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
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?
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.
Conservative Estimation of Impact • Why are economic impact estimates frequently overstated? • Measuring activity versus impact • Poorly considered counterfactual • One-time versus ongoing impact
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?
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.
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?
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.
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?
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?
One-time vs. Ongoing Impact • Many of the largest expenditures are one-time expenditures: • Facility construction • Legal, financial and architectural services
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).
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)
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
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.
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.
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?