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.