Wednesday, 14 December 2011

The accommodation effects of the RWC

This came out yesterday via TVNZ. Apparently the October month was not kind to the accommodation sector, even with the RWC. A quick glance at the article reveals that while international guest nights in October 2011 (when compared to the same month in 2010) rose 7.1%, domestic guest nights fell by 6.5%, leading to an overall fall in guest nights of 1.5%. I wondered whether this was a blip or part of a recurring theme - so I dug a bit deeper.

I took the liberty of taking a closer look at the data from Infoshare and did the same calculations for several periods. What I found was rather interesting. From a national perspective, I calculated the year on year percentage change in guest nights for domestic, international and combined. For the March-August 2011 period, the national change in guest nights was -0.39% when compared to the same period in 2010. The domestic guest nights for this period in 2011 were up by 6.25% on the same period in 2010 while the international guest nights were down by 9.75%.

I wondered if the aggregated March-August period results were influenced by the March month results (when the immediate effect of the Christchurch earthquakes), so I separated out the year on year percentage changes. These were the outcomes:
March: Total guest nights: -5.44%; Domestic guest nights: 1.65%; International guest nights: -13.1%
April: Total: -3.76%; Domestic: 0.41%; International: -9.91%
May: Total: 0.90%; Domestic: 6.41%; International: -7.54%
June: Total: 0.29%; Domestic: 3.83%; International: -6.25%
July: Total: 1.99%; Domestic: 8.55%; International: -8.86%
August: Total: 8.4%; Domestic: 14.39%; International: -1.01%

It is clear that the March and April months are influential in the aggregated period - the other months had increases in total guest nights. What is interesting about these monthly figures is how the change in domestic guest nights was positive and growing in July/August, suggesting a time-shifting effect is occuring when compared to the October figures. It appears that domestic travellers decided that they should do their travelling before the RWC rather than during it. Without question the school holidays being shifted to accommodate the timing of the RWC will have contributed to this effect. Also of note is the negative change in international guest nights for all six months - although there was a marked improvement in August. The negative year on year percentage changes in international visitor nights seen above actually began in September 2010.

The September 2011 period saw a small increase from 2010, with the change in total guest nights an increase of 0.23 percent. International guest nights were up by 20.72%, although this was almost offset by a fall in domestic guest nights by 11.8%.

When the RWC months of September and October are aggregated and compared with the same period in 2010, overall guest nights were down by 0.69%, with the 13.45% increase in international guest nights being more than offset by the 9.03% fall in domestic guest nights. It would appear that the overseas visitors did come for the RWC, but locals decided to travel before the influx of international visitors, resulting in a dampened effect on the accommodation sector (and. most likely, on the net economic impact of the tournament) during the RWC period.

A quick look at the total guest nights for regions for the RWC period reveals that each region experienced:
  • Northland: a fall of 2.53% compared to an increase in the March-August period of 2.62%;
  • Auckland: a smaller increase (12.5%) compared to the March-August period of 14.06%;
  • Waikato: an increase (6.32%) compared to the March-August period of 5.05%;
  • Bay of Plenty: a fall of 1.58% compared to an increase in the March-August period of 4.13%;
  • Hawkes Bay and Gisborne: an increase (9.47%) compared to a fall during the March-August period of -5.51%;
  • Taranaki, Manawatu and Wanganui: an increase (0.36%) compared to the March-August period of 0%;
  • Wellington: a smaller increase (6.5%) compared to the March-August period of 13.48%;
  • Nelson, Marlborough and Tasman: an increase (7.35%) compared to the March-August period of 5.17%;
  • Canterbury: a smaller fall, (-25.1%) compared to the March-August period fall of -26.06%;
  • West Coast: a larger fall, (-9.87%) compared to the March-August period fall of -7.29%;
  • Otago: a smaller fall, (-1.3%) compared to the March-August period fall of -2.66%; and
  • Southland: a smaller fall, (-2.04%) compared to the March-August period fall of -8.09%.
Only four of the twelve regions experienced an increase in guest nights during the RWC period that bettered change in the six months leading up to the tournament. 

It will be particularly interesting to see what happens to these figures in the November and December months.

