A Review of Economic Impact Studies on Sporting Events

Introduction

Economic impact in sporting events can be defined as the net change in an economy resulting from a sport event. The change is caused by activity involving the acquisition, operation, development, and use of sport facilities and services (Lieber & Alton, 1983). These in turn generate visitors’ spending, public spending, employment opportunities, and tax revenue. Specifically, the economic impacts of expenditure are composed of direct, indirect, and induced effects. Direct effects are the purchases needed to meet the increased demand of visitors for goods and services. Indirect effects are the ripple effect of additional rounds of re-circulating the initial spectators’ dollars. Induced effects are the increase in employment and household income that result from the economic activity fueled by the direct and indirect effects (Dawson, Blahna, & Keith, 1993; Howard & Crompton, 1995).

Economic impact is an important topic of discussion and debate in sport marketing and/or management fields because estimating the economic impact of a sporting events is very difficult and frequently too subjective. Because of the nature of social science, everyone has their own ideas and methodology for conducting economic impact studies. The main difficulty in doing social science research is based in the fact that everyone believes that they have an innate understanding of the material. Social objects are hidden behind a screen of pre-constructed discourses which present the worst barrier to scientific investigation, and countless sociologists believe they are talking about the object of study when they are merely relaying the discourse which, in sport as elsewhere, the object produces about itself, whether through its officials, supporters or journalists (Bourdieu, 1999). Therefore, construction of truly scientific objects implies a break with common representations, which can notably be effected by taking these prenotions as the object of study.

Statement of Purpose

Although many previous studies have contributed to economic the impact research of sport and/or recreational events, most studies are based upon the researchers’ personal perception and arguable methodology. The purpose of this study was to review previous economic impact studies and to develop strategies for conducting an economic impact study.

Reasons of Conducting Economic Impact Study

Hosting a sport event has revealed a number of benefits in our communities. Of those benefits, some reasons like increasing community visibility, positive psychic income, and enhancing community image are all common and acceptable postulations. However, there is doubt that sport events that utilize public subsidies always bring positive economic benefits into communities. There are following reasons to conduct economic impact studies of sport events. First, because many sport events in our communities were financed by public tax support, economic impact studies continue to be an important public relations tool for city government. Secondly, there is doubt that sporting events may actually help develop a community in relative to its economy. Therefore, accurate estimates should be proposed and the results should be reported to community members. Thirdly, as sport is not just an entertainment, but an industry, the results of economic impact may be a cornerstone to develop many related businesses in communities. Finally, positive or negative economic results of sport events may be an important method to determine communities’ draft budget for the coming year.

Literature Review on Economic Impact Studies

Unfortunately, economic debates often center around the appropriateness of the size and type of multipliers used for Economic Impact Studies (EIS). The multiplier effect accounts for the overall economic impact of a sport event. The multiplier effect demonstrates the process through which initial spending in a region generates further rounds of re-spending within the region. The ripping process of subsequent re-spending is the multiplier effect. The basic principle of the multiplier effect begins with an initial spending as an increased income into an economy. A portion of the increased income is spent and further re-spent within the region (Archer, 1984; Crompton, 1995; Wang, 1997). In summary, there are three elements that contribute to the total impact of visitor spending: Direct impact (the first-round effect of visitor spending), Indirect impact (the ripple effect of additional rounds of re-circulating the initial visitors’ dollars), and Induced impact, which is further ripple effects caused by employees of impacted business spending some of their salaries and wages in other business in the host community (Howard & Crompton, 1995).

