012; Dos
Santos Ferreira & Dufourt, 2006; Farmer & Guo, 1994) and when modeled as exogenous (Carroll
et al., 1994; Howitt & McAfee, 1992). Therefore, if hosting or winning a mega sports represents an
exogenous positive shock to the agents’confidence (measured through the BCI and CCI), then it is
plausible to think that an economic expansion will follow.
The first papers analyzing the relationships between mega sport events and the hosting economy
go back to the 1990s. Following the work of Archer and Fletcher (1991; 1990) in which they deeply
studied the effect of the tourism multiplier by developing a model encompassing both the Keynesian
type of multiplier and the input-output analysis; Burgan and Mules (1992) discussed the ability of
Australia to benefit from major sport events by suggesting an approach to measure their revenues and
expenditures and to estimate the economic impact through the use of the multiplier model. However,
this approach lacked of causal interpretation as it was based on a superficial analysis of the GDP time
series following the event.
Starting from the early 2000s, many authors investigated the effects on the economy of the hosts
of the sports mega-events, in particular the Olympic Games and the FIFA WC. Generally speaking,
hosting such mega-events usually have little or no effect on GDP, whether directly or indirectly, and a
positive impact on tourism (although lower than expected) and on the country’s brand image (Barrios
et al., 2016). Instead, a positive impact on tourism and GDP is registered after winning a tournament
mega-event like the WC (Mello, 2022; Nicolau, 2012; Nicolau & Sharma, 2018).
The Olympic Games and their link with the economy represent one of the most studied mega sports
events. Some authors focused on the effects of population size and GDP level on the amount of gold
medals a country wins (Bernard & Busse, 2004; Grimes et al., 1974); others tried to measure the
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https://www.nytimes.com/2021/07/24/business/olympics-economics.html
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economic impact of one or more editions on their respective host country (Baade & Matheson, 2016;
Billings & Holladay, 2012; Dolan et al., 2019; Li et al., 2013). In particular, most of them agree on the
fact that hosting the Olympic Games has little or no effect on the host economy (Baade & Matheson,
2016; Billings & Holladay, 2012; Dolan et al., 2019; Li et al., 2013). Interestingly enough for the
animal spirits theory, Dolan et al. (2019) showed that the Olympic Games increase the "subjective
well-being of the host city’s residents during the event, particularly around the times of the opening
and closing ceremonies".
For the FIFA WC, most researches focused on a single edition of the tournament and tried to es-
tablish a causal relation with the tourism sector in the quarters following the tournament. Hagn and
Maenning (2008) detected no "medium to long-term employment effects that were significantly dif-
ferent from zero" when analyzing the Germany1974 edition. Baade and Matheson (2004) analyze
the effects at the host city level of the USA1998 WC with an ex-post analysis of the growth path of
each city, finding out that the tournament resulted in cumulative losses of $5.5bn to $9.3bn instead of
the $4bn gains forecasted by the event boosters. Allmers and Maennig (2009) found no significant
effect on tourism for the France1998 edition and a little but positive impact for the Germany2006
one. Moreover, they also agree with Baade and Madison (2004) that these findings might be im-
putable to the couch potato effect on the retail sector (WC-addicted consumers spending more time
watching matches at home and in the fan-zones), the crowding-out effect on regular tourism (if the
event happens in the high touristic season of the host, sport tourist will compete with the regular
ones if the hotelling infrastructures are inadequate or not enough), and the pricing out effect (Allmers
& Maennig, 2009; Baade & Matheson, 2004). Nonetheless, they predict that the SouthAfrica2010
edition might actually yield positive significant results as that tournament was held in the low sea-
son and the investments in lacking infrastructures might actually boost the economy in the medium-
and long-run (Baade & Matheson, 2004). A later study on that edition highlighted the presence of
crowding-out and pricing-out effects, with the multiplier analysis showing a small increase in GDP
of about 0.1% carried by high returns in the tourism sector (Du Plessis & Maennig, 2010). Positive
results on tourism were also detected by Lee and Taylor (2005), who were able to distinguish the
WC-tourist from the regular ones for the Japan&Korea2002 FIFA World Cup: using the approach
proposed by Burgan and Mules (1992) to analyze the effects on the South Korean sector, they showed
that sport-tourists spent 1.8 times as much as the regular ones generating an estimated value added of
about $713 million (Lee & Taylor, 2005). Very few studies focus on the effects of winning the World
Cup, even if the identification should be less prone to endogeneity issues since the unpredictability of
such victory can be considered to be uncorrelated with past GDP growth (Mello, 2022). More specif-
ically, Nicolau (2012) argued that the winning team’s “golden halo”positively affected the country’s
tourism by improving its brand awareness and brand image. To do so, he estimated the market model
of Sharpe (1964) through the EGARCH model specification in order to regress the daily return on
stock of the two leading companies in the Spanish airline and hotel industries. Results showed both a
positive and significant impact of the victory of the World Cup and a smaller, positive, and significant
effect of the results of individual World Cup matches (Nicolau, 2012). Nicolau is also the first author
who does not focus on the effect of a specific single edition of the tournament. Precisely, the GARCH
model he adopted showed that only the SouthAfrica2010 edition had a significant impact on the brand
image of the winner (Nicolau & Sharma, 2018). Later, Mello (2022) focused on the economic effects
of winning and/or hosting any FIFA World Cup. Both the dummy variables and the SDID approach
highlighted that winning the tournament provides a short-term boost in GDP growth while hosting
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does not provide any significant benefit (Mello, 2022).
Few authors discussed the effects of the UEFA European Championship. Gouget and Lepetit (2017)
quantify the economic impact of the EURO2016 edition around e1.221bn through the multiplier
method. Du Plessis and Maennig (2010) state that the EURO2004 in Portugal and Germany2006 WC
were heavily affected by a crowding-out effect which spilled over to other months. Lastly, Lequeux-
Dinc˘ a et al. (2022) analyzed the impact of EURO2020 on the host city of Bucharest, showing that it
encouraged the tourism consumption despite the COVID19 restrictions.
This paper contributes to the current literature by enriching the body of papers studying the effects
of mega sporting events. In particular, it tests the economic effects of the competition on the host and
the winner of the edition by implementing both a Dummy Variable - Fixed Effects OLS estimation
and a Synthetic Difference-in-Differences regression in order to compare the pool of treated countries
to a set of counterfactuals. Specifically, the SDID approach allows me to test the null hypothesis (no
effects) while accounting for the eventual lack of parallel trends in the data. Lastly, to my knowledge
this is the first paper which investigates the effects of a mega sport event on the economic confidence
indexes in order to verify the applicability of the animal spirits hypothesis.
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