tag:blogger.com,1999:blog-23463207733701873002024-03-14T12:50:59.181+13:00Fair Play and Forward PassesA blog on things sports and economics related in New Zealand and abroad.Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.comBlogger71125tag:blogger.com,1999:blog-2346320773370187300.post-14108211850786930152020-08-14T11:54:00.005+12:002020-08-14T11:54:47.110+12:00Public funding for sports facilities: a velodrome version<p>In recent days I (rather unexpectedly, I must confess) made front page news in Whanganui with my comments about the proposal to roof the aging velodrome in the city.</p><p>This is not a new story. The velodrome was built in Whanganui in 1995 and at the time it was built there were people saying that it needed a roof to future proof it and protect it from the elements. There has been <a href="http://raisetheveloroof.org.nz/" target="_blank">a concerted effort</a> by a group of dedicated campaigners to push for local, regional and now central government funding for the roofing project. The reality is that the wooden velodrome track is in need of replacement - so this is now bundled into the roof project. </p><p>When I was asked late last week to comment on the latest proposal, I was told about an economic impact study that had been commissioned to calculate the benefits of the facility. I have been unable to obtain a copy of this study, but several results from the study were published in a full page advertisement in the local Whanganui Chronicle last week. Thus my comments could not specifically address the claims made in the study. I did, however, offer some more general comments on what I was aware of.</p><p><a href="https://www.tandfonline.com/doi/full/10.1080/00779954.2015.1043932" target="_blank">Research into sports facility construction in New Zealand</a> has shown that there is an absence of detectable economic outcomes in host cities that build new facilities. There is very little evidence that predictions of economic impacts prior to facility construction actually materialise post-construction. There is a perception that these figures (NZ$176 million over ten years in Whanganui, according to facility proponents) will add to the local economy - and that when put side by side with the proposed NZ$26.3 million cost of the facility, well, it's a no-brainer, right? Who'd be stupid enough to argue that the benefits are smaller than the costs?</p><p>There are more than a few reasons why the benefit/cost comparison is not as simple as it looks at first glance.</p><p>What is the area where the impact is calculated for? Regional impacts are larger than city-level impacts by virtue of the fact that regions are larger and any multiplier effects are larger than for cities. This isn't immediately obvious.</p><p>Also, economic impacts are not the same thing as benefits. Producers of goods and services sold in Whanganui to visitors to town for events need to pay their bills - and quite often this involves having to pay for imported components of what they produce. The appropriate measure to be used is value added - once all of the imported costs are paid, what fraction of total spending is a true addition to the local economy? It is much, much less than the sum total of visitor spending. </p><p>Without verification of the study and the method used, it is difficult to comment specifically on whether the numbers are accurate and/or reasonable. But they are a projection - and they need to be discounted due to the fact that they occur over time (the simple fact is that a dollar today is always worth more than a dollar next year). Assuming they are discounted, the events used to generate these benefits need close scrutiny. Are the attendance figures realistic? Visitor spending is the key component of such studies - so how many visitors have been assumed will be attending these expected events? And how much will they be spending? These will all be approximations. </p><p>Are the events hosted "new" events? That is, are they events that would not otherwise have been hosted in the city in the absence of a roofed facility? I noted in the <a href="http://raisetheveloroof.org.nz/wp-content/uploads/sites/14/2017/10/proposal.pdf" target="_blank">prospectus</a> that the facility has a range of configurations, one of which is for opera. The Whanganui Opera House (a specialist operatic venue with ideal acoustics) is a stone's throw from the velodrome. I realise this is but a single instance, and a roofed facility would seat more people - but is there a market locally (and wider) for large-scale opera? Are there other events that would also have been hosted by other facilities in Whanganui that the roofed velodrome would now host? This has the effect of reducing the expected benefits to the city as a whole. Again, in the absence of an economic impact study, it is hard to know exactly how large this effect is or might be.</p><p>Likewise, a roofed Whanganui velodrome could potentially attract events from other places, like those hosted in Palmerston North's Arena. If this was the case, then from a Horizons (Manawatu-Wanganui Regional Council) perspective, there would be no net benefit as it would simply be hosted in another city in the region. </p><p>It is also claimed by proponents that the economic pay back period for the roofed velodrome would be less than two and a half years. To use an example of an older and larger facility - the 34,500 seat Wellington Regional Stadium (formerly known as Westpac Stadium and now known as Sky Stadium) was opened in 2000 and cost then NZ$122 million. It attracted a significant number of new events to the city, including the World Rugby Sevens, among other events. It was generally regarded as a successful facility - and while it has been able to maintain breaking even from a year-to-year operations point of view, it is still (after two decades) yet to pay back the original construction cost - despite <a href="https://skystadium.co.nz/fileadmin/Documents/Annual_Reports/Westpac_Stadium_Economic_Impact_Report__10_years__Summary.pdf" target="_blank">a study that showed an increase in visitor spending of almost NZ$500 million in its first ten years of operation</a>. </p><p>There are more than a few reasons, therefore, to be somewhat skeptical of claims like those mentioned in the advertisements. </p><p>There is also no mention of whether or not the facility will actually cost the Whanganui City or Regional Council to operate. Dunedin's facility is an example of a facility that at least initially required the Dunedin City Council to subsidise the facility in order to break even operationally. </p><p>Last, but certainly not least, there's the old economist's chestnut of opportunity cost. In this case, a roofed velodrome paid for by central government is a net injection of funding to the area - but any contribution to the project by the Whanganui City Council (and/or Horizons Regional Council) will come with an opportunity cost - the next best alternative of this funding. If there are more pressing projects to fund locally, the benefits from these projects will be the opportunity cost of the velodrome project for Whanganui. Essentially it comes down to priorities - if the velodrome is the top priority, the opportunity cost will be less than the benefits associated with the project.</p><p>All this, of course, doesn't mean that stadiums should therefore never be built. One might well argue that stadiums are built irrespective of the views of economists like me, and turn out to be successes. People in host cities are often very proud of their facilities, and that's a legitimate benefit to local citizens. Ultimately it can come down to whether or not the local population believe that the price to pay for the facility is worth it. If it is, then it becomes a reality, and it is hard to refute.</p><p>If, however, one attempts to justify this decision by using the economic numbers before and after, this is a much more difficult proposition to defend. </p><p>After all, if it was commercially viable to roof the velodrome in 1995, it would have been roofed at the time. There's a reason that these facilities are not privately owned and operated. </p>Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-38896068626599354322017-08-30T12:42:00.002+12:002017-08-30T12:43:54.173+12:00Christchurch stadium debateTime for a random blog post ...<br />
<br />
After the publication of <a href="https://www.stuff.co.nz/the-press/business/the-rebuild/96244456/is-funding-christchurchs-stadium-a-political-forward-pass" target="_blank">an opinion piece in this morning's Press</a> (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.<br />
<br />
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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. <o:p></o:p></span></div>
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<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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?<o:p></o:p></span></div>
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<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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”?<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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.<a href="file:///C:/Users/sarichar/Documents/2017/The%20issue%20I%20have%20is%20not%20that%20Christchurch%20doesn.docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 11pt; line-height: 107%;">[1]</span></span><!--[endif]--></span></a>
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!<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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? <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: "franklin gothic book" , sans-serif;">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. <o:p></o:p></span></div>
<br />
<div>
<!--[if !supportFootnotes]--><br clear="all" />
<hr align="left" size="1" width="33%" />
<!--[endif]-->
<br />
<div id="ftn1">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/sarichar/Documents/2017/The%20issue%20I%20have%20is%20not%20that%20Christchurch%20doesn.docx#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span style="font-family: "franklin gothic book" , sans-serif;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 107%;">[1]</span></span><!--[endif]--></span></span></a><span style="font-family: "franklin gothic book" , sans-serif;"> A crude back of the envelope calculation: Westpac Stadium and
Spark Arena were built at twice the cost, it would come to $432 million.<o:p></o:p></span></div>
</div>
</div>
Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-54692058714192537992016-11-09T11:57:00.002+13:002016-11-09T11:57:35.509+13:00It's on (without government funding)!It's on, folks! <a href="http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=11744107" target="_blank">December 10 at Vector Arena</a> - Joseph Parker fights for the WBO world heavyweight title against Andy Ruiz.<br />
<br />
