Monday, 24 September 2012

Auckland stadium review

This column by Herald columnist Brian Rudman stirred me into action this afternoon with the upcoming decision on what to do with Auckland's stadium situation.

On the one hand, as Brian points out, the decision is easy if you subscribe to the efficiency-of-use argument. The three big stadiums in Auckland (Eden Park, North Harbour Stadium and Mt Smart Stadium) all depend on local government to a greater or lesser degree. Indeed, the issues paper released by Regional Facilities Auckland (RFA) in June (linked here) indicates that Eden Park breaks even each year and has a large debt to service of $55m post-Rugby World Cup, Mt Smart is facing an upgrade bill of some $60m and requires local government funding each year, and North Harbour Stadium is very much dependent on local government funding to stay viable. There appears to be an argument, on the surface, that there are potential efficiencies to be gained by rationalising their use (the 'collaborative strategies' option presented by RFA).

On the other hand, however, there is a sense of uncertainty as to how feasible a rationalisation plan like this is. There are questions to be answered over how such a rationalisation might affect support for certain sports within Auckland - for instance rugby league - if they have to move from Mt Smart to Eden Park. Will Eden Park residents be happy with greater utilisation of the Park? Granted, the $250m upgrade for the Rugby World Cup had a lot of people asking whether it was worth the price tag for the present utilisation of the facility. Clearly RFA thinks that the extent of investment in the infrastructure for and around Eden Park means greater utilisation is necessary. Interestingly enough, the proposal put forward by RFA suggests that Eden Park be used for 'bigger' rugby league events (that is, over 20,000 supporters). The Warriors haven't averaged more than 20,000 in attendance since 1996. The sole game played at Eden Park in the 2012 season against Manly in the opening weekend brought 37,502 through the turnstiles. The Warriors have actually played twice at Eden Park, for an average of 37,957. Two games isn't a great sample upon which to make any predictions, in any case, but the reliability of that number of spectators regularly attending Eden Park games is somewhat questionable. Under RFA's second option (specialisation of functions), Eden Park would be the major stadium with Mt Smart and North Harbour Stadium smaller-scale backups (rather as they are now). RFA also proposes Mt Smart taking on speedway (moving from Western Springs). Mt Smart and North Harbour might also be developed into high performance centres for various sports.

The issue of rationalisation of sporting facilities has been experienced in Melbourne in recent years, with many AFL clubs moving games from traditional (and often smaller capacity) suburban grounds to large inner-city facilities including the Melbourne Cricket Ground and Etihad Stadium, along with AAMI Park. NRL clubs have also raised the idea that more games be played in larger facilities like ANZ Stadium and Allianz Stadium at the expense of smaller suburban grounds. Melbourne hosts some 18 professional sports franchises in its vicinity, and does work at coordinating the use of its major facilities. Sydney, too, has seen several NRL clubs in particular move from their traditional homes to the larger ANZ Stadium, which has meant greater utilisation of the major facilities across both cities. Melbourne and Sydney have dedicated major sports precincts which are the focus of much of the major sport within each city (Melbourne, for instance, has Hisense Arena and the Rod Laver Arena in close proximity to the MCG and AAMI Park, while Sydney has its Olympic precinct at Homebush which includes the ANZ Stadium). Auckland does not have such a precinct, and as such, a continuation of ad hoc development appears likely in the absence of some coordination.

It should also be pointed out, in the case of Melbourne and Sydney, that most of the clubs that play their home games in the large sports precinct facilities still train\at their home ground, which have effectively become smaller scale suburban sport-specific high performance centres. They are not as expensive to maintain, as the onus is largely on the clubs themselves to provide the necessary infrastructure and equipment. Many of these facilities also serve as local community sporting facilities, so have an element of public good about them.

In the short term, it seems prudent for Auckland to look for ways to leverage the investment from the RWC. Sydney leveraged it's Olympic investment as part of the 2003 RWC, and continues to do so. Melbourne leverages its Olympic and Commonwealth Games investment with the AFL, the NRL, Super Rugby, the Australian Open, etc. The decision is an important one and will determine whether, in future, we see an Auckland sports precinct along the lines of Melbourne or Sydney.

