Economic impact of 2014 FIFA world cup
Heavy Construction
Heavy construction companies will be among the primary beneficiaries of the World Cup, but the positive effects are softening as projects near completion. Nevertheless, we expect average operating income for companies in this segment to rise more than 7% in 2014, supported by the Brazilian government’s focus on infrastructure investments and public-private partnerships. The largest players, which include Construtora Norberto Odebrecht S.A. (Baa3 stable), Construtora Andrade Gutierrez S.A. (Ba1 stable), OAS S.A. (B1 stable) and Mendes Junior Trading e Engenharia S.A. (B1 stable), have been involved in all of the major World Cup projects, including the construction or renovation of stadiums and upgrades to airports and marine ports. Infrastructure projects for the World Cup, estimated at BRL26 billion ($11.5 billion), have been an important contributor to revenues in Brazil during the past few years. Nevertheless, total stadium investments of about BRL 8 billion ($3.5 billion) constitute only a minor portion of the rated players’ total backlog of more than BRL 120 billion ($52.9 billion). At its peak, backlog related to the World Cup represented, on average, about 10% of the total for the large companies in the industry, with the most impact on Construtora Andrade, OAS and Mendes. (See page 8 for impact on rated infrastructure operators.)During the 32 days of the World Cup, heavy construction companies may be negatively affected by a decrease in working hours and lower productivity. Mendes Junior and OAS are more vulnerable to this risk owing to their higher exposure to Brazilian projects.
Food and beverage
The World Cup represents a major opportunity for Brazilian consumer goods companies to strengthen connections with consumers through their association with an event that is deeply ingrained in the country’s culture. It will also be a chance for wide exposure outside Brazil, which is especially important to companies with global aspirations. This will be more significant in the long run than the expected incremental boost in sales during the tournament.We expect the World Cup to help lift AmBev’s annual beer volume in Brazil by 2%. The company has significant experience with football-related events as a sponsor of 21 regional clubs in nine Brazilian states and its sponsorship of the Brazilian national football team with the domestic beer brand Brahma and the carbonated soft drink Guaraná3 Antarctica. AmBev was a sponsor of the 2010 World Cup in South Africa and the sole
provider of beer and refreshments at Confederations Cup matches last year. The company has expanded its production and distribution capacity during the past few years. AmBev’s marketing expenditure related to the event should be concentrated in the first half of the year, much as it was in 2013 prior to the Confederations Cup. The company has indicated that the percentage increase in its selling, general and administrative expenses in the second quarter should be in the high-single digits to low-double digits from an already elevated year-ago level.Processed-foods companies like BRF and Marfrig also stand to benefit from marketing exposure. BRFhas recently started to sponsor the Brazilian national football team with the Sadia food brand. We expect it to see about a 1% boost in annual sales from the World Cup. The company gains 56% of its revenues from Brazil and 46% from its processed-foods and food services portfolio. Marfrig will focus its marketing effort in Europe, where it can leverage its connection with regional customers by spotlighting the Moy Park brand, increasing its brand penetration. The company was a sponsor of the FIFA 2010 World Cup, where the brand could be seen on the sidelines of the matches involving England, France and the Netherlands. Marketing efforts will include an on-pack promotion that will take selected shoppers to the tournament’s semifinal matches in Brazil. It could also use the event to increase consumer familiarity with recently launched Marfrig brand products and promote commercial relations
Broadcast television
The Brazilian advertising market is expected to grow 12.7% in 2014 compared with 6.1% growth in2013, according to Magna Global, a strategic global media unit of IPG Mediabrands. That would be positive for Globo Comunicacao e Participacoes S.A. (Baa1 stable), Brazil’s leading TV broadcasting company. Globo, which will broadcast all 64 World Cup matches, has historically grown more than the overall Brazilian advertising market – notably during the previous World Cup years of 2006 and 2010 (see Exhibit 4).Globo has already sold out its World Cup advertising space to eight sponsors: Ambev, Johnson & Johnson (Aaa stable), Coca-Cola, Itaú Unibanco S.A. (Baa2 stable), Oi, Hyundai Motor Co. (Baa1 stable), Nestle S.A. (Aa2 stable) and Magazine Luiza (unrated). Most of these sponsors are Globo’s regular advertisers for other major events, such as Formula 1 auto racing and the Brazilian football championships, so it is hard to assess the exact direct benefit of the World Cup for Globo’s revenues and cash flows this year. In accounting terms, Globo had
completely paid FIFA for the exhibition rights as of early 2012, and received up-front payments from advertisers in the second half of 2012 and accounted for them in the same period. Revenues, however, will be recognized as the advertisements are aired on broadcast and pay TV, mostly during the first half of 2014.
