Thursday, 31 May 2012

Who saw this coming?

I have to admit, I thought we, as a country, might just have gone a bit over budget in the hosting of the Rugby World Cup. Rugby New Zealand 2011 didn't though! This from the New Zealand Herald yesterday:
The organisers of Rugby World Cup 2011 have posted a tournament-end loss 20 per cent better than forecast, capping off a successful event that exceeded all expectations.

Rugby New Zealand 2011 today announced a loss of $31.3 million from staging the seventh Rugby World Cup, which is $8 million lower than forecast.

Under the original shareholding arrangement, two-thirds of any loss was to be covered by the Government, one-third by the NZRU but NZRU's share of the loss was subsequently capped at $10 million.
Mathematicians among us will note that the taxpayers share of this loss is $21.3 million. Looks okay on the surface, and I'd be happy with it too, if there weren't more costs (like $190m towards Eden Park, among others)...

This, also, from the Rugby World Cup Minister, Murray McCully:
"Without a doubt, RWC 2011 will generate significant economic benefits for this country for many years to come," he said. "We welcomed 133,000 visitors to our shores and we were superb hosts for a great six-week celebration. The huge television audiences and extensive media coverage generated by the tournament boosted our international profile.

"We also forged valuable new business partnerships and showed the world we are a smart and innovative economy capable of delivering major global events.

"We made the most of being in the world's spotlight, so this result really is the icing on the cake."
I can completely understand the excitement when the loss is smaller than expected - this is indeed a positive result. I think it is a credit to the organisers of the tournament (Martin Snedden and his team) that the ticket sales exceeded expectations (I had my doubts, but I am glad to have been proven wrong), and that costs were lower than forecast. It was a very successful event, and many would consider it an investment that was well worth it (especially given that the All Blacks were victorious). The related question I am looking into at present is whether we saw the economic benefits during the tournament or whether these might plausibly materialise some time in the future.

The winners (domestically): The NZRU.
The NZRU invested $10 million in RNZ 2011 and $10 million in the redevelopment of Eden Park.

"From a rugby perspective, our investment in RWC 2011 is certainly paying off. We are seeing encouraging early signs that player registrations are up on last year and the strong gates and TV audiences we are seeing for Super Rugby are partly a spin-off from the wonderful atmosphere and exciting rugby we saw last year."
Interesting, that. A quick read of this 2005 paper by Stefan Kesenne will reveal something rather remarkable.

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.

Tuesday, 22 May 2012

RWC in Manawatu - an "economic disaster"

At long, long, last! A city council has produced an objective analysis that considers not the ex-post gross impacts but the ex-post net impacts! And guess what the outcome is? The headline from the Manawatu Standard says it all.

From the report:
Far from producing a windfall, predicted to be worth between $750,000 and $2.2 million to the city, economic growth actually slowed during last year's tournament.
Proponents of the city's involvement, which included two matches, were "overly optimistic", said economic policy analyst Peter Crawford, and some city councillors are asking whether hosting large events is worth it.
The estimates process got it so wrong because it did not balance the likely benefits against the costs, he said.
One of the costs was the extent to which such a major event crowded out other activities.
Predictions were also based on expectations of hosting more high profile teams for longer.
In particular, it was hoped a European team would stay for several weeks, providing a $188,500 boost to household income.
Instead, Argentina stayed five nights, and the low profile Georgian and Romanian teams stayed a total of 10 nights – worth about $40,000 to household incomes.
I have to take my hat off to Peter Crawford - he has produced an answer to the question that people are wanting to know - did it benefit the local economy or not? I've read five post-RWC analyses for individual cities (some of which are publicly available, others of which I have asked for and been given with the condition I don't identify the reports individually) and every single one of them has been produced by outside consultants that use the economic impact methodology to come up with a dollar figure for the impact of the event on the host city. Economic impact analysis measures gross impact, not net impact. What Peter Crawford has produced is a net impact analysis - and it makes for sobering reading, if the tone of the news report is anything to go by. It was a gutsy report to present, but it actually answers the questions that councillors want to know - was it worth it?

I would like to think that other councils around the country will take the opportunity to evaluate the actual net impact that the tournament had on their local economy in light of this report. The Palmerston North City Council should be commended for producing this report in-house, and looking at the situation objectively. Objective analyses that consider all benefits and costs would be a good step forward for event analysis in this country.

I'm presently putting the finishing touches on a paper on the realised impacts of major sports events hosted in this country that I am presenting for the upcoming New Zealand Association of Economists Conference in Palmerston North in late June. Once it is ready I will post it up on the blog. Basically, major events are often underwhelming as far as their net impacts on local economies are concerned. Projections of substantial economic impacts do not materialise in the vast majority of cases - a result consistent with much of the independent international literature on mega and major sporting events.

Next on the agenda: Writing up an analysis of stadium construction and its effects on local economies, and then I'll look into the realised impacts of the Rugby World Cup on host economies. Both should be interesting analyses given what has unfolded to date.

Monday, 14 May 2012


The results are in! The Forsyth Barr Stadium in Dunedin ended up with a cost overrun of $8.4m, or a 4.2% increase over budget. This is, as I have mentioned before, hardly surprising given the national and international experience. Some prominent examples include the Hamilton County, Ohio stadiums for Cincinnati's Bengals and Reds teams, Australian facilities in Melbourne, Adelaide, Canberra and Sydney, and domestic facilities including Waikato Stadium (this link to an excellent post by the late Roger Kerr - although I'm not entirely sold on the initial Westpac Stadium figures) and North Harbour Stadium (best link I could find - requires subscription).