Tuesday, 6 December 2011

RWC and Tourism - more thoughts

In my last post a couple of weeks ago I looked briefly at the October month effect of the RWC in comparison to the previous October months. By way of a recap, where the average net (total) passenger arrivals in the October month between 2000 and 2010 was a shade under 54,000, in 2011 the corresponding figure was -4,337. In the September month (when the pool phase of the tournament was held across the country), the average net passenger arrivals between 2000 and 2011 was approximately 2,917. The corresponding figure in September 2011 was 51,174. In comparison with the average figures, it would appear that while the RWC is likely to have boosted September month net arrivals by some 48,000 visitors, the effect in October was actually a worsening of some 58,000 visitors. The combined effect of the RWC in the two months in question suggests a net outflow of some 10,000 visitors when compared to the averages for those months.

It would appear that the 133,200 visitors that arrived in the country for the RWC were offset by rather substantial crowding out. The effect of their spending on the economy will be dependent on whether the amount spent by the RWC visitors outweighed the loss of spending from those who left. Either way, it doesn't seem very likely that it will be $400 million, let alone $700 million. More will unfold in the coming months, I am sure.

Friday, 25 November 2011

RWC Visitor Numbers - a closer look

Statistics New Zealand released the visitor numbers for the RWC on Tuesday (a conference in Melbourne has delayed my response - I write this post on a barmy Melbourne Friday night) and they make for rapturous applause! Initial projections of 95,000 international visitors were blown off the park with a staggering 133,200 visitors here for the Rugby World Cup between July and October.

A brief closer look at the visitor statistics, however, reveals some interesting insights (which are not mentioned in the press release).

While there was a sizeable (17%) increase in short term overseas visitor arrivals in October 2011 compared to the same time in 2010, net short term overseas visitor arrivals were actually negative (-22,361) on the back of a 32% increase in short-term overseas visitor departures. Rather interesting that this is the only year between 2001 and 2011 in which net short term visitor arrivals are negative.

If we look at the net visitor arrivals for the October month between the years of 2001 and 2010, the average total net visitor arrivals in October was 53,480, with a maximum of 68,971 in 2005 and a minimum of 41,260 in 2003. In 2011, the net visitor arrival figure was -4,337. This is the first net loss in international visitors to this country in the October month in at least eleven years (the StatsNZ spreadsheet data doesn't go back any further - although I'd certainly like to look back further). This, and the net short-term visitor arrival results are almost as staggering as the results of the actual number of visitors here for the RWC. I know we are in the grip of a global financial crisis and we've had the Christchurch earthquakes, but figures of this nature are really eye-catching. This can go some way towards explaining the muted response that has been reported in the media to date on the spending impacts of the RWC, I suspect - quite some way, in fact. I'll take a look at the September month figures in a later post - a more in-depth look is required!

Tuesday, 8 November 2011

Spark the economy, build a stadium...

I have to admit, I have wondered for some time about when this was going to happen. And now it has.
The Govermment has announced that it will contribute $5 million and underwrite the cost of the new temporary stadium to be built in Christchurch in time for a rugby test to be held next year in the city.
"We are delighted for the residents of Christchurch that they will have a venue capable of hosting major international concerts and sporting fixtures. Christchurch has not hosted an All Blacks Test match since the Bledisloe Cup match in August 2010," NZRU Chairman Mike Eagle said.
The two-yearly Tri-Nations rotation policy doesn't appear to get a mention here (Christchurch usually hosts a Tri-Nations test against Australia or South Africa every two years, and last did so in 2010, meaning 2011 was an 'off-year' for the city). One cannot forget the loss of Rugby World Cup matches - more on this below.
Christchurch is a sporting city, as evidenced by its long and illustrious history of sporting achievement. The earthquakes have had a devastating impact on the home of rugby and cricket in the city, AMI Stadium, with liquefaction and earthquake damage posing very real doubts over the stadium's long term future. The country's second largest stadium was recently upgraded in 2009 to the tune of some $40 million for the Rugby World Cup. The earthquakes resulted in the city losing its seven matches to other cities around the country. The Crusaders, the local professional rugby franchise (and the most successful franchise in Super Rugby), were forced to play all of their games outside of Christchurch in the 2011 season, with games from Timaru to London! The team defied all odds and a punishing travel schedule to reach the Super 15 final, being narrowly defeated by the Queensland Reds. The region's ITM Cup team (Canterbury) has won the past four NPC/ITM Cup titles, making the Canterbury region the country's rugby stronghold in recent times.

