Christchurch stadium debate

Time for a random blog post ...

After the publication of an opinion piece in this morning's Press (no prizes who came up with the headline), I've jotted down a few more thoughts in response to some of the other stories that have been published in recent times.

Some question whether the logic applied to stadiums (and the outcome) means that other publicly-funded facilities like infrastructure (sewerage, roading, etc), libraries, museums, churches, etc, would also fail a benefit-cost test and therefore shouldn’t be funded. I would argue that critical infrastructure projects have higher benefit to local residents than a sports facility by simple virtue of the fact that these projects are necessities – people who live without sewerage and adequate roading will know what an inconvenience it is not to have them. The value of such projects is high – and so there can be a higher cost attached to them for the projects to make economic sense. For things like museums and libraries, the same logic applies. What is the benefit of a library to a local populace? If people value the amenity, then there is a cost that is potentially commensurate with that value and it can be considered to pass the benefit-cost test if the cost is less than the benefit.

A key difference between infrastructure projects as well as amenities like libraries, museums, etc and sports facilities is that those who advocate for the importance of “cultural” amenities often don’t tie the value of the amenity to the (potential) impact resulting from spending from visitors to the city – which is a staple (and sizeable) component of advocacy documents produced routinely for sports facilities. A supermarket generates visitor spending. Does that mean supermarkets should be publicly funded?

The issue I have is not that Christchurch doesn’t need a new stadium – it is rather that public money from local, regional and central government is being poured into something that may end up costing more over time than the benefits accruing from the facility to the local population.

There is no question that Christchurch needs a sporting/events facility. The temporary facility in operation since 2011 hasn’t prevented some acts (Bruce Springsteen, for one) from coming to Christchurch. People still watch rugby at the temporary facility. Has the Christchurch economy collapsed in the absence of events that they could have hosted? No. The local population gets on with things. You can’t miss what you never had. And sport in Christchurch continues to be played – a testament to the “can do” resilience of sport.

Who should be responsible for funding the construction of a new facility, and how big should it be? The CCC has said that a $253 million facility is insufficient. So they instead advocate for a facility costing just under twice that price while knowing that there’ll be an almost $250 million shortfall – and saying that central government should pay the difference.

What is wrong with an open air “provincial stadium” that seats 17,500 people (with temporary seats added it will increase in capacity)? Surely it is likely to be better utilised locally than a facility that seats 25,000? And who says a roof is a "must have" for stadiums in this country? There’s only one roofed stadium in New Zealand – so the sample size from which to draw conclusions is pretty small. We’ve had outdoor facilities for as long as we’ve been a nation. Do we really need a “one size fits all” solution in the form of an expensive roofed facility that can “do it all”?

Here’s an idea. Why not build an affordable smaller outdoor facility for sport – and also build a covered arena-type facility (like Auckland’s Spark Arena) for the indoor aspects like concerts, trade shows, beer fests etc? It would probably be quite a bit cheaper to do things this way – it would almost certainly cost less than $496 million.[1] Plus, you get two facilities for less than the price of one – and facilities that are arguably better suited to their purposes than a single facility. Sport would get an intimate venue that is likely to be better utilised (from the point of view of having near-full capacities) and have more atmosphere (which is what spectators at an event often value) than a much larger (and less utilised) venue. An indoor arena would be tailored for concerts, trade shows, etc without the complexity of a larger facility with a removable turf. For those that argue that a new indoor arena is unnecessary as the Horncastle Arena already exists for that purpose, then that's fine - more money saved!

A small stadium is a stupid idea, you say – it immediately rules out All Blacks tests. But how often does an All Blacks test occur in a city? And when it does, to what extent does the local population actually benefit? (Sounds like a future research project - might keep me busy over summer!) The Crusaders and Canterbury rugby will still play there every season – which is arguably more important to Christchurch residents than an All Blacks test every two years. And the vast majority of the proposed event calendar in a new facility are locally-oriented. Surely this means that a locally-oriented facility makes sense from an operational perspective?

In the wash up, the true benefit and value of a stadium to a city is largely the value that people in a city place on having it. If an All Blacks test is something than Christchurch residents value above all else, then by all means Christchurch residents (via rates) should fund the construction of a facility to host this type of event. The benefit will justify the cost.

