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.

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.

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.