Cost overruns have a further cost which councillors in Dunedin are now grappling with - the opportunity cost. Money needs to be found somewhere - and it is often to the detriment of other projects which also require funding from the public purse. These costs are not minor and should not be downplayed. After all, if impacts have a multiplier effect, so too do costs.

And now, in amongst all of this, the Warriors want a new stadium in Auckland. On the waterfront. With a roof. And a cost of $300m. And claims that $100 of the cost will come from the corporate sector, with the rest from local and central government.

This, from Warriors chairman Bill Wavish:
"Before the world cup, they made a decision to build a stadium in Dunedin, which has a population of fewer than 100,000 people. But there are 1.5 million people in Auckland and they don't deserve a new stadium?

"The view is that they made a mistake to spend all that money on Eden Park and now the opportunity has passed. At some point in time, we need to face up to that and build a stadium." 
Have I heard something similar before? Lessons need to be learnt. Some lessons, however, seem to feel the need to be learnt again, and again, and again.

Thursday, 10 May 2012

F-B Stadium - more of the same

Admittedly, I wrote my previous post rather late at night and with the story only just emerging. This morning, with the benefit of a few more details, I can write a little more on the sorry state of the Forsyth Barr Stadium.

From the New Zealand Herald:
The company is now forecasting a full-year loss of $2.4 million, followed by losses of $1.2 million, $1.1 million and $1 million for the following three years, council information shows.
From the Otago Daily Times:
The six-monthly result represented a dramatic turnaround from DVML forecasts released last year, which tentatively predicted profits of $91,000 in 2011-12, $30,000 in 2012-13 and $46,000 in 2013-14.
Hmm. When support was being drummed up for the facility and throughout the process of construction, Westpac Stadium was touted as the poster child for New Zealand facilities - and a quick look at the first ten years shows why:

Figure 4.1: Net Operating Surpluses ($m): Westpac Stadium, 2000-2009
Source: Wellington Regional Stadium Trust Annual Reports, 2000-2009.

This figure was from my PhD thesis completed last year (note to self: it's about time this chapter was published!). In each of the ten years post-construction, the stadium ran operating surpluses which were then used to pay down debt. Forsyth Barr Stadium doesn't look to be close - but things might get better over time (and they are forecasting reductions to losses). It wasn't until the second five years, however, that the Westpac Stadium started to post stable surpluses. The key was establishing a regular usage for the facility, among other things - something the F-B Stadium has had trouble with to date.

I particularly like Paul Walker's take on the developments at Anti-Dismal:
I can't help thinking that the obvious lesson from Dunedin is that if you want to inject economic life into your area don't build a stadium.
I just hope that other city councils learn from the Dunedin experience and don't try building grand new stadiums in their cities. Take note Christchurch!
Stadiums are typically built as stimuli - to shake loose the shackles of impending economic doom by attracting people back to the city and getting them spending, and the impacts will trickle down to all concerned and things will come right. While an admirable sentiment, that hardly ever happens. This is why I find the popular defence of attributing poor financial results on the state of the economy a classic case of the pot calling the kettle black. I've alluded elsewhere to stadium construction as being a case of keeping up with the Jones'.

While one year is hardly a sufficient number of observations to read the final rites over the F-B Stadium, there are more than a few examples of stadiums in this country that have caused grief to ratepayers in recent years - with the North Harbour Stadium and Waikato Stadium two examples that spring immediately to mind. I sincerely hope that the Forsyth Barr Stadium is not added to the list - but things (and quite a few of them) will have to change for the better.

Of course, if Christchurch builds a bigger and better stadium and the associated increased competition for events, etc, is going to make things very interesting in Dunedin. Buckle in for what is sure to be an eventful ride!

Wednesday, 9 May 2012

The first six months of the Forsyth Barr Stadium - and a forward pass already!

Unfortunately for proponents of the brand new Forsyth Barr Stadium in Dunedin, the first six months hasn't exactly been that encouraging ...
I'm not one of these 'I told you so' people, but this report can't exactly be described as a surprise (although the extent of the losses are perhaps higher than many would have anticipated) as much of the international experience has been the same. They don't make money. Period. If you cover your costs, you are doing very, very well. Let's just hope that the folks in Dunedin can turn it around - although it is difficult to see how, if they don't attract major events that they were banking on. And they must also hope that cornerstone tenants remain financially viable and can contribute their share of the costs.
I do find the move by the Mayor interesting - ordering a review of the stadium's operations. This hot on the heels of the DCC having an observer at the ORFU. I know the Council has invested a ton (and a bit more)  of money into the Stadium, but losses were anticipated, and with the two big events in the first six months enjoying the Stadium rent-free, the benefits (if there were any) were never going to show on the Stadium's balance sheet. If I were Council, I'd be nervously awaiting the latest economic data to see what has happened to local and regional GDP in the past two quarters. If the stadium has been as beneficial as was claimed pre construction, one should expect to see gains to the local economy that outweigh the losses incurred at the Stadium. The chances of this actually happening would be slim, based on previous national and international experience.
I can see this being a subject that just won't go away - which is good for one who researches in this area!
Thanks to Eric at Offsetting Behaviour for the tip!