Media
As far as the media situation in Brazil is concerned, it is interesting to note that there are 232 newspapers (national, regional and local) in the country. As football is the most popular sport and form of entertainment in Brazil, all of those newspapers give significant daily coverage to all football-related matters. Of these 232 newspapers, ten newspapers based in the big cities (Sao Paulo, Rio de Janeiro and Brasilia) provide national coverage and a further four national agencies, six magazines, two TV channels, one radio station and two internet websites cover the whole country.Sao Paulo state has the largest number of newspapers (51), followed by the state of Minas Gerais (27), whereas Rio de Janeiro state has 20. There is also significant news coverage in states such as Bahia (14 newspapers), Parana (17 plus one internet site), Santa Catarina (7) and Rio Grande do Sul (15). As for TV and radio stations the numbers are also impressive, with 130 TV stations and 1,365 radio stations transmitting on AM and 296 on FM across the country. With regard to media needs for a FIFA World Cup, we wish to point out that this analysis of the media facilities and media infrastructures is based on the stadium projects of the prospective host cities for 2014. Of the 18 prospective host cities presented by the bid LOC, only four require brand-newstadiums: the Zagallo Arena (Maceio), the Estrela dos Reis Magos (Natal), the Recife/Olinda Arena (Recife) and the Bahia Arena (Salvador). All the otherstadiums will be rebuilt or renovated. In fact, this is the only way to guarantee all the FIFA requirements, since the current stadiums, despite some renovation work in the past few years, lack the necessary media and other infrastructure to host a FIFA World Cup match.The projects for new or renovated stadiums are most impressive. One important element that is common to almost all of them is the huge amountof space inside and around the arenas, which enables the facilities to meet allmedia requirements. However, one cannot ignore the fact that all the projects are pending the final decision in October.With the exception of the Baixada Arena in Curitiba (Atletico Paranaense), the Orlando Scarpelli in Florianopolis (Figueirense), the Beira Rio in Porto Alegre (Internacional) and the Morumbi in Sao Paulo (Sao Paulo), all the stadiums belong to the respective federal states. This means
that almost all of them are used by two or three local football clubs, which is the average number of major clubs in each state. As for training ground facilities for the media, there should be no problems since many of them have the necessary space and requirements to receive media representatives. Nevertheless, this should also be reviewed at a later stage because most if not all of them will need important work to adapt to the needs of a FIFA World Cup. A detailed report of the media facilities needed for hosting a FIFA World Cup can be found as an annexe at the end of this document. Nevertheless, suffice to say that the projects presented clearly demonstrate that Brazil would be able to meet the media requirements of the 2014 FIFA World Cup
Hospitality
According to a report by Ernst and Young Terco, visitors are expected to spend over 2 billion Brazilian real on hospitality (over $800 million USD). With such a large influx of international visitors, the problem is not generating revenue from the event; it is providing enough space for visitors to comfortably stay. Soccer is the most popular sport in the world, which means that millions of passionate fans will be traveling to watch their country’s match. With a beautiful backdrop like Brazil, the allure of such a large event is amplified. This can mean great things for the Brazilian economy and the hospitality industry but only if they are prepared for the large number of people. Brazilian hotels in all 12 venues where the games will be held have agreed to cap prices. Although the competition is hot, hotels have said that they will not charge any more than what they would charge during the busy Carnival and New Year’s seasons. While the prices aren’t exactly a bargain, they prevent properties from gouging visitors will inflated prices. But in order to be prepared for such a large number of guests, the hotels need to be prepared and invested in beforehand. After stadiums, the hotel complex received the highest amount of investments.After the games have come and gone, Brazil will have benefited from the large number of tourists in the area. Readying the infrastructure of the city is a challenge, but it shows that the country is ready for future growth. The temporary hotels may be turned into housing projects for residents, or continue in the industry. But before they focus too far into the future, hoteliers need to set their sights on getting through the hectic season that will be the 2014 World Cup.
