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Measuring the Economic Impact of Sports Activities

Measuring the Economic Impact of Sports Activities

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Measuring the Economic Impact of Sports Activities

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  1. Measuring the Economic Impact of Sports Activities Timothy S. Sullivan, Ph.D. Department of Economics & Finance Southern Illinois University Edwardsville Last Update: August 22, 2005

  2. Roadmap • What is economic impact analysis? • Difficulties in economic impact analysis: • Economic activity versus economic impact • Establishing the counterfactual • One-time versus ongoing impact • Direct, Indirect and Induced Impact • What are the alternative uses of public money? • Examples of Economic Impact • Application: A new Busch Stadium?

  3. Economic Impact Analysis • Economic impact analysis attempts to measure how a change (the building of a stadium, the hosting of a Superbowl) will impact the local economy. • Variable of interest is usually local income (GDP). • May also address tax revenue, jobs, population, etc.

  4. Conservative Estimation of Impact • Why are economic impact estimates frequently overstated? • Measuring activity versus impact • Poorly considered counterfactual • One-time versus ongoing impact

  5. Question: Activity vs. Impact • Suppose, at a sporting event in St. Louis, an out-of-town vendor sells a t-shirt, made outside of St. Louis, for $25. Does this cause $25 of economic impact?

  6. Economic Activity vs. Impact • Economic Activity is the value of new goods and services exchanged in the area. • Economic Impact gives the new income (or other variable) in the area.

  7. Question: Establishing the Counterfactual • Suppose that Gateway International Raceway is able to attract a Winston Cup Race. Should we include the impact of all expenditures (on locally produced products) at the track for the entire weekend?

  8. Establishing the Counterfactual • It is important to carefully determine what the region would look like without the event. This “what if?” is called the counterfactual. • Must be careful not to include expenditures by local people, if they would have spent the money locally anyhow. • Must be careful not to include impact from events that would have occurred anyhow.

  9. Question: Establishing the Counterfactual • Part of the impact of SIUE on the region is that students spend money on movies, food, rent, etc. Which students should be included when measuring this impact?

  10. Question: One-time vs. Ongoing Impact • Suppose a new racetrack is being built. Is the economic impact likely to be the same from year to year?

  11. One-time vs. Ongoing Impact • Many of the largest expenditures are one-time expenditures: • Facility construction • Legal, financial and architectural services

  12. Three Types of Impact • Direct Impact: expenditures made to complete project (payments to construction company). • Indirect Impact: expenditures made by suppliers (construction company buys raw materials and equipment). • Induced Impact: expenditures made by workers with extra income (construction worker buys a new car).

  13. Alternative Uses of Public Money • Virtually any use of local money will cause an economic impact about twice the value of the initial expenditure. • Economic impact is greatest when: • Expenditures occur locally • Use of product improves productivity (university) • Attracts visitors to area (and keeps their money)

  14. Examples of economic impact • Winston Cup race at Gateway • One-time: $53M; 421 jobs • Annual: $46M; 762 jobs • Lowe’s Motor Speedway (Concord, NC) • Annual: $276M • Phoenix International Raceway • Annual: $226M • Hosting a Superbowl • One-time: $306M

  15. Examples of economic impact • Atlanta Motor Speedway (two Nextel Cup races): $455M. Gross, Doug, “Atlanta makes pitch for NASCAR Hall of Fame,” AP, Yahoo! Sports, August 17, 2005.

  16. Examples of economic impact • Motor speedway in the Puget Sound Region (Seattle) • $256M during construction • $87M to $181M annual1 • Berk & Associates, “Economic Benefits Analysis of a Motor Speedway in the Puget Sound Region,” May 19, 2004.

  17. Application: A new Busch Stadium? • Which expenditures would be one-time? Which would be annually recurring? • What is the counterfactual? Which fans should have their expenditures counted? Which expenditures should be counted? • Would the Ballpark Village revitalize downtown? • Other uses of the public money?