Wednesday, 24 October 2012

The London Olympics came in under budget. Yeah right.

This just out from the NZ Herald - the London Olympics came in under budget:
The British government says the London Olympics cost about $NZ786 million (400 million pounds) less than expected.
The final financial report for the games projects that the cost will be $17.6 billion from an original budget of $18.33 billion.
Olympics minister Hugh Robertson says, "it is a significant achievement to deliver this large and complex program on time and under budget."
It sure is a significant achievement. Especially when you are aware of this information, taken from Brad Humphrey's piece in on the economic impact of the Olympic Games in the New Palgrave Dictionary of Economics (well worth a read in general if you are at all interested in the economics of mega sporting events):
London expected its 2012 Games to cost under $4 billion, but they are now projected to cost over $19 billion (Carlin, 2007; Simon, 2006; Sports Business Daily, 2008a). As expenses have escalated for London, some of the projects have been scaled back, such as the abandonment of the planned roof over the Olympic Stadium. The stadium was originally projected to cost $406 million and will end up costing over $850 million. Further, its construction will be financed by taxpayers and the government has been unsuccessful in its effort to find a soccer or a rugby team to be the facility’s anchor tenant after the 2012 Games. This will saddle the British taxpayers with the extra burden of millions of dollars annually to keep the facility operating. It is little wonder that the London Olympics Minister Tessa Jowell stated: ‘Had we known what we know now, would we have bid for the Olympics? Almost certainly not’. (Sports Business Daily (2008b), citing a story in Daily Telegraph (2008). The Olympic Village was to be privately financed, but the plan fell through and will instead cost the taxpayers nearly $1 billion. The government hopes that the apartments will be sold after the Games and the financing will be recouped.)
So, was it 400m pounds under budget or did it completely blow all projections? You decide.

RWC 2011: a small tourism win

This just out from - the tourism sector had a small win from the Rugby World Cup:
Despite the brief boost from the Rugby World Cup last year, total tourism spending rose just 2.4 per cent to $23.4 billion in the year to March 31, according to Statistics New Zealand figures.
The Tourism Satellite Account shows international tourism spending rose only 1.6 per cent, or by $149 million in the March year. That was slightly down on the growth of 1.8 per cent in the year to March 31, 2011, before the Rugby World Cup. 
 Before you spot the problem here, it is also noted that:
"Growth in overseas visitor arrivals of 4.4 per cent, largely driven by the 2011 Rugby World Cup, contributed to this small increase in international expenditure," satellites account manager Peter Gardiner said.
But the boost from the rugby was offset by the impact of the Christchurch earthquake early last year, which put off many foreign visitors to the South Island. 
Now, to the problem. The 2011-12 March year experienced a slowing of expenditure growth compared to the 2010-2011 March year. As quoted from the article above, any gains from RWC 2011 appear to have been offset by a reduction in tourism spending from the Christchurch earthquake. Nonetheless, it is interesting that the gain in spending was $149 million for the entire year. I'm pretty sure the Reserve Bank projected the gain in spending from the RWC at around $700 million in August 2011 (and that was with only 95,000 visitors - the event attracted 133,200 visitors). The MED determined earlier this year (February 2012) that the actual international visitor spend from the RWC was in the order of $390 million.

The $149 million mentioned above is growth from the 2010-2011 March year. Last year was a year in which not only the Christchurch earthquake featured but we also saw the continuation of the world financial crisis and recession continue to buffet overseas economies and therefore impact upon tourism in this country. This leads me to a more specific question - what would have happened in the absence of the RWC? Would we have had no growth, or even a reduction in tourism spending from the previous year? It is a question that is almost impossible to know the answer to given that the economic impacts of earthquakes are unlikely to be standard across countries, so correcting for it is nigh on impossible.

In any case, we should be asking whether the injection in spending attributable to the RWC was truly beneficial to our economy. On the surface, it appears that it may well have been (in that it appears to have translated into an increase in foreign tourism spending in this country). Did spending attributable to the RWC actually offset not only the earthquake and the financial crisis but also the possible losses of regular tourism? These are complex questions to answer, but not impossible. It is a matter of untangling the effects as best as one can. Was it worth it? Well, public opinion was in favour after the All Blacks triumphed.

As an aside: A colleague and I are looking at this general question and evaluating the realised impact of the RWC 2011 on host cities in New Zealand. Interestingly, provisional results suggest that the aggregated figure is somewhere in the ballpark of $120 million (working paper link will be posted up in a future blog post once it is ready).

Thursday, 4 October 2012

Why I love sport

It is possible for economists to have a non-dismal side. I double as a sports economist and a sports fan, and often do both at the same time. I find this an ideal combination, especially when the teams I follow do well (or, as is usually the case, do badly). I follow many teams, some are more successful than others. One of the teams I will confess to supporting are the Australian National Rugby League (NRL) team the South Sydney Rabbitohs. The Rabbitohs are the most successful club in the history of the New South Wales/National Rugby League with 20 premierships from their inception in 1908. Their last premiership, however, was won in 1971. They were also cut from the NRL in late 1999 and spent two years in the wilderness before being reinstated into the League for the 2002 season. They are presently part-owned by the actor Russell Crowe, who purchased the club in 2006. This season they surprised more than a few people including myself when they captured 3rd place in the NRL premiership and enjoyed their first playoff victory since 1987 in only their second finals appearance since 1989. They were defeated by both finalists, and there is no shame in that. The fact that they exceeded expectations makes for an intriguing question when one puts on an analytical hat: How did they manage that? Did privatisation play a part? Or was it something else?