Should central government fund any shortfall? Only if having a Christchurch facility makes the rest of the country demonstrably better off. Is this likely to be the case? If Christchurch is competing with other cities for the same events, then the argument is likely to be no. It is akin to taking money off one city and giving it to another.

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[1] A crude back of the envelope calculation: Westpac Stadium and Spark Arena were built at twice the cost, it would come to $432 million.

Christchurch Stadium - regenerative or redistributive?

Apologies for the long absence from the blogosphere - research to be written up, teaching to be done has meant scarce time has been redirected from this blog.

It is the issue of the Christchurch Stadium that I turn to today, and a couple of recent articles on Stuff ("Stadium concept 'would be money maker'" and "New stadium plan 'smart, bold'") that have made some rather interesting claims.

Christchurch lawyer Geoff Saunders:

"This idea came from my own frustration at going to Jade Stadium for meetings for 30 years and seeing it sitting there completely deserted apart from the groundsman cutting the grass," he said.
"I just thought that with the amount of money being spent on it there needed to be a way to use it a lot more. We want to make the stadium into a money maker rather than a white elephant." 

He said the office rent would help the stadium avoid the same fate as the Forsyth Barr Stadium in Dunedin, which lost $1.9 million in its first six months.

"Crowds are very cyclical in sports grounds. If you try to do budgets based on income from sports events, it is very challenging," he said. 

Saunders said the development would also attract office clients back to the city centre who had left for suburban offices after the earthquakes. 

He said the plan was just a concept and he had not investigated how it might be developed and funded. 

Craig said it was important to make any new stadium a lively place with offices, hotels, retail and clubs. 

"A lot of stadiums are just large objects that sit there and are only used for 30 days of the year. There is an opportunity here to make a very large chunk of the city centre that, rather than being a dead space for most of the year, is much more active," he said.

A stadium will only ever be used sparingly. That is reality. Westpac Stadium is used for between 40-50 event days per year - and it has been making operating surpluses since it has been opened. Westpac Stadium was also built with a mere 1/3 of its funding from local and regional government. It is not clear yet where exactly the funding for Christchurch's stadium plans is coming from, but it is fair to say that it will be largely funded by taxpayers - locally, regionally and nationally to some degree. As such, if my taxpayers money is going into funding a stadium, I would like to see some evidence that this amenity is going to be at least self-sustaining, and should not be detrimental to the local area. The idea that office buildings will make the stadium profitable is missing the point. If the office blocks are the profit-making parts of the venture, why not just build the office blocks? If they must be built as part of a stadium plan, we have to acknowledge that the rents earned by stadium offices will simply be transferred from other office spaces elsewhere within the city. It may well be the case that office space is at a premium in Christchurch, in which case the stadium offices may be beneficial to the city of Christchurch in that clients who were previously unable to obtain office space may now be able to do so. If, however, the offices are simply populated by clients who relocated from the suburbs, then this isn't making money (nor necessarily welfare enhancing either) at all - it is merely redistributing the rents on office space from the suburbs back into the CBD.

It is exactly the same argument as the claim that stadiums generate conference revenues too - which is only beneficial if the conferences wouldn't have been held in the city in the first place without the stadium conference spaces.*

Sure, the office rents may make the bottom line of the stadium better (if indeed things pan out as projected). But from a wider (city or regional) perspective, is it really regenerating or simply redistributing? That's the question that ratepayers need to be asking of their policymakers.

* Two years ago I attended an academic conference in Melbourne which was hosted at the iconic Melbourne Cricket Ground (it was a sports management conference, so it was a great choice of venue for a sports fan). The conference would easily have fitted into any standard sized conference venue within Melbourne, as size was not a factor. During the conference, which was hosted in members areas around the stadium, a Sheffield Shield cricket match was being played between Victoria and South Australia (I think). There would have been no more than 200 spectators in this stadium (that can host in excess of 100,000 people) on each of the three days that the conference was held. The crowd doubled during breaks between the organised sessions at the conference.

Addressing Gerry Brownlee's points

I appeared on Close Up last night discussing the economic merits of stadium construction. I am grateful for the opportunity to contribute to the story and to share what I believe to be important points that taxpayers need to be aware of when it comes to building sports facilities.

The Earthquake Minister (and Deputy Prime Minister), Gerry Brownlee, was interviewed after the piece. The interviewer, Mark Sainsbury, put several questions to the Minister, and I feel it proper to reply in kind to Mr Sainsbury's questions and Mr Brownlee's responses.