In the end, it didn't need government funding either! Although Martin Snedden, CEO of promoters Duco (<a href="http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=11744451" target="_blank">as reported in the media</a>) was bullish about whether the announcement yesterday justified the call of the Government to not fund the fight:<br />
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: Calibri, Candara, Segoe, "Segoe UI", Optima, Arial, sans-serif; font-size: 16px;">"That's rubbish. When we started out on this commercial route only 35 days ago we had no commercial contracts in place. We didn't know what would happen. We trusted our loyal sponsors and supporters but we were asking a lot of them... but we've hit a threshold in terms of risk assessment where we are saying that we're prepared to go for this."</span></blockquote>
Their initial threshold might well have included government funding as a buffer of sorts, but even without government funding, they've decided to make a go of it with private funding. Kudos for going for it despite the risk, but that's the nature of private enterprise - you'd be doing pretty well if your business was a sure thing.<br />
<br />
Now that it is confirmed, expect it to cost New Zealanders to enjoy a piece of the action. Duco have already said that it <a href="http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=11744756" target="_blank">won't be available to view at rock bottom prices</a>.<br />
<br />
Duco are a shrewd bunch of people who know their boxing and know how to run a fight night. This will likely be their biggest opportunity to make something of Joseph Parker's title ambitions in this country. If he wins, he may well seek bigger opportunities that the market in this country may be unable to support. (I won't think about if he loses - except to say that David Tua was still a popular fighter in this country after his title fight loss to Lennox Lewis and his fight with Shane Cameron was the biggest fight in this country prior to what will go down on December 10, 2016.)<br />
<br />
As a boxing fan, I am right behind Parker in his goal to win the title. As to whether that will extend to parting with any of my scarce income ... let's wait and see.Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-30641846808712176072016-11-05T16:30:00.004+13:002016-11-05T17:04:17.089+13:00The Parker fight takes another body shotJust as it seemed things were becoming clearer regarding the Joseph Parker fight ... then comes <a href="http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=11742141" target="_blank">news today that Auckland City's ATEED have decided against providing ratepayer funding</a> for the fight.<br />
<br />
According to the article, ATEED's contribution was expected to be in the hundreds of thousands of dollars.<br />
<br />
The CEO of ATEED, Brett O'Riley said:<br />
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: "calibri" , "candara" , "segoe" , "segoe ui" , "optima" , "arial" , sans-serif; font-size: 16px;">"While there is clear potential to generate international exposure if the fight is held in Auckland, we are unable to make a robust assessment of the potential of this event until the fight is confirmed to take place here and domestic and international television rights are secured."</span></blockquote>
It is a body blow to promoter Duco's chances of hosting the event in Auckland - especially since it appeared that it was banking on ATEED's financial support to make the fight happen.<br />
<br />
Of the public funding possibilities, ATEED's support appeared most sensible on the surface from an economic perspective - the benefits of the fight were likely to be highly concentrated in Auckland - even with up to 50% of fight attendees hailing from outside the city (as claimed in the article). Auckland was also the most likely beneficiary of national and international broadcasts - although the value of this publicity is far from certain. Given that the length of time to promote the fight is shrinking by the day (the fight was believed to be scheduled for December 10), the ability to market and sell the fight becomes that much more difficult the closer we get to fight night.<br />
<br />
O'Riley was also quoted as saying:<br />
<blockquote class="tr_bq">
{I}<span style="background-color: white; color: #333333; font-family: "calibri" , "candara" , "segoe" , "segoe ui" , "optima" , "arial" , sans-serif; font-size: 16px;">it was not clear if staging the fight in Auckland would have "the desired outcomes of Auckland's Major Events Strategy" so the decision was made "not provide financial sponsorship for the fight."</span></blockquote>
It definitely looks like the fight has become a political hard sell - and without government backing it now stands as a true test of whether there is a market of sufficient size to make such an event commercially justifiable in New Zealand.Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-21477315846451816612016-11-03T21:36:00.000+13:002016-11-05T17:04:05.537+13:00Pondering pugilistic price discrimination .... maximising the value of the world title fight<a href="http://www.stuff.co.nz/sport/other-sports/86038776/joseph-parker-fight-confirmed-for-auckland" target="_blank">News today</a> revealed that Joseph Parker's WBO world heavyweight title fight against Mexican opponent Andy Ruiz will take place in Auckland on December 10 at a venue to be decided. The fight will take place without central government funding in big a about-turn from <a href="http://www.stuff.co.nz/sport/other-sports/85823514/duco-withdraw-application-for-government-funding-for-joseph-parker-title-fight" target="_blank">last week's announcement</a> from Parker's promoters Duco when they withdrew their application for government funding that the fight was 80% likely to head offshore.<br />
<br />
It is not 100% privately funded, though. One of the backers of the Parker camp is the Auckland City events arm ATEED, so there are already taxpayer dollars being funneled into the fight.<br />
<br />
Now that the fight is taking place in Auckland, the question becomes whether the fight will generate economic benefits for the city and for New Zealand. In short, the benefits are likely to be confined to Auckland city and are not likely to spill over outside the city boundaries. The extremely short-term nature of the event itself will likely mean that any impact is short and sharp - don't expect longer-term economic impacts - even if Parker happens to win the fight. We can also expect the promoters to attempt to extract as much of the local consumer benefit in the form of higher broadcast prices and ticket prices. This isn't extortion or in any way unfair - it is market forces at work. Duco is a monopolist here - and they have the ability to set the price people must pay to see the fight. Parker vs Ruiz will be the biggest and most important fight ever staged in New Zealand, and people will be willing to pay to watch it. David Tua vs Shane Cameron was a big fight in New Zealand and attracted a huge amount of interest - this fight will be even bigger.<br />
<br />
There is an interesting option that is on the table for Duco that they have already done but now that the stakes are as high as they have ever been (for boxing promoters in New Zealand), do they have the same willingness to test the market's willingness to pay for this fight? That option is perfect price discrimination - something that Duco did for <a href="http://www.stuff.co.nz/sport/79831893/why-have-duco-auctioned-parker-v-takam-tickets-what-does-it-mean-for-fans" target="_blank">Parker's fight with Carlos Takam</a> in May of this year. This was labelled by promoter Dean Lonergan as<br />
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: Arial, Helvetica, sans-serif; font-size: 12px;">"an entertaining experiment in microeconomics"</span></blockquote>
In the Takam fight, Duco auctioned off 520 general admission tickets at $1 reserve on TradeMe. The intention of this experiment was an attempt to eliminate the possibility of scalping occurring with these tickets - people buying cheap and selling at higher prices. <br />
<br />
With interest in this fight likely to be significantly greater than what it was for the Takam fight, it will be very interesting to see if Duco try it again. If anything, they have more to gain from giving it another go - one would expect the willingness to pay for a title fight to be much greater than for a build-up fight. Yet there is always a risk that they may not make the money that they are seeking - but they are likely to sell the tickets and fill the venue. At the same time, charging a fixed price is not a sure bet either - people might decide that the price is simply too steep and there could be empty seats as a result. There is also the possibility that the price might be set too low - and scalping could occur.<br />
<br />
That they have already tried the auction method is a credit to the promoters. Only they will know whether it paid off last time. It would be fascinating to see Duco try this again because of the potential gains the practice offers them as sellers of a sought-after commodity (which are potentially much higher with this fight). Even if it was for a small proportion of tickets, it is a way of letting the market decide what the ticket is worth.<br />
<br />
Lonergan also mentioned that<br />
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: Arial, Helvetica, sans-serif; font-size: 12px;">"You'd never get the New Zealand Rugby Union doing what we're doing because they'd see it as too controversial". </span></blockquote>
This is Duco's version of a top-tier All Blacks test - their World Cup final - will they be game enough to roll the dice once more?Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-44594596935108448392016-10-26T21:24:00.001+13:002016-11-05T17:03:39.474+13:00Funding the fight ... low blow or a knockout?The proposal for Government funding to be poured into Joseph Parker's world title fight has become very popular - so popular, in fact, that even I've been asked to contribute to this discussion!<br />
<br />
There have been plenty of views from both sides of the fence - <a href="http://www.stuff.co.nz/sport/other-sports/85758905/why-the-government-should-pay-for-joseph-parker-fight" target="_blank">Steve Kilgallon's piece</a> on why taxpayers should stump up to help stage the fight, <a href="http://www.radiolive.co.nz/PATRICK-GOWER-Sky-must-show-the-Joseph-Parker-fight-for-free/tabid/615/articleID/130568/Default.aspx" target="_blank">Patrick Gower's views</a> are more strongly against, while <a href="http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11735624" target="_blank">Barry Soper write</a>s a more questioning piece.<br />
<br />
Eric Crampton (as per usual) <a href="http://offsettingbehaviour.blogspot.com/2016/10/the-bout-round-bach-fight-in-ferns.html?utm_source=feedburner&utm_medium=feed&utm_campaign=feed:+offsettingbehaviour+(offsetting+behaviour)" target="_blank">makes several excellent points</a> - his whole post is worth a read! As economists, Eric and I see very much eye to eye on this issue.<br />