An absolutely fascinating example of how to think about the question of 'how' comes in the form of another team I follow closely - the Major League Baseball Oakland Athletics (also known as the A's). Some may have heard of this team before - they are the subject of the movie and book Moneyball. Well, they have shocked the baseball world this season by doing the unthinkable again - making the playoffs despite one of the league's lowest payrolls. They did it on the back of trading two of their star starting pitchers and their All-Star closer in the offseason and securing what many believed to be no better than castoffs from the other trading partners that included a mix of rookies and journeymen. Almost everyone, myself included, gave them no chance. They were supposed to be rebuilding. They were supposed to be scrapping for the lower rungs on the league table. They didn't have what it took to challenge the Texas Rangers and the Los Angeles Angels, two powerhouses who spent up large to make runs at the playoffs. It is generally accepted that it is incredibly difficult to succeed in the major leagues if you are a small market/low payroll team. The A's knocked the Angels out of playoff contention by winning their third to last game of the season on Tuesday (NZT) and seemingly unbelievably securing the wild card position in the American League on the back of stellar pitching by a largely unproven starting rotation, a bullpen that has gone from strength to strength as the season has worn on, and a stunning clutch hitting offense that gets the runs necessary to outscore their opponents. By winning their penultimate game against the Rangers yesterday (NZT) they are now incredibly tied with the Rangers for the division lead, and a win today will give them an even more improbable division title. If you haven't read Moneyball or seen the movie, I would recommend it. The story is utterly compelling, and the analytical nature in which the success of this team who outperformed their more wealthy opponents by identifying an alternative way to build a team and do it on the cheap. Oh, and not just compete, but win consistently. There has also been a really, really interesting paper by economists Jahn Hakes and Skip Sauer on evaluating the Moneyball hypothesis in the Journal of Economic Perspectives - it's also a great read (linked here - ungated access). I dare say questions will be asked as to how they have done it again in 2012 from seemingly nowhere. Everyone said the Moneyball strategy had lost its edge when the A's dropped from sight after their last playoff appearance in 2006. Six years later, they are back in the most unlikely of circumstances. Is it Moneyball Mark II? It is questions like these that make an economic way of thinking such an interesting and challenging discipline!

As an aside, I can't help but wonder whether the crapshoot that is playoff baseball will this time shine on the A's. I hope the ride lasts.

POSTSCRIPT: The A's defeated Texas in their final regular season game of the season to win their division. Interestingly enough, while Moneyball got them to the playoffs in the early 2000's, will Moneyball Mark II get them to the World Series?

Monday, 1 October 2012

How to get ahead in the NRL - have government work for you

Yesterday was an intriguing end to the 2012 NRL season, with a grand final spectacle befitting of the season finale. (For a review of the game, read this from Phil Gould). The two teams contesting the final, the Melbourne Storm and Canterbury-Bankstown Bulldogs, were ranked 2 and 1 in the minor premiership (or the regular season as it is referred to in North American circles) respectively. Both clubs have a rather colourful recent history, as both have been found to have committed major breaches of the NRL's salary cap within the last ten years, although there is no question here of salary cap impropriety this season. The past just added to the sub-plot of the game itself.

I came across this article by regular Sydney Morning Herald columnist Roy Masters yesterday which gives an insight into how success can be obtained in the NRL.

In short, the Bulldogs signed their present coach Des Hasler from Manly-Warringah, who had just won the 2011 premiership via Hasler's coaching. Hasler is regarded as cutting-edge in his coaching, and he transformed the Bulldogs from 10th place (out of 16 teams) in 2011 to minor premiers and grand final runners-up in 2012. The 'Dogs train at their spiritual home of Belmore Sports Ground. Part of the reason for their transformation:
The $9 million Belmore facility was built with funding from three sources - the Rudd Infrastructure program, a NSW government grant and a $1 for $1 spend with the local council. The Bulldogs contributed $500,000.
That's not a bad price to pay for success. 5.6%. Says it all really. The article also highlights the role of high performance centres (or otherwise) in other clubs, including Melbourne, Gold Coast and Brisbane.
This quote in the article, from Bulldogs CEO Todd Greenberg is also rather insightful:
''When you are limited by the amount you can spend on players via a salary cap, you've got to look at other means of acquiring an edge,'' he said. ''In the case of Des, the Centre of Excellence wasn't opened when he visited. It took 12 months to build and we moved in in November. But he could see we were committed to resourcing long-term success. It also allows me to run my business model off the back of the football department. Fans want to know their club is a better than even shot of winning, plus they want to know we have done everything possible to make this happen.'
Including getting your fair share of government assistance.