A variety of multiplier used modeling techniques are available: TEIM (Travel Economic Impact Model), RIMS (Regional Input-output Modeling System) (Donnelly, Vaske, DeRuiter, & Loomis, 1998; Wang, 1997), TDSM (Tourism Development Simulation Model) (Donnelly, et al., 1998), RIMS II (Regional Input-output Modeling System, version II) (Wang, 1997), ROI (measuring financial Return On Investment) (Turco & Navarro, 1993), and IMPLAN (Impact Analysis for Planning) (Bushnell & Hyle, 1985; Dawson, Blahna, Keith, 1993; Donnelly, et al., 1998; Howard & Crompton, 1995; and Wang, 1997). Of those modeling techniques, IMPLAN is one of popular methods. The IMPLAN model was developed by the U.S. Forest Service and Engineer Economics Associates, Inc. The IMPLAN develops input-output models for all states and counties in the United States. This model was used to estimate the employment, income, and net sales and adopted as the regional impact analysis program-of-choice. Another often-used model is RIMS, which was developed by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA). This model also offers input-output tables down to the country level (Turco & Kelsey, 1992). Also, a lot of simple formulas were developed to conduct economic impact study of sport events by local sport commission companies. Table 1 shows standard formulas, which were derived from the National Association of Sport Commission (NASC).

Table 1 NASC Economic Impact Formulas
Organization Multiplier Formula Spending per person/day
Albuquerque Sports Council 1.7 # of visitors x # of days x $200 x 1.7 = EI $200.00
Bloomington/MD DVB _ _ # of visitors x # of days x $183 = EI $183.00
Greater Augusta Sports Council 3.0 # of visitors x # of days x $167 x 3.0 = EI $167.00
Greater Cincinnati sports & Events Commission _ _ # of visitors x # of days x $125 = EI $125.00
Lee Island Coast CVB _ _ # of visitors x # of days x $100 (over 18) = EI
# of visitors x # of days x $54 (under 18) = EI $77.00 (average)

Lisle CVB/
Lisle Sports Commission _ _ # of visitors x # of days x $158.41 (1st person in room) = EI
# of visitors x # of days x $85.41 (2-4 people in room) = EI
$97.94 (average)
Shreveport Regional Sports Authority 2.0 # of visitors x # of days x average $ spent x 2.0 = EI
(average $ spent varies from event to event) _ _
Siouxland Sports Congress
2.5
# of visitors x # of days x $90 x 2.5 = EI
$90.00

Tallahassee Sports Council 1.73 # of visitors x # of days x $79 x 1.73 = EI $79.00
Waterloo CVB 2.5 # of visitors x # of days x $100 x 2.5 = EI $100.00
EI indicates the Economic Impacts Source by National Association of Sports Commissions
According to the report by National Association of Sports Commissions (NASC), the average multiplier score is 2.37 and average spending per person/day is approximately $146.89 across the United States.

Problems of Economic Impact Study

As stated before, the economic impact study of sporting events is controversial because of its subjective aspects. There are other problems of the study based on the literature review. First, the use of different and conflicting concepts of the multiplier itself (Howard & Crompton, 1995). A danger in the multiplier and the way it is presented in research reports aimed at the policy maker is that its basic concept and application are deceptively sample. This means that economic impact studies are primarily used by consultants hired by sport entrepreneurs and boosters to demonstrate the value of a proposed sport event (Johnson & Sack, 1996). Secondly, inclusion of local spectators, time-switchers, and casuals in the study. Economic impact attributable to a sport events should include only new cash flow injected into an economy by visitors and other external businesses such as media, banks, and investors from outside the community. In addition, because expenditures by time-switchers and casuals would have occurred without the event, impacts of their expenditures should be excluded in conducted economic impact study. Thirdly, economic impact study by hired consultants from political power usually estimates only positive aspects, which means benefits both economically and socially. They never measured substantial economic costs and potential social problems. For the side of economic impact, only gross benefits rather than net benefits are measured and reported. In the case of non-economic impact, negative social impacts including such as traffic congestion, vandalism, environmental degradation, disruption of residents’ lifestyle, and so on are rarely reported. Finally, economic impact studies are too subjective depend on researchers to trust their results. Even if some models and formulas for economic impact studies were developed and utilized, the results and their interpretations could be changed based on the intent of the researchers and the unrealistic expectations of proponents.