Firstly, I am not anti-stadiums. I never said the facility would be a white elephant nor a complete waste of money. I certainly did not say that Christchurch shouldn't build it. It is true, I am yet to be convinced that stadiums in isolation present a compelling case for government funding. I believe that a greater proportion of the costs of facilities should be funded by the private sector. After all, if there are economic gains to be had from facilities, surely those who receive those gains would be prepared to pay to ensure that at least some proportion of those gains will continue (if the government said "sorry, no more funding for stadiums")? I am not presenting an argument against stadiums, rather, I am simply pointing out what is known about the actual economic impacts of stadiums on host economies.

If I was as dismal as Mr Brownlee implied, I would have pointed to some scholarly empirical research that has shown that facilities may, in fact, have detrimental impacts on local economies.I didn't, however, as my own research hasn't found any clear evidence of detrimental impacts.

Mr Brownlee pointed out that Christchurch has "nothing... we've lost the lot". Christchurch does actually have a new $30m 'temporary' facility, funded by central government. That, to me, isn't nothing. Ask people in quake affected suburbs of Christchurch whether $30m from central government would have been useful elsewhere (for restoration of basic infrastructure, for instance) and you'd probably find most people would plump for elsewhere rather than on a stadium.

I agree. you certainly could make a similar argument for art galleries, museums, performing arts centres, theatres, libraries... the list goes on. The point is that after a disaster of this magnitude, with limited public funds (that come with opportunity costs attached), the sensible approach economically is to fund things in order of priority. If a stadium was high on the list of priorities, then fine, build a stadium! Just be aware of what a stadium investment entails.

And a 35-40 year lifespan and the upside that has "got to be pretty big"? In the US, even some brand spanking new stadiums haven't been associated with a "pretty big" upside - some have in fact been demolished after only 20-25 years.

I have no doubts that Gerry Brownlee is trying his best to do the best thing for Christchurch as Earthquake Minister and as a local MP. Everyone wants to see Christchurch recover, both quickly and effectively, from what has been crippling to this wonderful city. I appreciate that bold decisions need to be made, and they are not always likely to satisfy everyone. I wish Gerry and the Christchurch City Council well in their endeavours to deliver a new Christchurch. I'll certainly be keeping an eye on things as they progress.

Don't believe the hype

In preparation for an interview with Close Up that will appear on TV One some time next week, I took the liberty of drawing up an interview 'cheat sheet' with key reasons why people shouldn't get swept away in the euphoria that surrounds the announcement of a new stadium and beware of the hype. Unfortunately I didn't articulate this as well as I would have liked in the interview itself, and I feel it only helpful to note these points down in a blog post for the benefit of all concerned. It works as a nice summary of the arguments that explain what we actually observe from stadia around the world. So here goes:

Tangible economic impacts from sports facilities often fail to materialise for a variety of reasons. These include:

1. A substantial proportion of the crowds at stadiums are local rather than visitors. Some estimates I've seen in the literature suggest that it ranges from 80 to 95% of attendance being local.

1a. Spending by locals within a city on attending games is usually substituted from elsewhere within the local economy, for example, movie theatres, video rental stores, and other entertainment venues. A game merely redistributes spending rather than generates it. 

2. Spending within a city often leaks outside the local area, as not all goods and services purchased by event attendees are produced locally, so a proportion of the spending has to go out of the local economy to pay for imported goods and services. 

3. Government spending on stadiums, contrary to popular opinion, is not costless. That is, the funding has opportunity cost that must be considered. Money spent on a stadium could have been spent elsewhere in the local economy, and as such alternative activity is forgone. A benefit is only observed if the stadium activity more than outweighs the lost activity elsewhere. 

4. Stadiums are almost always underutilised. Westpac Stadium in Wellington has around 45-50 event days per year. That is around one day per week. Game days are usually a hotbed of activity, but six of the seven days there is nothing going on. Surrounding development feels this too. Are businesses located nearby dependent on stadium activity going to survive with more off days than game days? It is unlikely. 

5. Much of the projected activity that a new facility attracts comes from within the city at the expense of other facilities. Things such as conferences, conventions, trade shows, etc would by and large have been hosted elsewhere within the city at another venue. Thus we see another form of substitution in action here, which works towards reducing the overall realised impact of a new facility. 