The long term future of AMI Stadium has meant several options have been considered for a rugby facility in the city. The Canterbury Rugby Football Union owns Rugby Park, which has a capacity of some 6,000 (which pales in comparison to AMI Stadium's capacity of 45,000). The city also has QEII Stadium, which has hosted international football recently. Today's decision to temporarily rebuild the city-owned Rugby League Park in Addington, a facility with a planned capacity of 17,000 (extendable to 26,000) represents an important step in rebuilding the sporting side of Christchurch. Of particular interest is the Christchurch City Council's (ratepayer) contribution - $1.15 million, or 5.75% of the planned cost of the new facility. This is low by international standards, but we will wait and see what the final cost (and the final council contribution) is in due course before passing judgement.

In the story linked above, the comments (while not always reflecting the wider sentiment) show the polarising nature of such developments. Interestingly enough, the NZIER has just released their latest Insight publication, which surveys the Canterbury region after the earthquakes. A quick scan of this document reveals some real concerns for the region, including a fall in population, employment and wider economic activity, including retail spending and the accommodation sector, alongside rebounding construction activity and growth in exports.

A fair question to be asked at this juncture: is $20m on a stadium the best use of limited taxpayer funds? The answer to this is of course contentious and depends on one's point of view, but independent economic analysis the world over shows that if you are expecting an economic rebound, you'd be best to channel the funds elsewhere. The 2007 paper by economists Robert Baade and Victor Matheson on the role of professional sports in the economic development of New Orleans in the wake of Hurricane Katrina makes several important points, points that policymakes would be well-advised to heed.

It doesn't seem that economic gain is the motivation for building this facility, which is heartening from my point of view. Nonetheless, it seems fair to assume that this development is at the very least an attempt to 'reposition' Christchurch to it's once-prominent place as a feature of the country's sporting landscape. Given the loss of the Rugby World Cup matches, perhaps the city is in need of a renewed focus on top-flight sport to generate the feel-good benefits that sporting success is commonly associated with. If these benefits exceed the cost, then $20 million on a new stadium might well be considered money well spent.

This from Prime Minister John Key in the Stuff article at the top of this post:
"Restoring the opportunity for Cantabrians to support their major sporting teams is an important part of the recovery and rebuilding of Christchurch," Key said.

"Cantabrians have had to endure so much over the past 14 months ... Today's announcement about the new stadium is fantastic news.''
Okay - so it is being perceived as a feel-good thing. Fair enough. Of course, some might argue that $20 million would go a long (and maybe longer) way in other sectors, and they would have a fair point. Sports is typically a very small sector in any city's economy (usually between 0.5 to 2% of a local economy), and as such the gains to be generated from spending in this area should be tempered with realistic expectations.

Wednesday, 26 October 2011

Further thoughts on interview with Larry Williams

I had an interview this evening at around 6:15pm with Larry Williams on Newstalk ZB to discuss this press release that came out earlier today regarding this country's future hosting of the Rugby World Cup.

Larry raised a couple of points that I've had a chance to think more about since the interview, and I thought I'd jot them down before I forget them.

Firstly, I should clarify my belief that co-hosting a future RWC with Australia would be more commercially viable as the costs of running the tournament would be shared between the two countries and this country would be more likely to make ends meet in terms of covering operational costs. As it is, the present tournament is incurring a $39m loss and counting with additional operational costs borne by local, regional and central government.

Why would Australia want to co-host with us? They've already flown solo before (in 2003), and did pretty well, too. Indeed, we have shown that the tournament can be considered a success being hosted entirely within one country. To me, what it comes down to is the value that New Zealanders place on having the tournament. If we perceive that the benefits exceed the cost - and we need to be careful about what benefits actually constitute (see Eric Crampton's recent post in Offsetting Behavior for additional considerations that must be made as part of an objective analysis, including the crowding out effect, the net feel-good effect - otherwise known as the 'warm fuzzies' - and the diversion of public amenities) then the cost of going it alone might well be worth it.