Tuesday, 18 September 2012

Baseball in Auckland... Ball One or Strike One?

I was particularly interested to read this article in Stuff this morning that outlines interest in establishing a professional baseball franchise in Auckland. Evidently Major League Baseball are keen on helping Auckland with facilities and to set up the franchise in the Australian Baseball League (ABL).
Personally, as a keen follower of Major League Baseball in the US, I'd be very keen to see professional baseball in this country. There are a couple of issues, though, to be worked through. Firstly, a facility. From the article:
Australian Baseball League chief executive Peter Wermuth said: ''A proper baseball facility suitable for professional baseball would be a great development for the sport in New Zealand, provide an opportunity to bring ABL games to New Zealand and would be a key step towards consideration for an ABL expansion franchise in the future.
''We strongly support the initiative.'' 
A 'proper' facility would assist with the location of a possible ABL franchise. Auckland has been working through a review of sports facility usage (see a draft regional facilities review discussion paper linked here)* whereby proposals have been made for certain facilities to be used in more efficient/appropriate ways. Whether a presently utilised facility can be converted into a dedicated baseball-only facility or whether a greenfields site is required is unknown at this stage. Don't expect the "build it and they will come" approach to automatically make baseball in Auckland an economic gold mine.
 "It's crucial for our sport to take the next step to have at least one facility that we can call home," BNZ president David Ballinger said.
''Every other sport has at least one facility that they can access whenever necessary, and baseball should be no different.
If baseball has such a following, it would make sense for private interests to take the first step. The argument of "everyone else has one so I need one too" isn't something that should go down too well with local government. It certainly isn't a compelling argument for government assistance.
 ''We need a facility that we can build up over time that becomes world-class for what is considered one of the world's most popular and profitable team sports.''
Popular - you bet. So is football. Football doesn't influence decisions on major sporting facilities of this country, however, in the way that rugby or cricket does. Profitable - it sure is. I wonder why? Could things like this have anything to do with baseball's profitability in the US? What about the implications of its monopoly status? Let's be clear, also, that professional sport doesn't always bring in the big bucks and isnt alwatys good for a local economy. Just to be absolutely clear.

There's one other 'problem' with professional baseball (or profitable sports, in general), and the extent to which one would consider it a problem depends on your perspective. This is no better illustrated than the present lockout of the NHL in North America - its second in seven years. Baseball has had lockouts and strikes in the past, and at least one economist found that it wasn't the end of the world.

*UPDATE (24 Sept): The paper I intended to link was the Regional Facilities Auckland (RFA) discussion document - please find it linked here.)

Tuesday, 4 September 2012

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.

Stadiums and the broken window fallacy

One of my colleagues here in the School of Economics and Finance has forwarded me this link, and I have to confess that I haven't actually come across this before! I'm very pleased that I now know of it, as the broken window fallacy seems to fit the economics of stadiums very, very well.

To paraphrase (using a hypothetical example of a $250m stadium), the broken window fallacy occurs when there is destruction (in the stadium's case, physical or economic obsolescence of the facility), and the new stadium is rebuilt. The costs involved in the rebuild are considered by some as beneficial to those who are involved in the rebuild (ie. construction firms, etc). The opportunity cost of the $250m, however, means that amount cannot be spent elsewhere, and from the point of view of society, makes the idea of a rebuilt facility somewhat less appealing. The facility will be considered a bad investment if the opportunity cost is greater than the stadium investment.

What is also important to consider, too, is that the stadium investment is likely to also have impacts on those involved in the rebuild. Construction firms will consider the facility a benefit if they have spare capacity that they can utilise to build the facility. If they don't, however, then the facility will effectively crowd out other work that the firms would otherwise be doing.

As such, is the city that builds a $250m stadium actually better off? One can always glean a simplistic insight into this by examining multipliers for various activities. If a stadium has a multiplier of 1.75, let's say, then all it takes for the facility to make the local economy better off is if no other alternative investment has a multiplier greater than 1.75. If others do, however, the 'gains' are highly unlikely to materialise.