6. A replacement facility can not realistically be expected to do a lot more than a pre existing facility. Research in the US has suggested that there is a short term honeymoon effect of up to ten years where attendances spike due to the novelty of the new facility, but beyond this the experience has been that attendance returns to pre facility levels. 

What about the intangible benefits? Surely they matter?

Relevant intangible benefits include consumer surplus that locals enjoy from attending games at the facility as well as the public good aspects. They are recognised as benefits but there are weaknesses in their ability to justify government funding. Firstly, consumer benefits are often captured to a greater or lesser degree by event organizers through ticket pricing structures - season tickets, family/adult/children, concessions, etc. It is in the organizers interest to capture as much of this as possible so as to maximize event profits. Secondly, it isn't just within the stadium that these benefits are appropriated. To watch your team elsewhere, you pay for it via Sky TV subscriptions. To read about your team you pay for it via newspapers, magazines, internet access, etc. A lot of benefits can be captured privately. Thirdly, one can argue that just about any activity or enterprise has some intangible benefits, but this doesn't mean we should subsidise every activity that generates intangibles!

The bottom line is that if tangible benefits don't materialise, the intangible benefits have to be substantial and international evidence suggests that while they aren't insignificant, they are nowhere near the size of subsidies given to build sports facilities and/or attract sports franchises. Take, for instance, the estimated willingness to pay for the London Olympics, which was measured in one study at GBP1.9b (for the UK), was estimated at GBP480m for London in a 2008 paper (see gated link here). In light of the most recent estimates of costs (US$14b). They might exist, but they aren't likely to be deal breakers.

The departure of a key tenant: Implications for Christchurch's proposed stadium

In previous blog posts, I've been thinking about the feasibility of a new stadium in the context of Christchurch. I have mentioned that the decision on the new stadium will be influenced to a degree by the state of the sports landscape within Christchurch and, in particular, facilities.

Many of the economic arguments used to support stadium construction are tied to the presence of tenants in these facilities, which are often professional franchises. In the case of Christchurch and the proposed roofed stadium, the anchor tenant is likely to be the Crusaders Super Rugby franchise (like the Highlanders franchise is now for the Forsyth Barr Stadium in Dunedin).

I recall a court case (that was widely publicised in North America at the time) that concerned the then Seattle Sonics NBA franchise which was at the time in the throes of a move to Oklahoma City. This case was intriguing from an economist's perspective as it pitted two of the big names of our field, Brad Humphreys of the University of Alberta (who sided with the franchise) and Andrew Zimbalist of Smiths College (who sided with the city). Both economists have published in this area and are recognised experts in the actual economic benefits of sporting facilities and franchises in North American contexts.

In a nutshell, the franchise wanted to pay out the lease it had in Seattle to move to greener pastures in Oklahoma City. Humphreys testified for the franchise that the Sonics basically had no impact on the city, and if they were to leave, well, life would go on. Zimbalist, on the other hand, testified that the Sonics were likely to generate intangible benefits (link to the full testimony here). Both were questioned extensively by lawyers, with each sides claiming victory under cross-examination.

The point of this post is that often we hear arguments of tangible economic impacts being generated by franchises to support new facilities. One such argument that could come up would be that without a new facility, the Crusaders franchise might be forced to relocate to another city. If you are the city in this case, you might be concerned about possible tangible losses (i.e. losses in employment, fall in GDP, etc). The general consensus in the literature has been that this is unlikely to happen, mainly because the spending on Crusaders games would likely be redistributed to other entertainment sources within the city.

We don't often hear of the intangible benefits that are associated with franchises and facilities, though. Paul Walker speculates in Anti-Dismal on the role that intangible benefits plays when compared to a stadium cost of somewhere in the order of $500 million:

You would have to generate a lot of warm fuzzies to justify spend $500 million and if you are going to spend that amount of money is a rugby stadium the most cost effective generator of warm fuzzies. I mean just how many hip replacement could you do for $500 million or how many cancer treatments could people get for that amount? Won't these thing also generate a lot of warm fuzzies? Improved health would I'm sure increase the quality of life for many people. Or how many warm fuzzies could be generated by spending $500 million on repairing the east-side of Christchurch?