Another consideration to the co-hosting argument should be the 'impact' on smaller cities. I think many would agree with the notion that it has actually been the smaller cities who have provided this tournament with much of its value - not necessarily from the visiting spectators attracted to these cities, but the enthusiastic embracing of the games and teams that they hosted. Smaller cities like Napier, Nelson, Palmerston North and New Plymouth got right behind their games, and this was great to see. A co-hosting arrangement is likely to result in more games going to major cities and less to smaller centres, and so some of the value of the tournament to the country is likely to be lost. I sense that this would disappoint many.

So, should we host the tournament again? We need to be objective when it comes to a future tournament, and consider the implications of hosting. Given that much of the infrastructure is in place, I'm sure we'd like to think that in maybe 16 or 20 years time it could well be New Zealand's time again. My concern is that the price tag attached to the tournament may well have escalated well beyond our means by that stage. We have shown how a country can embrace the event. It would be nice to think that the IRB might embrace some form of revenue/profit sharing to see the place many consider the spiritual home of rugby host the tournament again. This, of course, remains to be seen.

Tuesday, 25 October 2011

One measure of spending - and it is not $700m ...

Just spotted this article from Stuff on the spending that has taken place during the Rugby World Cup. Paymark, who cover about 75% of all credit card transactions in the country, have found that spending on cards during the tournament "was up by $195 million." I don't know precisely what this phrase means, but I assume it means that spending is up by $195m on last year's figures for the same period. Of course, the first Christchurch earthquakes was during this period last year, so spending was particularly depressed at that time. It stands to reason that domestic spending was likely to rebound at some stage - perhaps the tournament and the performances of the All Blacks were a catalyst?

Of that $195m, the amount spent by tourists was $70m up on the same period last year. What, only $70m? Yes, $70m is 10% of $700m. or $700m with the decimal point moved one place to the left. Obviously it is early days, and this is by no means a complete measure of spending, but it is pretty clear that the impact of spending by overseas visitors would appear to be quite a bit less than initially projected. Of course, projected economic impacts were gross, not net, which are the figures of particular interest.

The net change in spending is where we see changes in things like the tax take (GST, etc), which are listed in the expected benefits from the tournament. Gross figures are all well and good, but they are very difficult to substantiate or refute. Literature on previous mega events pretty much says the same thing - that the realised economic impacts are highly likely to be significantly less than initial projections.

If the best case scenario eventuates, and the event costs the taxpayer $26m (that is, 2/3 of $39m), then to be economically justified, we should see additional economic benefits of at least $26m. Of course, as has been reported, the costs of the tournament to local, regional and central government are quite a bit larger than $39m. Thus we should expect to see substantial benefits to make the tournament worthwhile. Will we? Time (and research) will tell.

It is over - now let the fun begin!

Well, the tournament is now officially in the history books. The records will show that New Zealand won their second Rugby World Cup with an 8-7 victory over France in the Final. Two days later, and we are already hearing some very interesting noises regarding the 'impact' of the tournament on the host country. I link to a couple of such pieces below.

Firstly, from the President of the IOC, Jacques Rogge, in Stuff:

"Whether it would be useful for the country, only you can determine, it is not to the IOC to tell that.
"But it is a possibility. Finland organised the Olympic Games with a population of 5 million, Norway has hosted a Winter Olympic Games ... with the same population as New Zealand."
Evidently this country has shown itself to be a more than capable host. From what I have seen in the past month or so, we have done exactly that. What interests me more, however, is the next line in the story...

Rogge says a host city for an Olympics doesn't have to fund the entire tournament, like New Zealand has done for the Rugby World Cup. The IOC is providing half of the $5 billion it is costing for London to hold next year's Olympics, with that money coming from sponsorship.
Now there's an idea! This might just have made some inroads into the $39m loss the tournament has incurred. Still, some have said that this might be a pipe-dream - although if it came to fruition, we are much more likely to see this tournament on our shores again at some stage in the future.

Apparently the loss might just be big enough to stomach, according to the tournament organisers and RWC Minister, Murray McCully (and, I suspect, former RWC Minister Trevor Mallard).

