RWC in Manawatu - an "economic disaster"

At long, long, last! A city council has produced an objective analysis that considers not the ex-post gross impacts but the ex-post net impacts! And guess what the outcome is? The headline from the Manawatu Standard says it all.

From the report:

Far from producing a windfall, predicted to be worth between $750,000 and $2.2 million to the city, economic growth actually slowed during last year's tournament.

Proponents of the city's involvement, which included two matches, were "overly optimistic", said economic policy analyst Peter Crawford, and some city councillors are asking whether hosting large events is worth it.

The estimates process got it so wrong because it did not balance the likely benefits against the costs, he said.

One of the costs was the extent to which such a major event crowded out other activities.

Predictions were also based on expectations of hosting more high profile teams for longer.
In particular, it was hoped a European team would stay for several weeks, providing a $188,500 boost to household income.

Instead, Argentina stayed five nights, and the low profile Georgian and Romanian teams stayed a total of 10 nights – worth about $40,000 to household incomes.

I have to take my hat off to Peter Crawford - he has produced an answer to the question that people are wanting to know - did it benefit the local economy or not? I've read five post-RWC analyses for individual cities (some of which are publicly available, others of which I have asked for and been given with the condition I don't identify the reports individually) and every single one of them has been produced by outside consultants that use the economic impact methodology to come up with a dollar figure for the impact of the event on the host city. Economic impact analysis measures gross impact, not net impact. What Peter Crawford has produced is a net impact analysis - and it makes for sobering reading, if the tone of the news report is anything to go by. It was a gutsy report to present, but it actually answers the questions that councillors want to know - was it worth it?

I would like to think that other councils around the country will take the opportunity to evaluate the actual net impact that the tournament had on their local economy in light of this report. The Palmerston North City Council should be commended for producing this report in-house, and looking at the situation objectively. Objective analyses that consider all benefits and costs would be a good step forward for event analysis in this country.

I'm presently putting the finishing touches on a paper on the realised impacts of major sports events hosted in this country that I am presenting for the upcoming New Zealand Association of Economists Conference in Palmerston North in late June. Once it is ready I will post it up on the blog. Basically, major events are often underwhelming as far as their net impacts on local economies are concerned. Projections of substantial economic impacts do not materialise in the vast majority of cases - a result consistent with much of the independent international literature on mega and major sporting events.

Next on the agenda: Writing up an analysis of stadium construction and its effects on local economies, and then I'll look into the realised impacts of the Rugby World Cup on host economies. Both should be interesting analyses given what has unfolded to date.

Stadiamania

The results are in! The Forsyth Barr Stadium in Dunedin ended up with a cost overrun of $8.4m, or a 4.2% increase over budget. This is, as I have mentioned before, hardly surprising given the national and international experience. Some prominent examples include the Hamilton County, Ohio stadiums for Cincinnati's Bengals and Reds teams, Australian facilities in Melbourne, Adelaide, Canberra and Sydney, and domestic facilities including Waikato Stadium (this link to an excellent post by the late Roger Kerr - although I'm not entirely sold on the initial Westpac Stadium figures) and North Harbour Stadium (best link I could find - requires subscription).

Cost overruns have a further cost which councillors in Dunedin are now grappling with - the opportunity cost. Money needs to be found somewhere - and it is often to the detriment of other projects which also require funding from the public purse. These costs are not minor and should not be downplayed. After all, if impacts have a multiplier effect, so too do costs.

And now, in amongst all of this, the Warriors want a new stadium in Auckland. On the waterfront. With a roof. And a cost of $300m. And claims that $100 of the cost will come from the corporate sector, with the rest from local and central government.

This, from Warriors chairman Bill Wavish:

"Before the world cup, they made a decision to build a stadium in Dunedin, which has a population of fewer than 100,000 people. But there are 1.5 million people in Auckland and they don't deserve a new stadium?

"The view is that they made a mistake to spend all that money on Eden Park and now the opportunity has passed. At some point in time, we need to face up to that and build a stadium." 

Have I heard something similar before? Lessons need to be learnt. Some lessons, however, seem to feel the need to be learnt again, and again, and again.

F-B Stadium - more of the same

Admittedly, I wrote my previous post rather late at night and with the story only just emerging. This morning, with the benefit of a few more details, I can write a little more on the sorry state of the Forsyth Barr Stadium.

From the New Zealand Herald:

The company is now forecasting a full-year loss of $2.4 million, followed by losses of $1.2 million, $1.1 million and $1 million for the following three years, council information shows.

From the Otago Daily Times:

The six-monthly result represented a dramatic turnaround from DVML forecasts released last year, which tentatively predicted profits of $91,000 in 2011-12, $30,000 in 2012-13 and $46,000 in 2013-14.

Hmm. When support was being drummed up for the facility and throughout the process of construction, Westpac Stadium was touted as the poster child for New Zealand facilities - and a quick look at the first ten years shows why:

Figure 4.1: Net Operating Surpluses ($m): Westpac Stadium, 2000-2009

 

Source: Wellington Regional Stadium Trust Annual Reports, 2000-2009.