If tangible benefits and costs exist for these projects, then it is worth considering whether intangible benefits (and costs) do too. There is a small but not insignificant area of research that have examined the nature of intangible benefits and quantified them, using techniques such as demand analysis, travel cost methods and contingent valuation (all of which have been borrowed from recreational demand and natural resource economics). What is needed in the stadium context is some measure of net intangible benefits - that is, the 'warm fuzzies' from the stadium itself (which includes the retention of the franchise(s) it plays host to) less 'warm fuzzies' from the next best alternative, say repairing the east side of Christchurch. If the net warm fuzzies are positive, this suggests the project might well have some justification. What is the likelihood of this happening? A $500 million facility would be twice as expensive as the Forsyth Barr Stadium, and they've found the going tough. It would also be the largest amount ever spent on the construction of a sports facility in this country. Is the argument going to be that $500 million is going to pump some badly needed capital into the city and has to translate into some tangible benefits? Or will we see those behind the stadium blame the state of the local economy if the expected benefits don't materialise?

More thoughts on stadiums in the context of natural disasters - the case of Christchurch

I've been thinking more about the implications of the Christchurch blueprint for the rebuild of the city, and specifically the role of a stadium within it, and I find a few commonalities when I read back across the 2007 paper by Victor Matheson and Robert Baade on the implications of funding professional sport in New Orleans after the devastation of Hurricane Katrina that I have linked elsewhere (see working paper version linked here).

While the arguments warning against stadium investments within much of the literature are compelling, questions can be asked as to the applicability of these arguments in the case of Christchurch and New Orleans, both of which suffered from natural disasters that have caused significant disruption to the cities. In the case of Christchurch, there has been (and remains) significant debate over the appropriateness of a stadium (and sports facilities in general) as a key component of the rebuild of the shattered city. I harken back to Matheson and Baade for instructive points which I'll elaborate on below.

Replacing the infrastructure for professional sports and mega-sports events can be justified if the benefits provided by the facilities exceed the costs incurred in the reconstruction. Both costs and benefits have to be measured over time since the facilities provided a stream of benefits as well generating costs associated with operations and maintenance.

The city has lost not only AMI Stadium but is also faced with replacing QEII Park. In this sense, the gap for a major facility exists, and the costs of such a facility have been out in the public domain for some time, but there is less clarity when it comes to the actual benefits of such a facility. Stadiums, in general, don't generate tangible economic benefits. There is a growing part of the literature that suggests that they do generate quantifiable intangible (public good) benefits which are every bit as important to the cost-benefit calculus as the tangible jobs created and increases in GDP. There are sound reasons why a facility in Christchurch is unlikely to generate tangible benefits, the most important of which is the ability to service influxes in visitors. Without the necessary (fully operational) infrastructure in place, Christchurch will struggle to extract full value from visitors to the city for sporting events. To this end, there is a clear dilemma surrounding the role of the stadium, and policymakers are faced with a choice - adopt the "build it and they will come" philosophy and attract visitors to the city in the hope of revitalising the city in this way, or focusing on providing the necessary infrastructure so the city attracts back the population lost and creates a market for the new facility. At the heart of this dilemma is a point that Matheson and Baade make beautifully, so I'll post it here:

Sports yields hedonic value, in other words, and the quality of life benefit it imparts is a luxury affordable in affluent communities rather than an activity that helps a community achieve affluence. Sport for the most part is properly viewed as a luxury good and not a productive resource.

Therein lies the crux of the argument, and it is here that we are likely to see the more passionate divergences of opinion. There is no doubting the importance and potential quality of life value of sports in Christchurch. The initial call of whether the investment makes sense is largely dependent on this value, I believe, and how it stacks up to the costs. This is a complex value, as one must also factor in the role of the sports environment including the new temporary stadium, as well as the impact on other facilities in the city and surrounding areas. As I have mentioned in my earlier posts on this issue, complicating matters further is the role of sports in the context of the rebuilding city's priorities. Do Christchurch policymakers see the stadium as a luxury good or a potential productive resource? 

I find the call on the stadium being left to the Christchurch City Council an intriguing one. From central government's perspective, funding a brand new stadium makes little sense as all it does is exacerbate competition between cities for the same pool of visitors. A roofed stadium in Christchurch will compete directly with Dunedin's facility, so it becomes a zero sum game when viewed from a national perpsective. From a local perspective, however, there is a view from some within the academic community that local gains are what are important, regardless of whether those gains come at the expense of other areas. It is exactly the argument used in favour of downtown stadiums - the downtown area may benefit, likely at the expense of surburban areas. The suitability of such a project, therefore, is likely to depend on your point of view. 