I have said this before, and I will continue to say it: It is too early to tell just what the actual impact of the tournament has been. I fancy an ex-post empirical analysis of host city GDP will tell us a bit. For me, this becomes a little more likely by the end of the year, if not early 2012. Until then I will maintain the time-honoured tradition of sports economists when evaluating economic impact analysis projections - shift the decimal place one point to the left - for my prediction of the actual economic impact.

Wednesday, 5 October 2011

All that is is cracked up to be?

Well, it seems that I'm not the only one urging a little caution when it comes to the economic impacts of the Rugby World Cup. Shamubeel Eaqub, the NZIER's principal economist, has (not for the first time) questioned the nature of the economic impacts - expressing very real doubts as to whether we will actually see an impact at all. For me, the evaluation needs to take place after the event itself - once the dust clouds have settled from the stampedes of all the RWC visitors leaving the country after enjoying what has been a generally pretty good tournament to date. Only then will we start to see more evidence (anecdotal and reported) of the true impact of the tournament on the host regions and, indeed, the country overall. It will also be interesting to see what happens to tourism after the event itself - will we get a surge of regular tourists come back when the event finishes, or will we see a drop in numbers? After the Sydney Olympics in 2000, Australian tourism took a three year dive. In some ways, the tournament comes at a 'perfect storm' economic scenario in light of domestic and international crises, and amidst a rather gloomy economic climate. If ever we were to see an impact, now would be the time. As to whether we will or not - time will tell. Rest assured, I will be looking at this very closely.

Sunday, 25 September 2011

Steady on, there!

Well, it was bound to happen - I'm just surprised the claims in this story came up as early as they have. My advice: hang on and let's see what unfolds over the next few months. Yes, months - meaning both during and after the tournament. When the euphoria subsides we will have an opportunity to objectively review the tournament and examine in more detail just what effects the tournament has had on our fair country. Until then, enjoy the ride!

Thursday, 22 September 2011

The risks of pre-booking tickets for the RWC and strategic behaviour - Part 2

I couldn't help it. Today there is this from one of the All Blacks' coaches, Steve Hansen, regarding the NZ-France game on the weekend.

Wednesday, 21 September 2011

Ghosts from the past

Just ran across this article about the 2010 FIFA World Cup tournament in South Africa - does it sound familiar?

Yes, much of the news right now is great, including this from the NZ Herald, which is always good to hear. The proof, however, will be in the aftermath of the tournament and indeed quite some time afterwards. It will be very interesting to see whether this event follows the trend of so many major events before it. Many in this country will be hoping it doesn't.

The risks of pre-booking tickets for the RWC and strategic behaviour

Recent selections for the French team to take on New Zealand this weekend in a long-awaited rematch between Les Bleus and the All Blacks have led many to suggest that the French may be looking to lose the match to navigate their way through the finals matches via the 'easier' side of the draw. This has led many spectators (including those interviewed here) to complain that what was originally one of the glamour matches of the early stages of the tournament may now not live up to pre-tournament expectations.
This is part and parcel of the appeal of a sporting tournament. The Irish upset of Australia has turned some pre-tournament predictions a little askew (in terms of affecting the quarter- and semi-final draws) and now teams have to think strategically.
From a spectator's perspective, do we really want to see a tournament where the teams we expect to win actually win and we actually know who will win even before the tournament kicks off? What would be the point of going along? Spectators want uncertainty of outcome, according to a lot of economic research, but there is also some research to suggest that there are also people who expect their local team to win and they attend matches just to see this happen.
This game highlights the perils of pre-booking tickets. If you wanted to see both teams at full strength going at it hammer and tong, you'd have been a believer of the view that the stronger teams will always beat the weaker teams and that coming first in the pool was all that mattered. Also, you'd be of the view that you will always play your best team every time and give every game 110%. Of course, these beliefs are not unreasonable at all. This is the way many of us were brought up as children playing sport. But World Cups are strategic tournaments, and teams have to play strategically in order to get to the Final and hopefully win it.
If you were to ask the coaches of the All Blacks whether they'd be devastated if they lost this game, you'd probably get the same guarded answer that the French coach gave in his reply to the news piece. The reality is that the World Cup is a tournament that requires teams to pass through the group stages in as good a shape as they were when the tournament began (i.e. with little to no major injuries). If you have the chance to influence your position in the post-group stage due to upsets elsewhere, then you'd be silly not to consider it. I don't blame Marc Lievremont at all - if France wins, he'll look like a genius, and if France loses, well, they lost, but they may just end up on the 'easier' side of the draw come quarter-final time.
And all in this country know what happened in RWC 2007 in the quarter-finals.
Part of what motivates this post is an interesting chapter in the book Soccernomics by highly-regarded UK sports economist Stefan Szymanksi and his journalist colleague Simon Kuper. They present a top-notch analysis of the beautiful game, with fascinating insights. They also demonstrate that even though many expect the strongest teams to win the tournament, the law of probability suggests that it really can come down to performances on the day, and any team can win it. The fact that the All Blacks have only won the tournament once in its history despite consistently being ranked as the top or near top team in the world around the World Cup does lend weight to this theory.