<br />
I can only really add to this discussion with a few points of my own:<br />
<br />
<ul>
<li>A matter of a week or so ago, Auckland was widely considered the host. Now we are told that there is only a 20-30 percent chance of the fight being staged in Auckland. What is the situation that has caused this uncertainty? This, to me, is the key question. Why is the government funding needed? Could it be that promoters in the US are proposing to spend more on attracting the fight than Duco, and are therefore being considered as a safer (read: more lucrative to the WBO) bet than hosting a title fight here? Government funding has been used the world over to try to trump others in hosting events ... with questionable returns.</li>
<li>Indeed, there is little to no evidence from the independent research looking at the realised economic impacts of mega sporting events that said events will generate tangible economic impacts. The winners from such arrangements tend to be the governing sporting bodies, followed by the event organisers - with taxpayers a distant last.</li>
<li>What are the benefits that New Zealanders will enjoy from hosting the fight? Benefits will accrue largely to those who watch the fight - and you can bet that it will not be anywhere in the plan for such an event to be broadcast live free-to-air. Part of what makes the fight commercially lucrative is the ability of broadcasters to charge for people to watch it. If government funding was contingent on it being broadcast free-to-air, it would undermine the commercial viability of hosting it here. So it should be a given that people will have to pay to watch the fight with or without government funding. These prices will be much more expensive than any previous fight given its title status, so one would reasonably expect the promoters to capture a much greater share of the event's benefits in the form of ticket sales and pay-per-view sales from Sky. </li>
<li>The economic benefits are (unfortunately) synonymous with economic impacts - which doesn't help the case for the fight to be publicly funded. If you look at past events funded by the Major Events Development Fund (MEDF), they've tended to be events with longer than a single day's duration - which means that their ability to attract visitors and spending is much greater than a one-day event. Any economic impacts from the event are also highly likely to be concentrated in Auckland - hence there may well be a stronger case for Auckland Council (via ATEED, one assumes) to be a major backer of the event. I understand that ATEED is already involved, but it doesn't appear to be enough to get the deal over the line. </li>
<li>There is also a matter of consistency and transparency regarding the treatment of the application for the MEDF - any (perceived or otherwise) favouritism will not go down well with people who have missed out in the application stage. One assumes that the application will include an estimate of economic impacts attributable to the event? To support these impacts, it is useful to consider what would happen in Auckland (and New Zealand) if the event did not take place. In most cases, projections of economic impact assume that the counterfactual is that there would be no spending at all in the absence of the event - an assumption that overstates the likely economic impact.</li>
<li>One must also factor in the opportunity cost of public funding into such an equation. Scarce government funds could be spent elsewhere - and no doubt there are plenty of alternative uses for an as-yet unknown amount of public money that may generate greater longer-term impacts than funding a one-off event like this.</li>
<li>From what we have heard (at least via the media) the good people at Duco are pointing to the feel-good factor as being an important reason why we should consider funding the fight. If so, ask yourself this - will you feel any worse than you already do if the fight was to go offshore? And if so, what is this "feel-bad" worth to you? In several studies from overseas that have attempted to quantify (among other things) the feel-good effect, intangible benefits are almost always smaller than the economic impacts and are certainly not large enough on their own or in tandem with tangible benefits to justify subsidies given to sports events, facilities or franchises. </li>
<li>And what about the precedent a favourable fast-tracked decision would set? </li>
</ul>
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I'm just finishing off research into the impacts of hosting major sporting events on travel service exports in New Zealand - and preliminary results are interesting. The larger the event, the greater the likelihood of a statistically significant bump in tourism spending - but not all of them have generated positive changes to tourism spending.</div>
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I'm a boxing fan from a long way back - I remember growing up watching great fights like "Marvelous" Marvin Hagler vs Thomas "Hitman" Hearns, as well as watching heavyweight greats like Spinks, Tyson, Holyfield, Bowe, Lewis and the Klitschko brothers (among others). I'd love nothing more than to see Joseph Parker added to the list of world champion heavyweight boxers. But as for government funding of this title fight - well, let's just say that the economics of hosting the fight just don't seem to be strong enough to score a win on the cards from this judge. </div>
Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com2tag:blogger.com,1999:blog-2346320773370187300.post-13375514295354478802014-03-27T17:18:00.001+13:002014-03-27T17:18:36.225+13:00The economics of the America's Cup - did we lose or win?Six months ago <strike>Team New Zealand lost the America's Cup</strike> Oracle defended the America's Cup in an historic comeback. Since then, we've had a post-mortem of the event, and today we've heard from an independent report into the economic outcomes of the Government's investment into the unsuccessful Team New Zealand challenge off San Francisco. It's being regarded by the Minister for Economic Development as <a href="http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11227644" target="_blank">money well spent</a>. <a href="http://www.med.govt.nz/majorevents/news/americas-cup-evaluation-reports" target="_blank">Click here</a> for the reports themselves from the MED website.<br />
<blockquote class="tr_bq">
<span style="background-color: white; font-family: 'Lucida Sans Unicode', 'Lucida Grande', sans-serif; font-size: 12px; line-height: 18.150001525878906px;">“The economic benefit from our investment in Team New Zealand is considerable. From a $36 million investment, the evaluation shows a total estimated impact of $87 million to the New Zealand economy,” Economic Development Minister Steven Joyce says.</span></blockquote>
<br />
The Government's share of the total Team NZ revenues of approximately $180m was 20 percent (it was capped at $36 million), with 66 percent coming from overseas. The report found that the total outcome of $87 million to the New Zealand economy would not have occurred without the Government's involvement.<br />
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I'm not going to question the final point - it isn't unreasonable to assume that the Government's contribution was pivotal to the challenge - but then, one could also argue that it wouldn't have happened without the overseas or private domestic funding either. That being said, however, there are two aspects of this report that do require challenging.</div>
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First, attributing the entire economic impact of a project to a 20 percent contribution is something I (and many others) have a real problem with. You could just as easily credit the economic impact figure of $87 million to the overseas funding (and you could do so with confidence, as it is 'new money' and thus more likely to be beneficial to the New Zealand economy) more than the Government's investment. Still, it is not an easy issue to resolve. It's not as easy as saying that because the Government contributed 20 percent means it should be 'credited' with 20% of the economic impact. The combination of public and private funding makes attributing the economic impact to one or the other parts problematic. A more accurate statement would be that the entire project (regardless of where the money came from) generated $87 million in impacts. After all, the tax revenues generated by Team New Zealand were between $38 and $40 million. </div>
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The second issue is the absence of opportunity costs of public funding in the report, which would help us to determine to what extent the $87 million impact be considered an economic benefit, and therefore money well spent. If there was no Team New Zealand, would nothing have happened? Of course not - life (and the economy) would have continued to tick away as per usual. $36 million of taxpayers money went into this campaign. Public funding has alternative uses, which should at the very least be considered as part of an objective analysis. If there was no Team New Zealand, what would have happened to the $36 million in taxpayer funding that was invested there? Chances are it would have gone to some other worthy recipient, for example the health sector or the education sector. In order to determine whether the $36 million spent on the America's Cup was money well spent, we need to know what $36 million would do when put to an alternative use. If the $36 million for Team New Zealand returned a higher impact than, say, paying each and every New Zealander $8 as compensation for there being no Team New Zealand, then it might have been money well spent. Determining what the appropriate alternative use for $36 million is the subject of debate - and my example above is very much tongue in cheek - but one thing is for sure: it is certainly not nothing. </div>
<div>
$87 million is the economic impact with no alternative use of public (and other) funds. Is it realistic to attribute this as a benefit? I'll let you be the judge of that.</div>
Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com2tag:blogger.com,1999:blog-2346320773370187300.post-28290388921445317892013-09-25T12:02:00.002+12:002013-09-25T12:02:46.527+12:00To challenge for or defend the America's Cup - which is better economically?They say that a week is a long time in sports. This has never been so true as what has developed out off the coast of San Francisco this week. The Oracle Team USA syndicate have almost pulled off one of the greatest comebacks in sports history in rattling off six consecutive wins to tie the regatta and bringing the battle for the Auld Mug down to a winner-take-all race tomorrow morning (NZT).<br />
<br />
