Chapter 14

14

MacroeconomicsMacroeconomicsof International Sport of International Sport

Holger Preuss, PhD; and Kevin Heisey, PhD

C H A P T E R

Chapter Objectives

• Explain the general importance of sport in the economy

• Identify the fundamental ways that sport influences the macroeconomy

• Distinguish between tangible and intangible benefits

(continued)

Chapter Objectives (continued)

• Determine the primary economic impact of sport on an economy

• Explain the induced impact, or multiplier, effect

• Discuss short-term, long-term, and legacy effects of international sport events

Chapter Outline

• Role of sport in a national economy

• Macroeconomic effects of sport

• Tangible and intangible effects

• Primary impact of a sport event

• Multiplier effect

• Long- and short-term benefits from sport and the legacy effect

Types of Economic Outcome

• Pareto optimal—outcome in which no member of the economy can be made better off without making another member worse off (Frank, 2006, p. 591)

• Pareto improvement outcome—outcome in which an improvement in economic well-being does not come at the expense of others (Varian, 1990, p. 17)

Sport Goods and Services

• Good

– Direct consumption good

– Indirect consumption good

– Direct investment good

– Indirect investment good

• Service

Examples of Goods and Services in Sport

Global Sales of Sport Direct Consumption Goods

See table 14.2 on page 306 of International Sport Management.

Economic Benefits

• Tangible benefits (quantifiable)

• Intangible benefits (not quantifiable)

Consumer Surplus

• Consumer surplus is the extra benefit that a consumer enjoys when he or she purchases a good or service (Frank 2006, p. 160).

• Assuming that costs of all options are equal, if members of the local economy choose to attend sport events rather than other options, although their actions do not represent a net increase in spending, they do represent an increase in consumer surplus and therefore an increase in economic well-being.

Contingent Valuation Method (CVM)

• If the use of public resources for achieving some social goals cannot be priced with a market value, the determination of the costs and benefits may then have to apply the valuation techniques that are designed specifically for valuing nonmarket effects of a public policy (Fuguitt & Wilcox, 1999).

• An increasingly common method of evaluating indirectly intangible benefits associated with sport is the CVM.

A CVM Case

Read the sidebar on page 309 of International Sport Management.

Calculation of Economic Impact

• The primary impact is the change in consumption, investment, and export spending that can be attributed directly to the sport event.

• See equation, page 310, of International Sport Management (shown on next slide).

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Calculation of Economic Impact (continued)

Export of Servicesvs. Import Spending

• Export of services (tourism spending as a result of hosting a sport event). The service being exported is the entertainment of the event or other attractions associated with the event; a benefit to regional economy.

• Import spending (foreign companies used to build sport facilities or venues). The spending of the event organizer on facility construction is a cost to the host economy.

Import Substitution

• Sponsorship dollars earned by an organizer of an international sport event from a local corporation could not be considered a net gain in spending in the regional economy.

• But if the local corporation will sponsor the event no matter where it is held, an import substitution occurs. In that case, sponsorship money stays in the region instead of being spent elsewhere. It results in a spending gain locally.

Main Factors in DeterminingMultiplier Effect

• Diversity of an economy.

• Size of the economy.

• Employment rate. If the economy is close to full employment, the multiplier will be lower than it would be if many resources were underemployed (unemployed labor, idle equipment, unused building materials).

Injections and Leakages Associated With a Major Sport Event

Read the sidebar on page 314 of International Sport Management.

Figure 14.1

Legacy Effect

• The amount that made up the primary regional impact quickly dwindles after an event.

• The impact created through the event necessarily returns to its preevent state, and the direct, total economic impact has run its course. Only if the new infrastructure permanently attracts new money to the economy will the regional economy reach a higher level (Spilling, 1999).

Long- and Short-Term BenefitsFrom Sport and the Legacy Effect

Cn = ΔA

Where• C = the level of induced impact (0 < c <1) • n = the number of time periods• ΔA = the initial direct and indirect impact

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Long- and Short-Term BenefitsFrom Sport and Legacy Effect (continued)

• As n increases to infinity, the value of the induced impact tends toward zero.

• The Olympics are an exception. During this period, autonomous expenditures are made so that the equilibrium income will not immediately return to the starting point following the event.

• Caused by varying autonomous injections (ΔA), permanently changing demand functions will exist during the remaining time.

Figure 14.2

Impact of Event Structure on Location Factors and Its Economic Relevance

• Six types of event structures are usually preserved after a megaevent.

• Four of these—infrastructure, know-how, networks, and culture—develop almost as a matter of course through the preparation for the event, whereas two—emotions and image—depend on the momentum that the event develops (Preuss, 2007, pp. 92–97).

• Each of these six event structures transforms the location factors of the host city.