This figure was from my PhD thesis completed last year (note to self: it's about time this chapter was published!). In each of the ten years post-construction, the stadium ran operating surpluses which were then used to pay down debt. Forsyth Barr Stadium doesn't look to be close - but things might get better over time (and they are forecasting reductions to losses). It wasn't until the second five years, however, that the Westpac Stadium started to post stable surpluses. The key was establishing a regular usage for the facility, among other things - something the F-B Stadium has had trouble with to date.

I particularly like Paul Walker's take on the developments at Anti-Dismal:

I can't help thinking that the obvious lesson from Dunedin is that if you want to inject economic life into your area don't build a stadium.
I just hope that other city councils learn from the Dunedin experience and don't try building grand new stadiums in their cities. Take note Christchurch!

Stadiums are typically built as stimuli - to shake loose the shackles of impending economic doom by attracting people back to the city and getting them spending, and the impacts will trickle down to all concerned and things will come right. While an admirable sentiment, that hardly ever happens. This is why I find the popular defence of attributing poor financial results on the state of the economy a classic case of the pot calling the kettle black. I've alluded elsewhere to stadium construction as being a case of keeping up with the Jones'.

While one year is hardly a sufficient number of observations to read the final rites over the F-B Stadium, there are more than a few examples of stadiums in this country that have caused grief to ratepayers in recent years - with the North Harbour Stadium and Waikato Stadium two examples that spring immediately to mind. I sincerely hope that the Forsyth Barr Stadium is not added to the list - but things (and quite a few of them) will have to change for the better.

Of course, if Christchurch builds a bigger and better stadium and the associated increased competition for events, etc, is going to make things very interesting in Dunedin. Buckle in for what is sure to be an eventful ride!

The first six months of the Forsyth Barr Stadium - and a forward pass already!

Unfortunately for proponents of the brand new Forsyth Barr Stadium in Dunedin, the first six months hasn't exactly been that encouraging ...
I'm not one of these 'I told you so' people, but this report can't exactly be described as a surprise (although the extent of the losses are perhaps higher than many would have anticipated) as much of the international experience has been the same. They don't make money. Period. If you cover your costs, you are doing very, very well. Let's just hope that the folks in Dunedin can turn it around - although it is difficult to see how, if they don't attract major events that they were banking on. And they must also hope that cornerstone tenants remain financially viable and can contribute their share of the costs.
I do find the move by the Mayor interesting - ordering a review of the stadium's operations. This hot on the heels of the DCC having an observer at the ORFU. I know the Council has invested a ton (and a bit more)  of money into the Stadium, but losses were anticipated, and with the two big events in the first six months enjoying the Stadium rent-free, the benefits (if there were any) were never going to show on the Stadium's balance sheet. If I were Council, I'd be nervously awaiting the latest economic data to see what has happened to local and regional GDP in the past two quarters. If the stadium has been as beneficial as was claimed pre construction, one should expect to see gains to the local economy that outweigh the losses incurred at the Stadium. The chances of this actually happening would be slim, based on previous national and international experience.
I can see this being a subject that just won't go away - which is good for one who researches in this area!
Thanks to Eric at Offsetting Behaviour for the tip!

Sky City - convention centre deal

I was asked earlier today for my comment on the Sky City deal with the Government to allow Sky City to operate up to 500 more cashless pokie machines in return for Sky City building a $350m, 3500 seat national convention centre in downtown Auckland. A portion of my e-mail comments were read out on air (not something I was expecting) but essentially focused on the purported $85m annual increase in tourism expenditure that the new national convention centre would bring to the local economy. Now, casinos and convention centres are not exactly my area of expertise, but they share more than a few similarities with stadiums, an area I am familar with, and some of the warnings that come on the labels of a new stadium are just as applicable to a convention centre. Eric Crampton was on Jim Mora's Afternoon programme this afternoon and made some good points that neither ruled out nor supported the proposal, but he noted that two instances where convention centres were successful in the mid 1990s were in New Orleans and Las Vegas, where the centres were in close proximity to casinos. The potential complementary nature of the facilities suggest that it might well be a successful operation in New Zealand.

Of course, a successful operation doesn't necessarily translate into a flow-on effect into the local economy. Increased profits don't necessarily flow through to the rest of the economy in the manner usually associated with government projects. The usual caveats surrounding projections of spending and their use for justifying the project apply here - caution must be applied with any projections, which tend to be optimistic in nature; impacts do not equal realised benefits to local economy, and so on. It is worthwhile noting that although the cost of the project is borne entirely by Sky City (in which case cost overruns don't hit the pockets of local ratepayers), the incentive to move on the project is still given in economic impact terms - $85m increased annual tourism spend, 1000 jobs during construction and 800 new jobs when the doors open. All of these can be questioned.

According to this December 2011 story from the New Zealand Herald, international visitor receipts in Auckland were $2b. This would mean that an increase of $85m would be around 4.25% of visitor receipts, which while not large, is not insignificant either. As for jobs, it is highly likely that the 1000 jobs in construction will be sustained during this period rather than created - other work will be moved to accommodate the new centre. This is an opportunity cost that should be considered. The 800 new jobs - this will be very much dependent on whether the new centre generates new business or merely reallocates existing convention business from elsewhere within Auckland. I have no doubt that a new facility would bring in some new business - whether it is enough to justify the cost, that is another matter entirely.