This time last week it seemed that an Emirates Team New Zealand victory was assured and that we'd be hosting a regatta to defend the Cup in Auckland in about three year's time. Now the tack has changed considerably -<a href="http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=11129681" target="_blank"> this from today's New Zealand Herald</a>: it would appear that the chances of a future New Zealand challenge for the Cup (should Oracle win the final race tomorrow) look set to take a massive hit.<br />
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: Calibri, Candara, Segoe, 'Segoe UI', Optima, Arial, sans-serif; font-size: 14px; line-height: 17px;">Team chief executive and fundraising power source, Grant Dalton, has already hinted that he will not do another America's Cup challenge if this one fails, though such decisions are always open to review. If he goes, there are doubts that multi-millionaire benefactor Matteo de Nora will continue either.</span><span style="background-color: white; color: #333333; font-family: Calibri, Candara, Segoe, 'Segoe UI', Optima, Arial, sans-serif; font-size: 14px; line-height: 17px;"></span></blockquote>
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: Calibri, Candara, Segoe, 'Segoe UI', Optima, Arial, sans-serif; font-size: 14px; line-height: 17px;">...</span> </blockquote>
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: Calibri, Candara, Segoe, 'Segoe UI', Optima, Arial, sans-serif; font-size: 14px; line-height: 17px;"></span> <span style="background-color: white; color: #333333; font-family: Calibri, Candara, Segoe, 'Segoe UI', Optima, Arial, sans-serif; font-size: 14px; line-height: 17px;">Lose, and Government money becomes harder to prise out of the public coffers. This year's nail-biting Cup match has been tremendous theatre but it will make the private fundraising job that much harder. One America's Cup lost campaign allows hope to burn. Two lost campaigns raises the issues in sponsors' minds of throwing good money after bad.</span></blockquote>
<blockquote class="tr_bq">
<span style="background-color: white; color: #333333; font-family: Calibri, Candara, Segoe, 'Segoe UI', Optima, Arial, sans-serif; font-size: 14px; line-height: 17px;"></span></blockquote>
Think about this from New Zealand's perspective. We've had the theatre, and the drama, and the world's eyes are now firmly fixed on San Francisco as Oracle seeks to finish what would be nothing short of a miracle, being virtually dead and buried a week ago. Think of the advertising this is giving this country - granted, it would be nicer if we were not on the wrong end of the comeback, but it is publicity all the same, and publicity that likely would not have occurred if we had won the Cup earlier in the regatta. Now the US have something to talk about with this regatta - and it is synonymous with New Zealand. So we get this advertising benefit (which is difficult to quantify but is nonetheless part of the package). How much has this cost the taxpayer? The Government committed about NZ$40m to the TNZ challenge - and are now reaping the rewards of that investment.<br />
<br />
What happens if we win it? Several things, possibly; one of which is that there are fair questions to be asked as to whether hosting an event such as the America's Cup is the goldmine people say it could be (I blogged about this earlier in the week). We also know that the Government has in the past expressed an interest in throwing more cash at a Cup defence - for what might be considered fairly obvious reasons - and <a href="http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11129571" target="_blank">New Zealand taxpayers are not averse to more dollars being committed to a future defence</a>. The question must be asked as to whether the return on the investment in a defence is as great as the return on the investment for a challenge? If there's one thing to be said for a challenge, it is that the Government writes a cheque for a fixed amount - end of story. A defence is more likely to be accompanied by a blank cheque - much like we had for the Rugby World Cup, where the loss was expected right from the start, on top of government spending towards stadiums, infrastructure, security and the like. Right now, we're getting great intangible mileage out of a $40m taxpayer investment - would we get such mileage if we hosted the event? Is that $40m better spent elsewhere? Important questions that need answers.<br />
<br />
Finally, if Oracle does complete its staggering comeback tomorrow, keep a very close eye on the Auckland and New Zealand economies in three years time, to see whether the loss of the Cup has a detrimental impact. I'd be prepared to bet that there won't be a slump or the like if the Cup is hosted elsewhere. After all, you can't miss what you never had. Life goes on. And so does the economy.Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com1tag:blogger.com,1999:blog-2346320773370187300.post-62527360869469275152013-09-22T22:05:00.000+12:002013-09-22T22:05:14.437+12:00Hosting major sporting events such as the America’s Cup – can we believe the hype?<div class="MsoNormal">
As a general rule, in the words of Public Enemy: don't believe the hype. Hosting a major sports event is a complex
situation from an economic perspective – and there’s a lot of unknown that can
quickly turn conservative estimates of impact into grossly overstated figures. Here are a few thoughts as they come to mind.<o:p></o:p></div>
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Firstly, we have to recognise that the figures publicised
whenever a major event such as the America’s Cup is announced are gross
economic impacts, which are not the same thing as economic benefits. The
initial economic impact figure posted for the 2013 San Francisco regatta and pre-event regattas was US$1.4b
(for San Francisco – <a href="http://www.sfport.com/Modules/ShowDocument.aspx?documentid=864">click here
for the report</a>) and was based on an estimated 15 syndicates competing for the Cup. In March
of this year the figures were revised downwards to US$900m – but it is not
known how many teams this figure was based on. These figures are impacts
associated with the event <u>in the absence of any alternative activity that
might have occurred in the absence of the event</u>. In isolation, they are difficult
to prove or disprove. In order to determine whether the event is beneficial for a
local economy, one has to compare the impact of hosting the event with the
likely impact on the local economy if the event was not hosted. It does not
necessarily translate that the local economy will be worse off if an event is
not hosted – several studies in the scholarly literature have shown that events
such as lockouts, and strikes in professional sports in the US have had no
impact on host economies – that is, people find other things to spend their
entertainment dollars on instead of professional sports. If US$1.4b or more (in regular tourism, for
example) would have occurred in San Francisco in the absence of the America’s
Cup, then the decision to host the event would be debatable if the goal is to
maximise economic benefits.</div>
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<o:p></o:p></div>
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Another thing to remember is that these figures are produced
by consultant reports that commonly overestimate the positive aspects (like
numbers of visitors attending, the extent of their spending, etc), understate
or completely omit the costs associated with the event (or, worse, include
costs as part of the economic impact), and as such produce numbers that are
optimistic at best and gross exaggerations at worst. <o:p></o:p></div>
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The calculation of economic impacts quoted in the media are
almost always taken from an economic impact study, which is an input-output
analysis that basically calculates the impact of an injection of spending in a
local/regional/national economy as it filters through the event-related sectors
of the economy. The logic of such impacts, at first glance, appear sensible,
but when one examines exactly how the hosting of a major sporting event can
impact upon tourism, you quickly realise that it isn’t as straightforward as it
might seem. <o:p></o:p></div>
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There are many things that can affect the extent to which an
event attracts visitors and their spending. There are positive and negative
impacts here. Firstly, the positives. Events attract people who come
specifically for the event, and they can also induce tourists to stay longer to
take in the event. They can also induce locals to change their holiday plans to
attend the event and spend money locally that would otherwise have been spent
outside the local area. We can’t ignore the negatives, though. Events can cause
visitors to put off trips to the local area – either temporarily (where the
trip is displaced to another time) or permanently (known as crowding out) – due
to perceptions of event-related congestion, noise, price increases, etc. These
same perceptions can also induce locals to flee the area while the event is on,
which adds to a possible negative impact. Questions have to be asked of the
figures quoted – do they factor in all of these possibilities, and are they
reasonable grounds upon which to base estimates of visitor spending?<o:p></o:p></div>
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Estimating visitor spending, too, is an inexact science. A
vivid illustration of this was the experience of the 2011 Rugby World Cup. The
RWC got considerably more visitors than expected (over 133,000 according to
Statistics New Zealand), yet visitor spending was less than half ($340m) of
what the Reserve Bank projected ($700m – a figure that was estimated on fewer
visitors). This example shows that there’s a lot of unknown – but what is
generally known is that projections of impacts very rarely (if ever) turn out
as expected.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
A report written by the Budget and Legislative Analyst for
the City and County of San Francisco Board of Supervisors in November 2010 – <a href="http://www.sfbos.org/Modules/ShowDocument.aspx?documentid=37216">click here
for the document</a> - determined that the hosting of the current America’s Cup regatta would result in a net cost to the city and county of US$42.1m. In other words, the
revenues accruing to the city were in all likelihood more than offset by the
costs to the city. This report was based on the initial $1.4b economic impact figures,
and was based on the early assumptions of large numbers of syndicates competing to challenge
for the Cup. Modifying this to what we have seen unfold recently, fewer syndicates meant lower event-related costs, but also meant
lower revenues, so it would be fair to assume that there’d still be a
substantial shortfall in the local government coffers as a result of the event.
