CHAPTER FOUR

1
CHAPTER FOUR

• The Principles of Economic Impact Analysis

2
ECONOMIC IMPACT

• Displaced spending
• Casual visitor
• Time Switcher
• Incremental Visitors
• Economic Impact Analysis
• Indirect economic impact
• Induced economic impact
• Multiplier effect
• Household income
• Capture Rate
• Operations Impact
• Construction Impact
• Psychic Impact

3
The Principles of Economic Impact Analysis In
Sports
4
The Rationale for Economic Impact Analysis

• An economic impact analysis is defined as the net
  economic change in the community of host
  residents that results from spending attributed
  to a sport event or facility.
• Net economic change in a host community resulting
  from spending attributed to an event or facility
• Note Measures new economic benefits that accrue
  to the region that would not have otherwise
  occurred.

5
THE PURPOSE OF ECONOMIC IMPACT ANALYSIS

• The purpose of an economic impact analysis is to
  measure the broader economic benefits that accrue
  to a community.
• Provide public with relevant information
  regarding return on investment in a development
  project (e.g., stadium, new team)

6
A Comparison of the Economic Return and the
Financial Return

• A primary concern is mischievous application of
  economic impact analysis. Why because
• The economic impact analyses is that they are
  usually undertaken to justify a position that
  either a sports organization or community-elected
  officials have adopted or are proposing. Their
  point is not to find the truth, but rather to
  legitimize something the sponsoring group wants
  to prove. Consider the San Francisco Giants.

7
The Inviolable Principles

• There are five principles who inviolability is
  central to the integrity of economic impact
  analyses are reviewed.
• 1. Exclusion of Local Residents
• 2. Exclusion of Time-Switchers and Casuals
• 3. Use of Income Rather Than Sales Output
  Measures
• 4. Use of Multiplier Coefficients Rather Than
  Multipliers
• 5. Careful Interpretation of Employment Measures

8
Exclusion of Local Residents

• First, expenditures related to a sports event by
  those residing within the defined impact area
  should not be included because such expenditures
  represent only a recycling of money that already
  existed there.

9
Exclusion of Time-Switchers and Casuals

• Secondly, expenditures by time-switchers who were
  planning to visit the community for other reasons
  but schedule their visit to coincide with the
  event and casuals who attended the sports event
  but were in the community for other purposes and
  whose visit was not influenced by the event
  should be excluded from the analysis. Only the
  net increment of those expenditures attributable
  to increased length of stay because of the sports
  event should be included.

10
Use of Income Rather Than Sales Output Measures

• The three most commonly used multiplier
  coefficients are those
• for sales, income, and employment.
• The sales outputs tend to be used as the
  multiplier in economic analyses of sports events
  because they are substantially higher than income
  multipliers.
• Household-income multipliers should be used
  because the point of interest is the impact of
  the sales on household income and employment.

11
Use of Multiplier Coefficients Rather Than
Multipliers

• Most economist, ratio multipliers are still
  frequently used to calculate the income that is
  returned to residents in sports events economic
  impact analysis because such multipliers generate
  much larger numbers.
• Direct Indirect Induced Effects Visitor
  Expenditures

12
Careful Interpretation of Employment Measures

• This requires the measures of employment output
  be carefully interpreted. These measures
  typically do not differentiate between full-time
  and part-time jobs., and in the context of sports
  events more are likely to be short-term,
  part-time positions. These measures assume that
  all existing employees are fully occupied, so
  there is no spare capacity in the system and that
  all new jobs emerging will be filled by residents
  from within the community. Both of these
  assumptions are often challengeable

13
Steps in an Economic Impact Analysis

• Define relevant market/geographic area of impact
• Determine incremental visitors
• Analyze direct spending
• Determine indirect and induced spending
• Calculate fiscal impact
• Measure costs

14
Economic Impact Analysis Survey (tool)
15
CONTINUE
16
Measuring Costs

• A complete economic impact study includes an
  analysis of event costs
• Security
• Ticket sales
• Printing
• Advertising
• Transportation
  
• Communication
• Travel
• Lodging

17
ECONOMIC IMPACT ON THE HOST CITY
18
Some Conclusions

• 1. In addition to monetary cost considerations
  should be given to impact cost, displacement
  cost, and opportunity cost.
• 2. Impact cost is on-site and off-site
  components. On-site examples are equipment,
  supplies, and labor cost by the community.
• 3. On-site cost are borne by a community for
  traffic congestion, road accidents, vandalism,
  police and fire protection.
• 4. Displacement cost occur when visitors to an
  event displace the revenues that would have come
  from other visitors who didnt come because of
  price increase or congestion at the event.
• 5. Opportunity cost is the funds that a community
  invested may not be invested in another project
  that may get higher economic results.