Discussion and Recommendation

Conducting an economic impact study is important because it becomes a useful tool to evaluate a community’s development both economically and socially. Therefore, professionals who have the responsibility of conducting an economic impact study should consider the following suggestions. First of all, limit and define the purpose of study. Limiting and defining the purpose of study can save study time and make the outcomes more useful and specific to people whom want apply them. Secondly, prepare alternatives to be considered. The number of alternatives that should be considered depends upon the number of realistic options available and on other constraints, such as time, information, funding, and political realities. It is a very useful activity for the leadership to reduce the number of alternatives to the realistic three or four to include in the analysis (Goldman & Nakazawa, 1997). Thirdly, prepare enough information to conduct a meaningful economic impact study. In order to produce exact and non-arguable results, appropriate and diverse information for the study like a demographic profile on potential visitors and/or study respondents, the degree of economic development for the potential hosting community, tax impact, and other social guidelines. This information will be effective to make research questionnaire and other necessary research tools. Fourth, conduct a study based not on assumption, but on evidence and information. One of the arguable issues in economic impact studies is that the researcher and/or proponents of the event rely on their assumptions. These assumptions lead not correct results and apply to community’s decision on hosting a sport event. Fifth, consider all possible impacts for the community not just on economic impact. Economic impact studies should contain economic as well as social impacts. Frequently, the negative impacts on community life such as vandalism, increasing traffic congesting, environmental degradation are not considered and reported. Sometimes, however, these social impacts can be more important to a community than the economic impact. Sixth, do not exaggerate the results of study. Because the results of an economic impact study can make a decision to use public tax supports, the political sponsor may tend to exaggerate or misinterpret the results of the study. Seventh, on the side of estimating economic benefits, under estimation is better than over estimation. The proponent of a sport event frequently over estimates on their projects to attract public approval and political support. This is related to moral and ethical issues. Even if no one can produce an exact estimation on sport events, the researchers should keep the study based on the result data. Also, based on the results, other alternatives for the sport event can be considered.

References

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Bourdieu, P. (1999). The state, economics and sport. In Dauncey, H., & Hare, G. France and the 1998 World Cup: The national impact of a world sporting event, (pp. 15-21). London, England: Frank Class Publishers.

Bushnell, R. C., & Hyle, M. (1985). Computerized models for assessing the economic impact of recreation and tourism. In D. V. Propst (Ed.), Assessing the economic impact of recreation and tourism. Asheville, NC: Southeastern Forest Experiment Station.

Crompton, J. L. (1995). Economic impact analysis of sports facilities and events: Eleven sources of misapplication. Journal of Sport Management, 9, 14-35.

Dawson, S. A., Blahna, D. J., & Keith, J. E. (1993). Expected and actual regional
economic impacts of Great Basin National Park. Journal of Park and Recreation
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Donnelly, M. P., Vaske, J. J., DeRuiter, D. S., & Loomis, J. B. (1998).
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Goldman, G., & Nakazawa, A. (1997). Determining economic impacts for a community. Economic Development Review, 15(1), 48-51.

Howard, D. R., & Crompton, J. L. (1995). Financing sport. Morgantown, WV: Fitness Information Technology, Inc.

Johnson, A. T., & Sack, A. (1996). Assessing the value of sports facilities: The
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Leiber, S. R., & Alton, D. J. (1983). Visitor expenditures and the economic impact of public recreation facilities in Illinois. In Leiber, S. R., & Fesenmeier, D. R.
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National Association of Sports Commissions. (April, 1999). National Association of
Sports Commissions Annual Meeting Book. Unpublished manuscript.

Turco, D. M., & Kelsey, C. W. (1992). Conducting economic impact studies of
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Turco, D. M., & Navarro, R. (1993). Assessing the economic impact and financial return on investment of a national sporting event. Sport Marketing Quarterly, 2(3), 17-23.

Wang, P. C. (1997). Economic impact assessment of recreation services and the use of multipliers: A comparative examination. Journal of Park and Recreation Administration, 15(2), 32-43.


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