One issue that has been prevalent in San Francisco is the issue of private
funding of the event. The bottom line is that the city is on the hook for any
shortfall of private funding, which if eventuated would increase the cost to
the city of San Francisco (i.e. the taxpayers). <o:p></o:p></div>
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And another thing: what can past experience teach us of the legacy of the New Zealand hosting of the America's Cup regattas in 1999/2000 and 2002/2003? The legacy effect of events is the new buzzword in event evaluation, and is largely unknown as it occurs at some stage in the future, which is of course yet to unfold. I will have to go back to the original economic impact analyses done for the two regattas hosted in Auckland to examine the extent to which legacy played a role in these figures, but one thing in particular strikes me as ironic about the legacy of the 1999-2003 New Zealand America's Cup regattas - and it is the investment in the infrastructure associated with the event. The Viaduct Basin underwent a major transformation to host the two regattas, and Auckland now faces the prospect of developing a new location for the event, with the Viaduct reportedly out of commission for hosting syndicates in a future regatta. Some might say that the development of a new base for the event is a benefit - one which comes at a cost (likely to be borne by Auckland ratepayers) - but in actual fact is already part of a pre-existing development plan of the Auckland waterfront - one which will gain significant traction should New Zealand win the America's Cup off San Francisco in the coming days. As such, the development of a new base is a classic case of a future investment brought forward. As such, calling it a benefit associated with hosting the America's Cup is a little misleading. Then again, is it not unfair to label one legacy of the America's Cup regattas in Auckland as a cost, not a benefit, in the form of further taxpayer funding? After all, the past two unsuccessful America's Cup campaigns have received central government funding. A future defense, should things go to plan, has already reportedly drawn support from the Prime Minister towards some contribution from the public purse. This is all part of a legacy, is it not?</div>
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So what about the winners and losers from hosting events? The nature of the event plays a big part as to
who stands to benefit from its hosting. You only had to read the reports in the
news media of the impacts of the 2011 Rugby World Cup on the tourism sector in
the different regions of the country. Some said it was great, others said it
was terrible. For the America’s Cup, it will be largely localised in Auckland, as it has been in the past.
Industries directly and indirectly associated with the event (boat building, super-yachts,
etc) did well the last time it was hosted in Auckland. As far as
tourism-related industries are concerned, anecdotal feedback from cafes and
restaurants around the 2000 America’s Cup regatta and the 2011 RWC found that
if businesses located in the ‘right’ areas (i.e. Viaduct Harbour for the
America’s Cup, fan zones for the RWC) then there were definitely positive
impacts, whereas those located outside these areas found that they were flat or
even lost business. Evidence suggests that the gains that to be had from
hosting an event almost certainly come at the expense of others. The question
is whether or not the gains outweigh the losses – and is a part of the big question: whether benefits of
hosting events outweigh the costs. <o:p></o:p></div>
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Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com4tag:blogger.com,1999:blog-2346320773370187300.post-13879880159289803942013-05-14T15:28:00.002+12:002013-05-14T15:28:19.338+12:00Events capital = big returns, right?<br />The New Zealand Herald today is reporting that Auckland is <a href="http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10883472">a more successful city</a> than Sydney at attracting and hosting major events. Auckland Mayor Len Brown says:<br /><blockquote class="tr_bq">
"Major sporting events are big business and bring substantial economic benefits to the host region, so there is fierce competition globally to secure events."</blockquote>
There certainly is fierce competition all right - but not a whole lot in the way of compelling evidence that the economic impacts of events are as substantive as commonly thought. Nevertheless:<div>
<blockquote class="tr_bq">
Auckland's annual budget for securing top sporting events has risen from $6 million five years ago to between $8 million and $12 million now, said Rachael Carroll, of Auckland Tourism, Events and Economic Development (Ateed).</blockquote>
and<br /><blockquote class="tr_bq">
Ateed's figures show that events in 2011/12 produced a net return of $28.9 million to the Auckland economy. The current funding year's events are on track to return $30 million.</blockquote>
<div>
<div>
I wonder what the term net return means? Is it returns to ratepayers? Is it returns to the Auckland Council? Or is it good old economic impact? I suspect the latter. There are all sorts of problems inherent within the calculation of economic impact when applied to a sporting event. In academic circles there is very little argument in favour of sports events generating substantial economic impacts. I've researched in this area in the New Zealand context (<a href="http://economics-finance.massey.ac.nz/publications/discuss/dp1202.pdf">see here</a> - note that this paper is presently under review for possible journal publication) and found that the major events are underwhelming in terms of what their realised impacts were on host cities. I'd really like to see an estimation of actual benefits (that are not economic impacts). What are the public good benefits? What are the consumption benefits? Who do they accrue to? What evidence is there to suggest that this is the best use of $12m of scarce Auckland City funds? If it is there, I'd love to see it. </div>
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Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com4tag:blogger.com,1999:blog-2346320773370187300.post-35362776779031689852013-05-09T11:51:00.004+12:002013-05-09T11:52:23.428+12:00Christchurch 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.<br />
<br />
It is the issue of the Christchurch Stadium that I turn to today, and a couple of recent articles on Stuff (<a href="http://www.stuff.co.nz/the-press/news/8621669/Stadium-concept-would-be-money-maker">"Stadium concept 'would be money maker'"</a> and <a href="http://www.stuff.co.nz/the-press/opinion/perspective/8645115/New-stadium-plan-smart-bold">"New stadium plan 'smart, bold'"</a>) that have made some rather interesting claims.<br />
<br />
Christchurch lawyer Geoff Saunders:<br />
<br />
<blockquote class="tr_bq">
"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.<br />
"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." </blockquote>
<blockquote class="tr_bq">
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.</blockquote>
<blockquote class="tr_bq">
"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. </blockquote>
<blockquote class="tr_bq">
Saunders said the development would also attract office clients back to the city centre who had left for suburban offices after the earthquakes. </blockquote>
<blockquote class="tr_bq">
He said the plan was just a concept and he had not investigated how it might be developed and funded. </blockquote>
<blockquote class="tr_bq">
Craig said it was important to make any new stadium a lively place with offices, hotels, retail and clubs. </blockquote>
<blockquote class="tr_bq">
"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.</blockquote>
<br />
<br />
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.<br />
<br />
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.*<br />
<br />
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.<br />
<br />
* 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.Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com5tag:blogger.com,1999:blog-2346320773370187300.post-73730500356959217772013-01-08T14:20:00.001+13:002013-01-08T14:20:25.927+13:00Absence makes the heart grow just as fond as it was before - the puck drops...In major news for those familiar with what many consider to be the fourth North American major league sport (and Canada's premier sport), the NHL (the league) and the NHLPA (the players association) have agreed upon the framework of a new collective bargaining agreement which will end the third labour stoppage of the NHL in less than twenty years. See <a href="http://sports.yahoo.com/news/nhl--how-badly-will-the-lockout-really-hurt-the-nhl--maybe-not-much-205509633.html">this link</a> for an excellent story which features comments by two prominent sports economists, Rod Fort and Victor Matheson. The issue at hand: what effect will the labour stoppage have on the NHL in future? Will the fans not come back?<br />
From Rod Fort:<br />
<blockquote class="tr_bq">
"They will come back," said Rodney Fort, a sports economist at the
University of Michigan. "And in fact, we may not even notice any
difference."</blockquote>
Rod summarises much of the research in this area concisely in this one sentence. There may be short term impacts (playing a truncated 48 game season is bound to 'hurt' when compared with what is usually an 82 game season) but the evidence shows that attendances bounce back very shortly afterwards. I especially like Victor's quote:<br />
<blockquote class="tr_bq">
"Sports really depend on getting people hooked on the drug, and the NHL
has now given hockey fans three opportunities to go through detox," said
Victor Matheson, a professor of economics at the College of the Holy
Cross. "There's a real question about how much you can do that before
you have fans say, 'You know, I have a lot of things I can do with
$1,500 besides buy a season-ticket package.' "</blockquote>
But they keep coming back. I guess that's why sports has such longevity and is regarded by some as '<a href="http://www.time.com/time/arts/article/0,8599,1853431,00.html">recession-proof'</a> - perhaps absence really does make the heart grow fonder (or maybe that fans have long memories). I wonder if the relationship between labour stoppages and attendance differs between cities with perennial contenders (Detroit and Chicago, for example) when compared to less successful franchises? It would sure be interesting to analyse. Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-50406035898648156512013-01-08T14:00:00.005+13:002013-01-08T14:00:48.994+13:00Stadium renovations and cost overruns - further recent evidenceJust a short post here - over the festive season I spotted a couple of stories via Deadspin that readers of this blog might find interesting:<br />
<br />
<a href="http://deadspin.com/5971468/?utm_campaign=socialflow_deadspin_twitter&utm_source=deadspin_twitter&utm_medium=socialflow">Renovations of Buffalo's Orchard Park are 84% funded by the public sector</a>, and <a href="http://deadspin.com/5973422/?utm_campaign=socialflow_deadspin_twitter&utm_source=deadspin_twitter&utm_medium=socialflow">Vancouver's BC Place stadium roof replacement ended up costing considerably more than first promised</a>.<br />