Sunday, 18 September 2011

Cambridge's Cycling Centre of Excellence (Waikato/Bay of Plenty)

A fascinating look into both sides of the debate over the soon-to-be built Cycling Centre of Excellence in the Waikato has just aired on TV3, including a few thoughts from yours truly. It is well worth a look, as it encapsulates just how polarising these developments can be within communities. The Waikato Regional Council voted recently to contribute some $6m into the development of the facility. Interestingly, one of the features of the process has been the role of economic impact analysis. A study was commissioned by the Home of Cycling Trust and projected an annual $11.5m economic impact as a result of the facility. The Waikato Regional Council commissioned a further study, which projected an annual impact of $4.9m, less than 50% of the original projection.
It is also worth pointing out that the Hamilton City Council declined to contribute to the facility, preferring to leave the decision to the Regional Council. Perhaps the recent experiences with the Hamilton V8 Race have resulted in a more cautious approach to these type of investments.

Economic impacts of the Rugby World Cup - the Mastercard report

This report was released a few days ago. It makes the following claims:
  • In excess of 95,000 overseas visitors will inject a little over $782 million into the country's economy, resulting in a boost to GDP of $411m.
  • Longer term impacts have been quantified as $1.44b per annum.
These figures deserve some closer scrutiny, as well as the report in general.

Firstly, the economic impact figure. There has been a lot of interest in this 'magic figure' in recent months. I've been on record as saying that I'm not a believer, and for what I think are obvious reasons. The major reason is that economic impacts are not the same thing as economic benefits. A benefit is something that is net of cost. The additional spend attributed to an event does not constitute a benefit to an economy of the same value.
Interestingly enough, it is a little below the revised official projections in June, 2006 of a boost to GDP of $507 million (although the original projections in May 2005 suggested a $408m boost to GDP). 
What I find particularly interesting about this measure is that the official projections of June 2006 predicted an influx of 71,000 overseas visitors, then the March 2010 forecast of overseas visitors was projected as 85,000 visitors. The Reserve Bank came out in August with a report containing a new estimate of 95,000 visitors, and now the Mastercard report thinks it could go even higher still. Wow! Is there, or is there not, a global economic crisis happening at the moment? Is the New Zealand dollar not trading at historically high levels? Amd do we realistically expect that these don't matter and that even more people will come in their droves to watch our Rugby World Cup?

And while we are on the economic impact figure, there is a wealth of research that has shown that large sporting events rarely generate anywhere near the economic impact that is promised. Even if the economic impact of $411m actually materialises (I'd say it is unlikely, but let's say it did), it would add no more than 0.2% to the nation's Gross Domestic Project. That is not a misprint. It is a very, very small impact. Surprising, really, that it gets the coverage it has received thus far.

Now to the long term benefits. Eric Crampton, at his blog, Offsetting Behavior, has posted an interesting summary of the long term impacts and his thoughts. I agree with Eric's points wholeheartedly. For mine, can we really expect that the Rugby World Cup will be responsible for this number? Have we, or have we not, already hosted major tournaments and events in this country before? We already have a reputation - isn't that why we are hosting this World Cup? While I can appreciate that this reputation can certainly improve as a result of a successful tournament (and likewise, be adversely affected by an unsuccessful tournament), I don't agree that the tournament itself is the sole driver of these benefits.

The rest of the report contains a number of far-reaching points, including the economic benefits associated with the America's Cup regattas. My own research has cast very serious doubts as to the nature of the benefits associated with these regattas.

