CHAPTER FOURThe Principles of Economic Impact

Analysis

ECONOMIC IMPACT

Displaced spending

Casual visitor

Time Switcher

Incremental Visitors

Economic Impact Analysis

Indirect economic impact

Induced economic impact

Multiplier effect

Household income

Capture Rate

Operations Impact

Construction Impact

Psychic Impact

The Principles of Economic Impact Analysis In Sports

The Rationale for Economic Impact Analysis

• An economic impact analysis is defined as the net economic change in the community of host residents that results from spending attributed to a sport event or facility.

• Net economic change in a host community resulting from spending attributed to an event or facility

• Note: Measures new economic benefits that accrue to the region that would not have otherwise occurred.

THE PURPOSE OF ECONOMIC IMPACT ANALYSIS

• The purpose of an economic impact analysis is to measure the broader economic benefits that accrue to a community.

• Provide public with relevant information regarding return on investment in a development project (e.g., stadium, new team)

A Comparison of the Economic Return and the Financial Return

• A primary concern is mischievous application of economic impact analysis. Why because:

• The economic impact analyses is that they are usually undertaken to justify a position that either a sports organization or community-elected officials have adopted or are proposing. Their point is not to find the truth, but rather to legitimize something the sponsoring group wants to “prove.” Consider the San Francisco Giants.

The Inviolable Principles

• There are five principles who inviolability is central to the integrity of economic impact analyses are reviewed.

• 1. Exclusion of Local Residents

• 2. Exclusion of “Time-Switchers” and “Casuals”

• 3. Use of Income Rather Than Sales Output Measures

• 4. Use of Multiplier Coefficients Rather Than Multipliers

• 5. Careful Interpretation of Employment Measures

Exclusion of Local Residents

First, expenditures related to a sports event by those residing within the defined impact area should not be included because such expenditures represent only a recycling of money that already existed there.

Exclusion of “Time-Switchers” and “Casuals”

Secondly, expenditures by time-switchers who were planning to visit the community for other reasons but schedule their visit to coincide with the event and casuals who attended the sports event but were in the community for other purposes and whose visit was not influenced by the event should be excluded from the analysis. Only the net increment of those expenditures attributable to increased length of stay because of the sports event should be included.

Use of Income Rather Than Sales Output Measures

The three most commonly used multiplier coefficients are those;

for sales, income, and employment.

The sales outputs tend to be used as the multiplier in economic analyses of sports events because they are substantially higher than income multipliers.

Household-income multipliers should be used because the point of interest is the impact of the sales on household income and employment.

Use of Multiplier Coefficients Rather Than Multipliers

Most economist, ratio multipliers are still frequently used to calculate the income that is returned to residents in sports events economic impact analysis because such multipliers generate much larger numbers.

Direct + Indirect+ Induced Effects= Visitor Expenditures

Careful Interpretation of Employment Measures

• This requires the measures of employment output be carefully interpreted. These measures typically do not differentiate between full-time and part-time jobs., and in the context of sports events more are likely to be short-term, part-time positions. These measures assume that all existing employees are fully occupied, so there is no spare capacity in the system and that all new jobs emerging will be filled by residents from within the community. Both of these assumptions are often challengeable

Steps in an Economic Impact Analysis

1. Define relevant market/geographic area of impact

2. Determine incremental visitors

3. Analyze direct spending

4. Determine indirect and induced spending

5. Calculate fiscal impact

6. Measure costs

Economic Impact Analysis Survey (tool)

CONTINUE

Measuring Costs

A complete economic impact study includes an analysis of event costs:

Security

Ticket sales

Printing

Advertising

Transportation

Communication

Travel

Lodging

ECONOMIC IMPACT ON THE HOST CITY

Some Conclusions

• 1. In addition to monetary cost considerations should be given to impact cost, displacement cost, and opportunity cost.

• 2. Impact cost is on-site and off-site components. On-site examples are equipment, supplies, and labor cost by the community.

• 3. On-site cost are borne by a community for traffic congestion, road accidents, vandalism, police and fire protection.

• 4. Displacement cost occur when visitors to an event displace the revenues that would have come from other visitors who didn’t come because of price increase or congestion at the event.

• 5. Opportunity cost is the funds that a community invested may not be invested in another project that may get higher economic results.