For me, I'd really like to see the reasons behind the inclusion of the stadium within the blueprint. Yes, there are arguments in favour of its inclusion, but some are less credible than others. Even the most credible may still fail to pass the cost-benefit test.

Guess what is in the Christchurch blueprint?

The Christchurch blueprint has been out for a day, and we've had a little time to digest its contents. Perhaps unsurprisingly, among the major components is (a) a convention centre, (b) an indoor sports facility, and (c) a covered stadium to seat 35,000. There are concerns about the reliability of a convention centre as far as the contribution it might make to a local economy (see here). Eric Crampton at Offsetting Behaviour has his thoughts on the wider plan and the convention centre idea here and thoughts on convention centres in general here. Needless to say there are very hard questions that need to be answered. Just like the role of the role of the new stadium. Evidently the Prime Minister is in favour of the new stadium, saying "... I would have thought that it is the right step to take".

I have posted earlier on the stadium issue in relation to Christchurch (here, here and here) but I think it is worthwhile to reiterate a few salient points as people contemplate the role of a stadium in the context of the wider Christchurch rebuild.

Firstly, does Christchurch need a new stadium? The sports fan in me (yes, there is one!) says yes, as they have lost the spiritual home of sport in Lancaster Park/AMI Stadium. QEII Park was built to house the 1974 Commonwealth Games and despite upgrades since then, it was likely considered economically obsolete before the earthquakes in any case. There is certainly a gap in the landscape. Any economist will tell people to consider the recent investment in the new 'temporary AMI Stadium' at Addington as a sunk cost, and that it is not relevant to the discussion of how much to invest in a new covered stadium. The presence of the temporary stadium does, however, play an important part in the role of the new stadium, as it offers the alternative to a new stadium. As such, those backing the new stadium will have to demonstrate how the new stadium provides greater benefits to the Christchurch populace than the temporary facility, perhaps for such things as location (convenience, proximity to the centre of town and hotels/motels/bars/restaurants etc), better within-facility amenities (improved sightlines, etc) as well as the presence of the roof. (Just off the top of my head, I am not aware of anyone having explicitly tested whether there has been any difference between covered and uncovered stadium construction and the legacy of these facilities. This would be an interesting topic if indeed I haven't missed an obvious piece of work.) If the benefits from these aspects and possibly others are sizeable, then one has something to compare against a possible cost to in order to determine whether the stadium is a good idea or not.

Secondly, tempered and realistic expectations of the contribution of the stadium to the recovering local economy are paramount. Past research in both New Zealand and international contexts have routinely failed to connect stadium construction and/or the presence of a sports franchise to improved economic outcomes for host cities. One might counter this point with the fact that Christchurch is in a different situation with an almost total rebuild of the city after a natural disaster, and so the results don't necessarily apply here. The difficulty with this claim is that the impact of a stadium rebuild in the context of a natural disaster is highly likely to be clouded by other construction activity occurring at the same time. In many respects, the case of a 'typical' new stadium construction is a best case scenario.

Directly connected to the previous point is that the new stadium is a replacement facility, so the best one can hope for is a return to what happened prior to the earthquakes as far as the contribution of the stadium to the Christchurch economy. Yes, a roof might well mean the new facility could have greater use, but the 'new' use will likely come at the expense of the use presently held elsewhere within Christchurch (think Westpac Arena). The same thing can be said about the new indoor sports facility and its expected usage.

Thirdly, don't expect the attraction of events to act as economic stimuli, either. Research I have conducted into the effects of hosting major internationally-oriented events (the research is being written up and is almost available as a working paper - I'll link it as a future blog post when it is available) in New Zealand has indicated that realised economic impacts are the exception, not the rule.

A sounder economic case for investment in facilities, I believe, can (and should) be made for intangible benefits of a new facility and the recognition of the importance to local citizens rather than through the hopes of attracting vast sums of money from an influx of visitors to the city, a la "build it and they will come". The benefits to local users (and non-users) are much more meaningful to local politicians as to the true worth of the facility to those that will likely end up paying for it, ratepayers. The only problem with these benefits is their intangible nature and the credibility (or lack thereof) attached to estimates of these benefits. They have been estimated in other stadium contexts in the US (see this 2005 working paper by Johnson, Mondello and Whitehead on the estimation of public good benefits in Jacksonville, Florida for the NFL's Jaguars, and this 2008 working paper by Fenn and Crooker who looked at the value of the Minnesota Vikings and a proposed new stadium - these are just two, there are plenty more!). The Christchurch case is a perfect scenario upon which to base a similar type of study (another possible future research project!).