Transport
Having reviewed this comprehensive information with complete objectivity, the inspection team concluded that the existing air and ground transport infrastructure would enable Brazil to host an excellent 2014 FIFA World Cup™. To support this view, we have summarised below the findings on which it is based. All 18 prospective host cities have ‘good’ airports. This is particularly relevant in that not all prospective host cities have the necessary hotel room inventory, in terms of capacity and quality, to accommodate all the visitors who may wish to attend particularly well-subscribed matches. The final draw could easily produce group matches where the level of interest and anticipated number of travelling supporters and working groups may easily surpass the total room inventory found within the host city or satellite accommodation nodes located within reasonable travel distance by road or rail. Consequently, the inspection team decided to investigate the feasibility of having to airlift large numbers of spectators and working groups to attend matches in any one of the prospective host cities, but in particular, those with smaller numbers of rooms. Following the inspection trip, enquiries were made of all of the airports located in the prospective host cities to ascertain their current status. At the time of writing this report, it has not been possible to complete a comprehensive analysis, although from the research conducted thus far, the inspection team can confirm with confidence that the airport infrastructure would be able to cope with large numbers of passengers attending matches on day-return trips. Based on the research conducted by the inspection team, the inspection team concluded that Brazil has the necessary air transport infrastructure to handle the anticipated number of international visitors as well as the number of spectators and working groups that may wish to travel from venue to venue to attend matches. Given the large distances between the different prospective host cities, the desire by most international spectators to follow the team of their choice and the need, in certain cases, to supplement the hotel room inventory of certain host cities with hotel rooms in satellite accommodation nodes, Brazil’s air transport infrastructure is a key and effective element of its bid. With regard to urban transport, the Brazilian bid consists of a sufficient number of prospective host cities with good urban transport infrastructures to accommodate the anticipated number of spectators wishing to attend the matches. There is a small number of prospective host cities where it may be difficult to meet the ground transport challenge posed by an event of the magnitude of a FIFA World Cup™ match and given the large distances between some of these smaller host cities and the nearest major city, it would
be difficult to supplement their existing transport fleets. However, the Brazilian bid is still left with a sufficient number of host cities where there are urban transport infrastructures of sufficient quality. As for rail transport, other than urban transport and the Rio- Sao Paulo high speed service that will connect the two cities and reduce the journey time to less than two hours, the inspection team did not believe that rail would play a major role in FIFA World Cup in Brazil. For additional data on transport, please review the general data on transport provided in the annexe at the end of this document.
Medical services
Brazil’s hospitals have become an international reference point for important medical areas and as such, we do not foresee Brazil having any problems meeting the high standards set by FIFA for everyone involved in the 2014 FIFA World Cup™. Each one of the proposed 18 prospective host cities has a large network of hospitals and some of the most important ones were relatively near the stadiums. The inspection team wishes to draw particular attention to the Albert Einstein Hospital in Sao Paulo because of its importance in Latin America and in the world. This hospital combines the features of a large general hospital with those of a highly specialised institute. It was the first hospital outside the United States to be approved by the Joint Commission of International Accreditation, an organisation with headquarters in Chicago (USA) that is currently active in more than 60 countries. A large complement of private and public hospital centres equipped with state-of-the-art technology will be ready to provide all forms of health care to the FIFA family, participating member association teams and the general public.
Tourism
Brazil has launched its tourism campaign to ATTRACT World Cup visitors for the June 2014 games. Brazil's tourism board Embratur Invested Investments has $ 20 million into the campaign, Which will run until June 2014 The new campaign has been titled "House" and will be launched as a video on various digital marketing channels. It will be used to ATTRACT tourists from the USA, England, Mexico and Germany Amongst others to make them feel welcome in Brazil. This Follows after Brazilian Tourism Board President Flavio Dino unwrap the country would spend $ 11.6 billion on the Modernisation and construction of football Stadiums, airports and various other tourism infrastructures. In a recent press call
Dino commented: "We are confident That tourists will be well served and That the World Cup will be held to its fullest, bringing in economic returns." There has already been 6.2 million World Cup tickets have been submitted requests That into the initial application stage, with Brazilians requesting tickets the most closely followed by the United States. Brazil logged the most ticket requests with 4.4 million of the 6.2 million and US citizens accounted for 374,000 requests. Other countries EAGER to get World Cup tickets include Argentina, Chile, England, Germany, Australia and Japan. Embratur has expanded its offices worldwide to encourage tourists to visit Brazil next year including three offices in the US; New York, Chicago and LA. The tourism board is also working on capping PRICES hotel price hikes to avoid peak tourist held to celebrate this event as it Becomes increasingly popular. With the FIFA World Cup next year and the Rio Olympics in 2016, Brazil is currently Preparing to welcome visitors and host both events in spectacular fashion. With over $ 12.5 billion in expected revenue, tourism is expected to majorly boost the economy.
