The Economic impact of large sporting events
By Patrick van Beek
April 15, 2007
Guyana must feel proud that it managed to successfully handle its portion of the Super - Eights. Matches went smoothly and even the bug bear of unseasonable rain did not manage to push any match into the reserve day; only one match was shortened to any great degree. Those following my column regularly will know I have been holding off on covering the economic impact of holding the World Cup in Guyana until after the event. With the last ball of CWC 2007 in Guyana bowled on Monday now is the time for me to cover this issue. The somewhat unsatisfactory answer to quantifying the economic impact of a major sporting event is that it is almost impossible to quantify the impact of the event in isolation.
CWC 2007 has already promised that the University of West Indies (UWI) will provide a full study of the economic impact of the holding the World Cup in the region. Today I will discuss what these studies entail and the many criticisms levelled at them.
The UK Government's Department of Sport has a useful primer on the economic impact of hosting sporting events. While largely targeted towards the impact on a particular city, and overwhelmingly in favour of leisure and entertainment as catalysts for economic growth, it is a useful starting point in defining the economic impact and the potential benefits of holding large sporting events.
"The economic impact…is defined as the total amount of additional expenditure generated…that can be directly or indirectly attributed to the staging of a major sporting event. Having determined this figure, the impact of an event can then be calculated by comparing money spent in the…economy with money generated and retained. The aim of this process is to assess the net effect of staging the event in the…area."
Benefits of holding
The primer goes on to say "The promotion of events is recognised as having a positive economic impact…, simply because large numbers of people coming from…abroad - spend their money on accommodation, shopping, food and drink. This spending provides an economic boost to local organisations. Such an injection of income into a local economy has the potential to create more jobs, and it is possible that a cycle of economic development will occur, driven by sport and other sectors of the leisure industry, as the catalysts and vehicles of local economic impact."
Given the large amounts spent by Guyana and the region on hosting the event, assessing whether there has been a positive impact is imperative. The decision to go ahead with a brand new stadium at Providence was not completely without controversy, and demonstrating that overall the project had a beneficial impact on the country will allow those who pushed for the stadium to feel vindicated.
"By using economic impact assessment techniques, any authority or organisation monitoring the impact of their event will have much more reliable and credible information with which to evaluate the return on their investment...The cost of finding out whether strategies are working is an integral part of investment in the strategies themselves; and armed with appropriate information, local authorities will be in a far more informed position from which to evaluate their policies for economic development through leisure and tourism."
There is generally a three stage process in carrying out the impact assessment: Stage one involves providing researchers with as much information as possible so they can formulate the optimum strategy for data capture. Since this is typically by way of questionnaire the researchers will then define the likely respondent groups, and visitors' behaviour modelled to predict the potential impact. Stage two involves data collection; capturing the expenditure profiles of visitors with a survey questionnaire, a quick, efficient means of sampling the levels of expenditure of all identifiable groups at a major event. Stage three involves analysis of the completed questionnaires using a professional statistical package.
One thing that immediately becomes clear is that certainly in Guyana there were no survey questionnaires being passed around, so a vital part of the process seems to have been completely missed out. One wonders how UWI will discharge their mandate given that many of the possible lines of enquiry and in-depth economic parameters cannot be measured in the short term and require expensive detailed, long-term academic studies!
Criticisms of studies
Economists Robert Baade and Victor Matheson are largely critical of proponents of holding large sporting events for economic benefit: "projections of the economic impact of sporting events exaggerate the true economic impact of these competitions, and these events are an even worse investment for developing countries than for industrialized nations".
A comprehensive editorial in the Stabroek Business two years ago covered the three main reasons why economic assessments tend to overstate the economic benefits of holding large sporting events (http://www.stabroeknews.com/index.pl/article_archive?id=5820809). First, direct spending attributable to the games may be a "gross" as opposed to a "net" measure, that is spending that is not made as a result of it being spent on the event instead is not measured hence it is also called "the substitution effect"; "crowding out" - whereby tourists for the event merely supplant regular tourists; and the use of the multiplier - the view that one person's expenditure is another person's income to arbitrarily gross up the direct spending to measure the economic impact of indirect spending.
Now that the events here are over it is interesting to examine some other areas which may also overstate the economic impact if not treated carefully. The best example here is the spending by the Government to buy tickets for school children rather than the local organising committee giving them away. This has boosted the headline ticket sales and ticket revenue, but in reality 90% of this money will return to the Government so if these ticket sales are measured they are measuring expenditure that is simply moving in a circle. Indeed since 10% of the money is not returning to Guyana there is arguably a negative economic impact, though this must be offset against the positive impact of having a higher attendance on show to television audiences watching around the world (I would not like to try to quantify this!)
The second is the number of tourists arrivals, which it has to be said was disappointing. The fast majority of those people I met at Providence were either Guyanese residents or members of the diaspora. The question has to be asked whether these are visitors who would have visited Guyana at some point during the year anyway and chose the time of the World Cup to do so, but would not necessarily come for their usual trip as a result. If so this is a classic example of a substitution effect -for example visitors not making a trip at Christmas as a result of coming for world cup instead. So the tourist arrivals must be looked at for the whole year rather than just the event in isolation to get a true assessment on the impact of visitor numbers.
The UWI will face an uphill struggle to quantify the genuine economic impact of hosting CWC 2007. A golden opportunity has been missed by failing to gather visitor data while the event was being staged. I am sure the study will be time consuming and costly as a result. In the meantime the best way to get a feel whether the expenditure on the stadium will provide an adequate return on the investment is to measure the revenue streams it is generating. The fact that events are already being discussed is positive. It is critical that the momentum is not lost and the stadium does not end up being empty for much of the year.