Business Mirror

SETTLING FOR THE CRUMBS?
Germany’s Economy May Get Little Lift From World Cup
By John Fraher
Bloomberg

The soccer World Cup’s biggest sponsors are already reaping rewards from the tournament. For the rest of German business, profits may be harder to come by.
       Everyone wants a slice of this huge pie, but in reality there’s only so much to go around,’’ says Herbert Eingang, 45, who runs a fast-food outlet off Berlin’s main Kurfuerstendamm shopping street. “People pinning all their hopes on the World Cup are going to be disappointed.’’
       Businesses are trying to take advantage of an event that Deutsche Bank AG says will boost spending by €5 billion ($6.4 billion) and lure one million visitors when it kicks off on June 9. While companies including Adidas Salomon AG, the world’s biggest sporting-goods maker, and Royal Philips Electronics NV, which makes flat-screen television sets, say business is booming across their biggest markets, economists argue there will be scarcely any benefit to the German economy from the World Cup.
       The multinationals can benefit from the World Cup because they sell their goods all around the world,’’ said Stefan Bielmeier, an economist at Deutsche Bank in Frankfurt. “But the impact on smaller companies is very limited.’’
       The World Cup, which is held every four years, comes to Germany at a time when domestic consumers still have little to show from the country’s recovery from an economic slump at the start of the decade. With unemployment at 11.3 percent, energy bills rising and households facing an increase in the value-added tax next year, Dresdner Bank AG says the tournament will add just 0.1 percentage point to growth this year.

‘They Don’t Stick Around’
       “I don’t really expect a big windfall from the World Cup,’’ said Patricia Thibaudeau, who runs the Hotel Baerlin near the city’s Tegel airport. “I’m booked out for the days of the games, but football fans only come for the matches. They don’t stick around.”
       Berlin will stage six of the 64 games during the monthlong event, which will be played in 12 cities across the country.
       The tournament’s biggest sponsors are less reliant on German consumer spending as they tap demand across the world for everything from Adidas replicas of jerseys worn by Argentine star Hernan Crespo to Gillette Co. razor blades advertised by England captain David Beckham.
       Adidas, which projects soccer revenue to exceed €1.2 billion this year, forecasts that just one third of the national soccer jerseys it sells this year will be of the host nation.
       Philips, which last month said demand for its flat-screen TV sets helped boost first-quarter profit by 37 percent, makes only 7 percent of its sales in Germany.
       “Football is most definitely the most spectacular product at the moment because of the World Cup,’’ Adidas chief executive Herbert Hainer said in an interview on May 9.

Drop in the Ocean
       Economists fail to share his enthusiasm. David Milleker of Dresdner Bank says extra spending by soccer fans will be a “drop in the ocean” when compared with the size of Germany’s $2-trillion economy. The Berlin-based DIW institute even questions whether there will be any measurable benefit from tourism and consumer spending.
       Such sporting events risk deterring as many visitors as they attract, says the DIW institute, one of six research groups that advise the German government. Tourist numbers failed to grow in 2004 in Greece, which staged the Olympic Games in Athens, and in Portugal, where the European Championships were held.
       “A sustainable improvement in consumer sentiment can only be based on a recovery in the labor market,’’ Joerg Lueschow, an economist at WestLB Research in Dusseldorf, Germany, said in an interview yesterday.
       Some companies have already been burned after earlier forecasts proved to be too optimistic. Nici AG, the Munich-based maker of toys such as the tournament’s “Goleo’’ lion mascot, filed for insolvency on May 16 after running out of cash to pay its bills.

Soccer Balls for Basketballs
       Dresdner’s Milleker says some extra purchases of items such as soccer balls or TV sets may just be because they’ve been brought forward to the summer, as companies such as Philips step up advertising campaigns, or come at the expense of other goods such as basketballs.
       “It’s a pretty safe working assumption that beer consumption will go up, but I’m not sure we’ll see a lot in terms of the impact on gross domestic product,” said Bundesbank president Axel Weber in an interview.
       On Berlin’s Kurfuerstendamm, Eingang says he’s not sure he can afford to raise the price of a Currywurst—a grilled sausage covered in a spicy sauce—by 10 cents to €2 to pass on the cost of higher energy prices.
       “It’s an artificial upswing,’’ said Eingang. “I’m worried that things will go well during the World Cup and then quickly get worse after that. It will only help a few sponsors who will be able to push their brands better.’’