The advice I have when it comes to reading these reports is akin to caveat emptor with a tweak - let the reader beware.

Friday, 16 September 2011

Rugby World Cup - what will it do?

I penned a short piece for the Australian website, The Conversation, a couple of weeks ago. In it I outline a general answer to the question: What will the Rugby World Cup be worth to New Zealand? I guess I would urge people to be realistic about what the RWC can do. And be careful about reports that tell you things like this!

When principles-level economics gets you in trouble...

If you're wondering what prompted the discussion below, here is the link.
The Manawatu Standard responded with this editorial a few days later.

Note to self: Pick your spots. Timing is everything. And play the ball, not the man.

Thursday, 8 September 2011

Why the ticket prices for the Rugby World Cup should fall – some further thoughts

In the past couple of days, I've been asked for a fair bit of comment on the most recent press release from the University regarding Rugby World Cup tickets. I thought it might be useful to put a few points down here as not everything comes across as you intend in the media.
In my opinion, it would be in the best interests of RWC 2011 to lower ticket prices. As the tournament progresses, prices should fall for unsold tickets. Indeed, in a show of confidence, Martin Snedden has stated that there will not be any changes to ticket prices. Despite this, I believe lowering prices should be considered, as there are strong economic grounds for doing so, and it would be a profitable exercise.
Because RWC 2011 is the sole seller of the remaining tickets, and law prohibits ticket scalping, they are able to practice what economists know as price discrimination. Economic theory says that it makes sense for a single seller that can avoid arbitrage to set different prices for different customers so long as the price exceeds or at least equals marginal cost, and the result will be greater profit (assuming that lower prices will result in more of the good being purchased). It would be a fairly safe assumption that more tickets (for the same quality seats) would be sold at lower prices than at higher prices.
If there was no anti-scalping law, RWC 2011 would assume a lot of risk in that the profits would be creamed off by scalpers. As it is now, legislation reduces this risk substantially. So why not consider it?
Take, for example, the 6400 tickets already sold for the Romania vs Georgia match in Palmerston North. RWC 2011 could keep ticket prices as they are and may well find that the crowd at this match will not reach ground capacity of 14,000. These 6400 tickets have already been paid for, so no money will be lost if prices of the remaining tickets were lowered. Of course, with three weeks to go until this game, it is always possible that capacity could be reached at current ticket prices. There is, however, a distinct possibility that there will be tickets unsold if prices remain at their current levels. The crux of my argument is that as long as the price of tickets exceeds the marginal cost of an extra spectator, it makes sense to lower prices from their current levels. The marginal cost of an extra spectator isn't likely to be particularly great, given that many costs are fixed in nature and are thus already incurred regardless of whether 6400 or 12800 tickets are sold. 
This is all common sense - and so is my main point. A ticket sold at a lower price will add to tournament revenues, whereas that same ticket unsold adds nothing. Given that ticket revenues are all this country earns to cover the costs of the tournament, RWC 2011 should strongly consider lowering ticket prices for unsold tickets when the tournament begins. Given that they are so close to meeting target revenues of $268 million ($22 million is still needed as of September 7), thinking about cutting prices isn't completely stupid from a revenue maximising perspecting, and not to mention the possible flow-on effects. Lowering prices, I'd suggest, would result in greater attendances at games, quite possibly greater interest from locals, and a more positive local reaction to the tournament in general. The adidas All Blacks jersey fiasco showed that New Zealanders don’t appreciate what they perceive as unfair deals, and that the fallout can be damaging. I'm not suggesting that the RWC ticket prices are a bad deal - but at least consider what would happen if they were to fall. Lowering prices will generate goodwill that is priceless – and this country needs the intangible benefits to be substantial in nature to justify hosting the tournament. The best way to do this is to get more locals along to games.
Let's not forget the players and their visiting spectators. I'm sure they'd be impressed if New Zealand treated them to full stadia in the "Stadium of Four Million". These impressions count - now, and in the future.
Don’t get me wrong – I appreciate the need to reach the revenue target. I just think that lowering prices may well enable the target to be reached and even beyond! I find it hard to believe that RWC 2011 would not at least consider this in smaller centres, as we get closer to the games themselves. Let's see what happens.