<br />
Furtther evidence to show that you can't always believe what you hear (or read) from stadium proponents. Oh, and it is worth keeping in mind that they should be able to pay for them without public funds. That's what economists Marc Poitras and Larry Hadley found in this 2006 research (<a href="http://www.jstor.org/stable/10.1086/505235">gated JSTOR link</a>, <a href="http://ideas.repec.org/a/ucp/jnlbus/v79y2006i5p2275-2300.html">RePEc working paper link</a>). Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-60566680261591292742012-11-13T13:21:00.002+13:002012-11-13T15:43:47.844+13:00Privatising the Super Rugby franchises (well, partially)Yesterday <a href="http://www.nzherald.co.nz/rugby/news/article.cfm?c_id=80&objectid=10846794">it was announced</a> that there were two successful applicants for licences to operate the Hurricanes and Crusaders Super franchises next season. The Hurricanes franchise is <a href="http://www.stuff.co.nz/sport/rugby/super-rugby/7938496/Hurricanes-sale-keeps-the-franchise-in-the-capital">to be run by a consortium</a> including the Wellington Rugby Union, former Hurricanes directors and Welnix, the owners of the A-League franchise the Wellington Phoenix. The Crusaders deal is a little less clear, but is understood to involve <a href="http://www.stuff.co.nz/sport/rugby/super-rugby/7940000/West-Coast-coal-magnate-to-finance-Crusaders">a major figure from the West Coast mining industry</a>. The licence for the Blues was understood to be <a href="http://www.stuff.co.nz/sport/rugby/super-rugby/7940120/Chiefs-not-ready-to-take-private-bids-NZRU">on track for 2014</a>, and the Chiefs had to <a href="http://www.stuff.co.nz/sport/rugby/super-rugby/7940120/Chiefs-not-ready-to-take-private-bids-NZRU">resolve governance issues</a> before an arrangement could be made to the satisfaction of the New Zealand Rugby Union.<br />
<br />
Gareth Morgan of Welnix spoke to Larry Williams about the Hurricanes deal on Newstalk ZB last night - <a href="http://www.newstalkzb.co.nz/auckland/player/ondemand/1289923650-morgan-part-of-hurricanes-franchise-bid">listen here</a> (it's a good interview). <br />
<br />
I'm left with more than a few questions surrounding this announcement, and I think an appropriate way to consider the impact of this new ownership structure is to consider the major 'players' impacted by the negotiations - the NZRU, the licencees, the provinces, the players and the fans.<br />
<br />
From the New Zealand Herald (linked at the top):<br />
<blockquote class="tr_bq">
"These new arrangements are a step forward in terms of putting Super
Rugby on a stronger financial footing to ensure the game at the
professional level is better placed to prosper and deliver for its
fans,'' said NZRU chief executive Steve Tew.</blockquote>
Firstly, there is no question that the NZRU is a clear winner in this process. They get (desperately needed) injections of private funds into the Super franchises which are expensive to run, and have been a drain on the union's coffers. To understand just how they win, though, it is useful to know what the licence for operating a team entails. Also from the NZH article above:<br />
<blockquote class="tr_bq">
The NZRU will retain full ownership of the franchises, the contracting process and coaching appointments.<br />
Investors will get to select, market and manage their team as well as
lobby for players outside New Zealand if that works in tandem with the
sport's governing body.</blockquote>
The NZRU one of the partners in SANZAR rugby, the group that runs the Super Rugby tournament (the others being the South African and Australian Rugby Unions). As such, they are the recipient of the broadcast revenues that accrue to each nation. The licencees don't see any of this revenues - these revenues are used to pay the players. The NZRU therefore has the power to allocate the players to each franchise. Investors can do what they like once they get their player list, but a large portion of ownership responsibility is in fact taken away from them. It is a very different ownership structure from, say, US-based, Australian or European sports leagues. At least in the A-League, the Wellington Phoenix can employ whoever they want and sign any player they want. The NZRU retain control of which players can play in Super Rugby, what teams they play for and who coaches them. It is a very favourable set-up to the governing body, no question. It is understandable if the NZRU wishes to avoid any club/country conflict that affects many of our Pacific Island neighbours with overseas-based players contractually bound to overseas clubs that often conflict with commitments to the national team. Crisis averted. The other thing that the licencee model does for the NZRU is to wash their hands of the micro-level management that is often difficult when trying to run the game from a central level. The day-to-day running of a franchise is best done on the ground, and the rationale is that private investors will do the job of running the franchise more efficiently than the NZRU or a provincial-based board could. After all, there might even be some money in it for licencees if they do a good enough job!<br />
<br />
Think next of the licencees - show me the money? Where is it coming from? And where are the wider incentives to invest in the franchises? As mentioned above, licencees will select, market and manage their team. That is, they'll do the best that they can with who they are given by the NZRU (who pay the players, after all). They are in the best position to eliminate inefficiencies in the day-to-day running of the franchise - they'll have a clear incentive to run a pretty tight ship. The Hurricanes are considered to be the most financially viable franchise in New Zealand, and it isn't hard to see why - above-average crowds at the Westpac Stadium go a long way towards making ends meet. They are also a well-run franchise - there's a small matter of a lack of hardware, though. If you are an investor in the Hurricanes, the licence allows you to market the team, keep gate revenues (while presumably paying stadium rentals too) and generate deals for sponsorship (including a sponsors logo on the front of the jersey). Gareth Morgan in the interview above talks about player academies as another source of opportunity for licencees. It's an interesting prospect - what incentives do the licencees have to develop talent (e.g. put together and run a development squad) that they have to pay for but run the very real risk of losing those players if the NZRU decides to add them to the contracted players pool? There would have to be some arrangement in place for teams to be able to have first rights to developed talent should they make the grade. Otherwise, player development is a very risky prospect. The other thing Gareth mentions in his interview, and it is also mentioned <a href="http://www.stuff.co.nz/sport/rugby/super-rugby/7938496/Hurricanes-sale-keeps-the-franchise-in-the-capital">here</a>, is altruism - that the licence is being purchased to keep the franchise in the city/region. That's admirable, and if I had loads of money to throw around, I'd be rather keen on altruistic projects too. There's another factor at play here, though, in the case of the Hurricanes, and that is the now close relationship with the Phoenix. Given that the Welnix group now have ownership stakes in both franchises, it gives them greater bargaining power with the Westpac Stadium, and also the city and regional council. (Gareth doesn't want to stop with these two franchises, though - <a href="http://www.stuff.co.nz/sport/rugby/super-rugby/7940282/Buy-now-Gareth-Morgans-sports-vision">he wants more</a>!) This is, in several respects, a clever decision by the Hurricanes licence holders. This has to be tempered, however, with the reality that the market in New Zealand cities are small ones, and becoming increasingly competitive markets at that. The more control of sporting alternatives that you have locally, the more you stand to gain under the NZRU licence arrangement. The big question for me is how long licence holders will be happy to simply receive players rather than selecting their own. I see it like this: you invest in a business but you have to use a consultant as a condition of the investment. How happy are you when you find out that the consultant is in fact in the same position with all of your competitors? Seems a bit odd, doesn't it? That's why sports leagues were famously described as '<a href="http://www.jstor.org/stable/1880543">peculiar</a>' by a founding sports economist in 1964.<br />
<br />
This brings me to the provinces. Yes, provinces are struggling - we've seen this on several occasions in recent times. If your Super franchise is a money drain, you'd be jumping at the news that some other poor unfortunate soul will take them off your hands for you. If your Super franchise gives you valuable dividends that often mean the difference between finishing the financial year in the black or red, then you'd be thinking twice as to whether this new ownership deal is a good thing or not. The dividends arent likely to have been large in recent years, but they'd still be welcomed in Hurricanes country by the smaller unions that make up their catchment area.<br />
<br />
And what about the players? What does the new ownership structure mean for them? Well, in my view, they are the biggest losers (in terms of the alternative). Nothing changes - they are presently contracted by the NZRU, and they will still be contracted by the NZRU under licence arrangements. If the licencees were able to pay for players, well, the ballpark would be markedly different - imagine free agency. Imagine a less-free structure by which players could be paid a central contract by the NZRU but franchises who really want/need them would pay extra to get them. Free agency has its critics, but it has <a href="http://www.streetdirectory.com/travel_guide/192935/corporate_matters/the_rise_of_free_agency_and_sports_management.html">fundamentally changed the landscape</a> of sports that have adopted it. Licencees would have a greater incentive under free agency or something similar to identify and develop talent - not only within these shores but also overseas. Giving licencees the power to pay players would quite likely make players winners in this deal. As it is, that's one of the least likely things to happen.<br />
<br />
Last, but by no means the least, are the fans - what does this mean for them? Well, I've alluded to a couple of things that would make fans a little nervous (greater franchise power in the Wellington area, for a start, along with more centralised key decision-making influenced by broadcast deals), but on the surface it would appear that there has been (and will be) very little change. In many respects it will be business as usual.<br />
<br />
For this economist, I am left wondering where this step might lead to. It is a first step to many possibilities. Exciting ones, too, if done right. There just has to be a little more loosening of the reins.<br />
<br />