To sum up (for this post, at least), the stadium decision should be based on sound economic rationale. Christchurch must learn from lessons learnt elsewhere, and heed the experience of others in the same boat as far as expectations are concerned. Above all, if a new stadium is justified on non-economic grounds, then let's see an analysis (or something similar) that demonstrates how the new stadium addresses these grounds. Leave the economic impact analysis out of it. If it is justified on economic grounds, let's see an analysis that answers the question of whether the stadium is a good use of scarce government (and ratepayer) funds. I eagerly await further developments.

Christchurch priorities - stadium issues

Thamks to Eric @ Offsetting Behaviour for the post yesterday - it has motivated me to post a quick comment on what I believe to be the central issue surrounding sports and facilities today.

Stadiums and events as projects are all well and good, but when it comes to allocating scarce government funds towards these types of projects, one must really take stock of what is presently at hand and ask the question as to whether a new or upgraded facility is truly 'worth it'. In the eathquake-ravaged Christchurch today, we see a classic case of assessing priorities, and it will be interesting to see what Christchurch ends up deciding. The proposal for a new/rebuilt AMI Stadium (Mark I) has gotten a lot of publicity in recent times, and the Chrictchurch City Council is actively considering its options when it comes to the new facility. The Christchurch Press asked readers for their thoughts on the Stadium - and they make for interesting reading.

For mine, the question the CCC needs to consider is whether the new stadium is (a) high on the list of priorities- which it doesn't appear to be, and (b) if it was rebuilt or a new facility built, how much more value will it add to the city than what is presently there. There is already a new temporary stadium at Addington (AMI Stadium Mark II), and from what I hear and read, it seems to be doing the job perfectly well. As an economist, I am well aware of the nature of sunk costs, and how the temporary stadium is indeed a sunk cost when it comes to a new/refurbished alternative, but there has to be objective and common-sense analysis applied in this case. Is a new facility really worth the money that will be spent on it? Will it really pay its own way? Is this one such enterprise that private ownership should take reponsibility for?
As a traditionalist and lover of many things sport, one thing I have noticed in recent years has been the trend towards smaller, boutique-type facilities where atmosphere is considerably greater than large, cavernous edifices that are only filled once or twice a year. Will a smaller facility (i.e. AMI Mark II) generate more community interest due to its relatively smaller size (think scarcity of tickets, heightened atmosphere, closer sightlines, etc) than a larger facility (AMI Mark I)? Will a new, roofed, facility (sponsor name here Mark III) that looks likely to be closer to AMI Mark II than AMI Mark I actually generate the interest that will go a long way towards justifying its construction? Or is it a case of what Fred Dagg once said: we don't know how lucky we are?

With my economist hat now firmly in place, while sports are an important part of the fabric of Christchurch and Canterbury, there are sure to be alternative areas in which scarce public funds can be put to use. Ideally what I'd like to see in the way of supporting evidence if a stadium was formally proposed would be an analysis that demonstrates how a stadium investment makes the local populace better off than an investment in an alternative. Any alternative. That would be a good start.

Christchurch and the stadium game

New Christchurch stadium trumps them all

Just a quick comment here. The new Christchurch Rugby Stadium (AMI Stadium actually) gets its first match tonight with the Crusaders at home for the first time in well over a year. The new facility was funded primarily with government funding and was intended to give Christchurch locals a return to a sense of business as usual with the return of major sports, and other large-scale attractions. I hope it goes well - I like that it is not considerably expensive and that it is purpose built for rugby. What worries me, though, is that when the old Lancaster Park gets pulled down, what will happen to the traditional stadium design in the city. I sense that if this facility succeeds, it may well lead to a situation not unlike what has occurred in the US in the past two decades, with multiple purpose built facilities replacing multiple purpose facilities. Money is of course going to be an issue, but when the government is involved, well, anything can happen. Especially if the intention is a newly vibrant city that wants to attract people back with a multitude of entertainment/sporting options...

