The Principles of Economic Impact Analysis Sport Finance

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The Principles of Economic Impact
AnalysisSport Finance
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What is Economic Impact?

• The net economic change in a host community that
  results from spending attributed to the sports
  event or facility.
• Impact studies
• Estimate amount of income community receives
  after hosting event
• Hallmark Events
• - Super Bowl (1999-Miami 396 million, 2000-
  Atlanta 292 million)
• - NCAA Final Four
• - Olympic Games

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Why Economic Impact Analysis?

• To assess the ROI of Communitys investment
• To measure the inflow of tourists (non-resident)
  spending.
• To measure the investments effect on new
  employment.
• High profile projects garner widespread
  visibility
• - sports franchises
• - sport facilities
• - accountability

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Mischievous Application of Economic Impact
Principles

• Government Officials or facility developers are
  under large amounts to prove to public their
  investments is necessary and profitable.
• According to Crompton Howard, numbers
  exaggerated 10 to 15 times
• - Misuse of a multiplier
• - Use of incorrect data for analysis

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Five Inviolable Principles

• 1. Exclusion of Local residents
• 2. Exclusion of time-switchers/casuals
• 3. Use of Income rather than sales output
  measures
• 4. Use of multiplier coefficients over
  multipliers
• 5. Careful interpretation of employment measures

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Exclusion of Local Residents

• Visitors inject new money into the community.
  Residents dont.
• Visitors whose primary interest is to attend
  event are of particular importance.
• Community residents money is considered recycled.
• If they didnt attend sporting event, would they
  have spent money somewhere else (locally)?

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Exclusion of Time Switchers Casuals

• Time-switchers Individuals who change date of
  trip to coincide with event.
• Casuals
• Visitors who are already in community, attracted
  by other reasons who elected to attend sporting
  events for other reasons.
• Example Cubs fans in Mesa, Arizona

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The Use of a Multiplier

• Most economic impact studies use a multiplier
• Multiplier - The economic impact attributable to
  additional expenditure that an economic impact
  report concentrates upon.
• Economic Impact
• Number of visitors X average spending per visitor
  X multiplier
• Multipliers capture the size of secondary effects
  usually expressed as the ratio of total effects
  to direct effects.
• (A sales multiplier of 2.0, means that for every
  dollar received directly from a visitor, another
  dollar in sales is created within the region
  through indirect of induced effects)

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Multipliers

• Total Economic Impact is the sum of
• Direct Effects- First round of visitor spending
• Ie. Restaurants, hotels, fuel
• Indirect Effects - Ripple Effect of spending
• How far money goes from initial spending?
• Induced Effects
• Further ripple effects caused by local employees
  spending their wages.

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Sales Multipliers

• Sales Multiplier takes into account the extra
  visitor spending in the community
• Used to approximate sales revenue
• - Usually returns high estimate numbers

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Income Multipliers

• Income Multiplier
• Takes into account the increase in household
  income in the community
• Income multiplier is of greater use to
  researchers because it enables them to relate
  economic benefits received by residents to the
  tax resources that resident invested.
• Tax payers want to see how facility or franchises
  impacts their income, which makes income
  multiplier more valuable
• (The rationale for economic impact studies,
  specifies the purpose of the study is to compare
  how much money invested in sports team or
  facility with how much income received.)

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Employment Measures

• Employment multiplier coefficient
• Measures effect of an extra unit of visitor
  spending on employment in the host community.
• Measures do not delineate between full- time and
  part- time employees

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Defining the Region

• A region must be defined to identify what
  spending and economic activity to include.
• Only spending that takes place within the region
  is to be included as stimulating the changes in
  economic activity.
• Measures of impacts should only include
  businesses within this region.
• The size of the region influences both the amount
  of spending captured and the multiplier effects.

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Economic Impact of Sports on the Community

• Impartial Empirical Studies says sports have
  little to no
• positive impact on a host communitys
  economic status.

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Economic Impact of Sport Stadiums

• Sports franchises are small to medium size
  firms. They are highly visible components of a
  city, but no more in economic relation to other
  firms
• Franchises are a small portion of economy.
• Substantial portion of funds spent at games is
  just recycled in local community.
• Majority of revenue collected goes to pay
  players. (Many do not even live in market they
  play in)

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Other Costs

• Impact Costs - Cost incurred in community as a
  result of hosting event or franchise
• On-site- relates to equipment, supplies and labor
  costs incurred at event
• Off-site- traffic congestion, road accidents,
  vandalism, security
• Displacement Costs - Visitors to a sporting event
  displace revenues of other visitors elsewhere
  because of price or high volume.
• Hotels full
• Should be considered when calculating impact.

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Other Costs

• Opportunity Costs - benefits that would be
  forthcoming if public resources committed to
  facility were redirected to other public
  services.
• Education initiatives, civic improvement.
• Investment in other business ventures.