UPDATE: I was curious, so I did a brief analysis of the franchises in the four US major league sports in 2011 by examining revenues and expenses to see how many would 'survive' under a system like what is proposed for the Super franchises. It is only crude, but it is rather insightful. I used Rod Fort's <a href="https://umich.box.com/s/41707f0b2619c0107b8b/1/320019395">Sports Business Data site </a>(an unparalleled resource) and did a quick calculation of the difference between gate revenues and expenses less player costs. I didn't have the exact breakdown of revenues beyond gate and total revenues, so I just used gate revenues. The NHL had 15 of its 30 teams that broke even or better using this model. They aren't even playing this year. Major League Baseball would have 10 of its 30 teams breaking even or better. Only four of the 30 NBA franchises would break even or better, and none (yes, zero) of the NFL franchises would meet their costs. If anything, this highlights that sport is a risky business to succeed in, with a pretty low probability (29/122 = 23.8% in 2011) of 'success'.Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com4tag:blogger.com,1999:blog-2346320773370187300.post-29276595271550295482012-11-02T13:50:00.002+13:002012-11-02T13:51:23.368+13:00Sportspeople behaving badly...A New Zealand insurer is to offer corporate sponsors insurance to protect sponsorship of sports in the event of behaviour that is harmful to the sponsor's brand, according to <a href="http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10844490">this article</a> from today's New Zealand Herald. From the article:<br />
<blockquote class="tr_bq">
Following a host of celebrity implosions, corporate sponsors are being offered insurance against their investments going bad with disgrace, non-appearance and lack of performance.</blockquote>
<blockquote class="tr_bq">
As the sponsors of shamed cyclist Lance Armstrong abandon him in droves, insurance brokerage Apex General is offering local sporting organisations and film-makers protection for the value of their sponsorship.</blockquote>
<blockquote class="tr_bq">
It is providing cover for a range of sponsorship costs including non-appearance, death, disability and disgrace and performance bonuses.</blockquote>
<blockquote class="tr_bq">
Apex general managing director James McGhie said this was new to New Zealand for sponsors looking to protect their investments.</blockquote>
<blockquote class="tr_bq">
The company's sports cover also gives protection against things such as non-appearance causing financial loss and a dive in reputation that sees their investment's value fall.</blockquote>
Okay, so bad behaviour cannot be condoned from recipients of sponsorship, but the relationship is, to me, a fairly simple one - a sponsor sponsors an athlete because they perceive the sponsorship to be worth at least what it forks out by way of the sponsorship. If the athlete stuffs up, causing the sponsor to re-evaluate the worth of the deal to them, then the sponsorship ends if the sponsor perceives the deal to no longer meet its benefit-cost criteria. The waters do murky somewhat when you have long-term deals, but the relationship is fundamentally the same. The deals are full of risk for sponsors, but the incentives at play work pretty well. Choose wisely and they work for you - make a bad choice and you suffer the consequences, as is the case with any business deal gone bad. The saga of sponsors pulling out from Lance Armstrong in the wake of recent developments is a case in point.<br />
<br />
Introduce some form of insurance into this relationship and you are fundamentally changing the game. Anyone that has studied introductory economics will be aware of the issues surrounding insurance markets, in particular asymmetric information, adverse selection and moral hazard. The moral hazard issues in this arrangement strike me as being problematic - if you are a sports team and your sponsor takes out insurance against your potential future behaviour being less than desirable, how does that alter your incentives when compared to a deal without insurance? Without insurance, it is in the best interests of the sports team to behave in a way that does not harm the sponsorship arrangement for fear that they may end up losing it. With insurance, the incentives change - teams no longer have the same incentive to preserve their end of the deal, thus the likelihood of misbehaviour increases. And what for the sponsors? Do they enter into deals with safe, trustworthy, dependable and successful teams or athletes, or do their incentives change as well? Instead of lower risk sponsorships, there is likely to be a move towards more risky deals. <br />
<br />
Talk about opening a can of worms...Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-62583170638223541992012-10-24T15:31:00.000+13:002012-11-02T13:06:38.079+13:00The London Olympics came in under budget. Yeah right.This just out from the NZ Herald - <a href="http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=10842499">the London Olympics came in under budget</a>:<br />
<blockquote class="tr_bq">
The British government says the London Olympics cost about $NZ786 million (400 million pounds) less than expected.<br />
The final financial report for the games projects that the cost will be $17.6 billion from an original budget of $18.33 billion.<br />
Olympics minister Hugh Robertson says, "it is a significant achievement to deliver this large and complex program on time and under budget."</blockquote>
It sure is a significant achievement. Especially when you are aware of this information, taken from Brad Humphrey's piece in on <a href="http://www.dictionaryofeconomics.com/sample_article">the economic impact of the Olympic Games</a> 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): <br />
<blockquote class="tr_bq">
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.) </blockquote>
So, was it 400m pounds under budget or did it completely blow all projections? You decide.<br />
<br />Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-86294778280439851322012-10-24T14:55:00.001+13:002012-11-02T13:07:13.711+13:00RWC 2011: a small tourism winThis just out from <a href="http://www.stuff.co.nz/business/industries/7857188/Small-tourism-win-from-Rugby-World-Cup">stuff.co.nz</a> - the tourism sector had a small win from the Rugby World Cup:<br />
<blockquote class="tr_bq">
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. <br />
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. </blockquote>
Before you spot the problem here, it is also noted that:<br />
<blockquote class="tr_bq">
"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. <br />
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. </blockquote>
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 <a href="http://www.rbnz.govt.nz/news/2011/4493553.html">gain in spending from the RWC at around $700 million</a> 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 <a href="http://www.med.govt.nz/sectors-industries/tourism/news/rugby-world-cup-visitors-spent-390-million">actual international visitor spend from the RWC was in the order of $390 million</a>.<br />
<br />
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. <br />
<br />
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, <a href="http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10762421">public opinion was in favour after the All Blacks triumphed</a>. <br />
<br />
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). <br />
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<br />Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-86186763614728487522012-10-04T10:53:00.003+13:002012-10-04T16:14:46.088+13:00Why I love sport<br />
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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 <a href="http://www.rabbitohs.com.au/" target="_blank">South Sydney Rabbitohs</a>. 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?</div>
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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 <a href="http://www.imdb.com/title/tt1210166/" target="_blank">movie</a> and <a href="http://www.amazon.com/Moneyball-Art-Winning-Unfair-Game/dp/0393324818" target="_blank">book</a> 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 (<a href="http://www.aeaweb.org/articles.php?doi=10.1257/jep.20.3.173" target="_blank">linked here - ungated access</a>). 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!</div>
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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. <br />
<br />
POSTSCRIPT: The <a href="http://sports.yahoo.com/news/athletics-sweep-rangers-win-al-225645725--mlb.html" target="_blank">A's defeated Texas</a> 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? </div>
Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-21521069381658672252012-10-01T12:05:00.003+13:002012-11-02T13:08:11.073+13:00How to get ahead in the NRL - have government work for youYesterday 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, <a href="http://www.smh.com.au/rugby-league/league-news/clinical-storm-blow-brave-bulldogs-away-20120930-26tu5.html" target="_blank">read this</a> 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.<br />
<br />
I came across <a href="http://www.smh.com.au/rugby-league/league-news/dessies-midnight-visit-pays-dividends-20120929-26s72.html" target="_blank">this article</a> by regular Sydney Morning Herald columnist Roy Masters yesterday which gives an insight into how success can be obtained in the NRL.<br />
<br />
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:<br />
<blockquote class="tr_bq">
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.</blockquote>
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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.</div>
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This quote in the article, from Bulldogs CEO Todd Greenberg is also rather insightful:</div>
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<blockquote class="tr_bq">
''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.'</blockquote>
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Including getting your fair share of government assistance.</div>
</div>
Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-29971582484796634082012-09-24T15:08:00.000+12:002012-11-02T13:08:59.993+13:00Auckland stadium review<a href="http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10836021" target="_blank">This column by Herald columnist Brian Rudman</a> stirred me into action this afternoon with the upcoming decision on what to do with Auckland's stadium situation.<br />
<br />
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 (<a href="http://www.aucklandcouncil.govt.nz/SiteCollectionDocuments/aboutcouncil/cco/regionalfacilitiesaucklandltd/stadiumsaucklandissuespaper20120613.pdf" target="_blank">linked here</a>) 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).<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.<br />
<br />Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com10tag:blogger.com,1999:blog-2346320773370187300.post-73935418914121362702012-09-18T15:03:00.000+12:002012-09-24T11:35:55.827+12:00Baseball in Auckland... Ball One or Strike One?I was particularly interested to read <a href="http://www.stuff.co.nz/sport/other-sports/7695578/Pro-baseball-for-Auckland-being-investigated" target="_blank">this article</a> 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).<br />
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:<br />
<blockquote class="tr_bq">
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.