The climax to the ORFU saga

So a deal has been reached! The Otago Rugby Football Union (ORFU) has staved off liquidation! Just a few short weeks ago liquidation was a fait accompli, now they live to fight another day, in the finest traditions of the battling underdog overcoming the insurmountable odds that is so synonymous with sport.

But the tipping point wasnt't due to money being coughed up by a benevolent benefactor, rather it was the Forsyth Barr Stadium, the fear of losing a tenant and what it would do to facility revenues.

After a seven and a half hour meeting yesterday, the Dunedin City Council has agreed to 'forgive' a $480,000 debt from the ORFU to ensure that professional rugby remained in the city, and more importantly, guaranteed the new stadium at least one rugby tenant. But they were not exactly happy with either the ORFU, and the need to do so. This from Dunedin Mayor, Dave Cull, on the ORFU:

"I think there is pretty much universal agreement that they cocked up, and that they cocked up on a chronic basis. Pretty reprehensible really, but we have to deal with the situation as we find it."

and on reasons for the bailout:

The ORFU was bailed out because "the financial model around the so-called private sector funding component of building the stadium is dependent on revenues from the games that professional rugby play there.
"I'd have to say, before it was being built and right up until now, that was the most imprudent, risk-laden way of financing anything. It was basically pretty stupid, but we've got it, and we have to find a way of maintaining the revenue stream for that, or it falls back on the ratepayer. This deal has avoided that,'' he told Radio Sport.

While I can totally understand the frustrations, and the fact that the DCC have painted themselves into a corner, the story gets murkier yet. Why? Because of this juicy tidbit, revealed later in the article:

Cull said it had been discovered that there were no agreements in place for either the Otago ITM Cup team or the Highlanders to play at the stadium.

''Whether the ORFU went into liquidation or not, DVML was left with a very risky situation, as there were no contracts in place guaranteeing an income stream from professional rugby in our region. DVML had taken on the running of the stadium under the impression that those contracts were in place, underpinning that revenue stream.'' 

I'm sorry? I didn't just hear that. There are NO agreements in place for ANY local rugby teams/franchises to play at the new stadium? The one that is very, very dependent on future revenues from rugby to make ends meet on a regular basis? I have to scratch my head in amazement. It wasn't long ago that the ORFU admitted that they hadn't factored in the cost of playing in the new stadium into their cost projections, and now it emerges that there wasn't in fact anything actually tying them to the new stadium at all? Where is the communication here? What is going on? There really doesn't seem to be any semblance of coordination between two parties who obviously need each other to survive. If this is the state of play with rugby in the new stadium, I'd hate to know what the security of the other anticipated relationships is like.

So, when it boils down to it, the DCC (and the ratepayers who paid for the majority of the Forsyth Barr Stadium) are actually behind the eight ball to the tune of almost $500,000 when they should have been 'ahead' due to the revenues earned from rugby being played at the stadium. The other way you can look at it, I guess, is that it has just cost the DCC and ratepayers almost $500,000 to lock in a rugby presence in the new stadium. Was this cost in the budget for the new stadium? I should think not. And what of the Highlanders? They are higher profile than the ITM Cup. I can just imagine them saying: "Now, Mr Cull, you've just helped out the ORFU. How much do you want to pay us for to play at your swanky new stadium? You need us. Your figures show you'll have a very hard time without us, in fact. There is nothing stopping us from hightailing it elsewhere to other parts of the country for a better deal. Show us the money!". My goodness! Shades of the US professional sports now start to appear before my eyes, ones where franchises and cities are at war with new stadiums smack bang in the middle.

I'm sure that there will be more to this story...

Substitution effects - there's more!

It seems the Rugby World Cup has had all sorts of impacts - some good, some not so good. Sky City enjoyed a one-off surge in income due to the RWC, although Rainbow's End took a hit. I also noticed this story (Rugby fans shun cultural events) almost by accident but it is very relevant here - this counters the earlier post to some extent on Wellington's economic boost. Of course rugby fans would shun them - they're there for the rugby, after all. The question should be - by how much did the increase in rugby fans offset the loss in cutural visitors? This is the same point that Eric Crampton in Offsetting Behaviour made with the Christchurch experience of the RWC.

(BTW - thanks to Eric for a fascinating insight into his analysis of dodgy cost analyses in his talk to the School of Economics and Finance here at Massey today.)

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.