<br />
''We strongly support the initiative.'' </blockquote>
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 <a href="http://www.rodney.govt.nz/YourCouncil/meetings/Documents/Archived/Agenda_Minutes_2008/November%202008/Strategy%20and%20Comm%202711/Item%206%20Appendix%201%20ARPASS%20Draft%20%20Regional%20Facilities%20Network%20Plan%20Discussion%20Paper.pdf" target="_blank">draft regional facilities review discussion paper linked here</a>)* 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.<br />
<blockquote class="tr_bq">
"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. </blockquote>
<blockquote class="tr_bq">
''Every other sport has at least one facility that they can access whenever necessary, and baseball should be no different.
</blockquote>
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.<br />
<blockquote class="tr_bq">
''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.'' </blockquote>
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 <a href="http://investorplace.com/2012/08/espn-strikes-5-6b-deal-with-mlb-through-2021/" target="_blank">this</a> have anything to do with baseball's profitability in the US? What about the implications of its <a href="http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1430&context=sportslaw" target="_blank">monopoly status</a>? Let's be clear, also, that professional sport <a href="http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/27098.pdf" target="_blank">doesn't always bring in the big bucks</a> and isnt alwatys good for a local economy. Just to be absolutely clear.<br />
<br />
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 <a href="http://www.stuff.co.nz/sport/other-sports/7694983/NHL-owners-gamble-lockout-will-bring-riches" target="_blank">the present lockout of the NHL</a> in North America - its second in seven years. Baseball has had lockouts and strikes in the past, and at least one economist found that <a href="http://www.sfgate.com/business/article/Baseball-strike-had-little-impact-3143713.php" target="_blank">it wasn't the end of the world</a>.<br />
<br />
*UPDATE (24 Sept): The paper I intended to link was the Regional Facilities Auckland (RFA) discussion document - please find it <a href="http://www.aucklandcouncil.govt.nz/SiteCollectionDocuments/aboutcouncil/cco/regionalfacilitiesaucklandltd/stadiumsaucklandissuespaper20120613.pdf" target="_blank">linked here</a>.)Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com2tag:blogger.com,1999:blog-2346320773370187300.post-11635923854931239832012-09-04T12:12:00.001+12:002012-09-04T13:03:46.763+12:00Addressing Gerry Brownlee's pointsI appeared on <a href="http://tvnz.co.nz/close-up/no-economic-argument-new-stadium-video-5060177" target="_blank">Close Up last night</a> 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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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. <br />
<br />
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. Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com2tag:blogger.com,1999:blog-2346320773370187300.post-6796448376030075802012-09-04T10:28:00.000+12:002012-09-04T13:03:32.794+12:00Stadiums and the broken window fallacyOne of my colleagues here in the School of Economics and Finance has forwarded me <a href="http://en.wikipedia.org/wiki/Parable_of_the_broken_window" target="_blank">this link</a>, 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.<br />
<br />
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.<br />
<br />
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.<br />
<br />
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.Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0tag:blogger.com,1999:blog-2346320773370187300.post-36934285028282219682012-08-23T12:20:00.002+12:002012-09-04T13:03:57.381+12:00Don't believe the hypeIn 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:<br />
<br />
Tangible economic impacts from sports facilities often fail to materialise for a variety of reasons. These include:<br />
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<span style="mso-fareast-font-family: "Times New Roman";">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. </span></div>
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<span style="mso-fareast-font-family: "Times New Roman";">1a.
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within the local economy, for example, movie theatres, video rental stores, and
other entertainment venues. A game merely redistributes spending rather than
generates it. </span></div>
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<span style="mso-fareast-font-family: "Times New Roman";">2. Spending within a city often leaks outside the local area, as
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so a proportion of the spending has to go out of the local economy to pay for
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<span style="mso-fareast-font-family: "Times New Roman";">3. Government spending on stadiums, contrary to
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that must be considered. Money spent on a stadium could have been spent
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<span style="mso-fareast-font-family: "Times New Roman";">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
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<span style="mso-fareast-font-family: "Times New Roman";">5.
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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. </span></div>
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<span style="mso-fareast-font-family: "Times New Roman";">6. A replacement facility can not realistically be expected to do a lot more
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attendance returns to pre facility levels. </span></div>
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<![endif]--><span style="mso-fareast-font-family: "Times New Roman";"> What about the intangible benefits? Surely they matter?</span></div>
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<span style="mso-fareast-font-family: "Times New Roman";">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. </span><span style="mso-fareast-font-family: "Times New Roman";">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. </span><span style="mso-fareast-font-family: "Times New Roman";">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!</span></div>
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<span style="mso-fareast-font-family: "Times New Roman";">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 (<a href="http://opus.bath.ac.uk/9710/" target="_blank">see gated link here</a>). In light of the most recent estimates of costs (US$14b). They might exist, but they aren't likely to be deal breakers.</span></div>
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Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com3tag:blogger.com,1999:blog-2346320773370187300.post-67029859048969305902012-08-20T11:19:00.001+12:002012-09-04T13:04:07.637+12:00The departure of a key tenant: Implications for Christchurch's proposed stadiumIn 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.<br />
<br />
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).<br />
<br />
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.<br />
<br />
<a href="http://seattletimes.nwsource.com/html/nba/2008011134_sonicstrial22m.html" target="_blank">In a nutshell</a>, 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 <a href="http://blog.seattlepi.com/sonicstrial/2008/06/19/sonics-begin-case-with-economist-brad-humphreys/" target="_blank">the Sonics basically had no impact on the city</a>, 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 <a href="http://www.aspenadvocacybooks.com/pdfs/Expert.SonicsCase.pdf" target="_blank">full testimony here</a>). Both were questioned extensively by lawyers, with each sides claiming victory under cross-examination.<br />
<br />
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. <br />
<br />
We don't often hear of the intangible benefits that are associated with franchises and facilities, though. Paul Walker <a href="http://antidismal.blogspot.co.nz/2012/08/stadiums-in-context-of-natural-disasters.html" target="_blank">speculates in Anti-Dismal</a> on the role that intangible benefits plays when compared to a stadium cost of somewhere in the order of $500 million:<br />
<blockquote class="tr_bq">
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?</blockquote>
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 <a href="http://fairplayandforwardpasses.blogspot.co.nz/2012/05/f-b-stadium-more-of-same.html" target="_blank">they've found the going tough</a>. 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?Sam Richardsonhttp://www.blogger.com/profile/05349817484911554144noreply@blogger.com0