Measuring the Economic Impact of Sports Activities: Measuring the Economic Impact of Sports Activities Timothy S. Sullivan, Ph.D. Department of Economics & Finance Southern Illinois University Edwardsville Last Update: August 22, 2005


Roadmap: Roadmap What is economic impact analysis? Difficulties in economic impact analysis: Economic activity versus economic impact Establishing the counterfactual One-time versus ongoing impact Direct, Indirect and Induced Impact What are the alternative uses of public money? Examples of Economic Impact Application: A new Busch Stadium?


Economic Impact Analysis: Economic Impact Analysis Economic impact analysis attempts to measure how a change (the building of a stadium, the hosting of a Superbowl) will impact the local economy. Variable of interest is usually local income (GDP). May also address tax revenue, jobs, population, etc.


Conservative Estimation of Impact: Conservative Estimation of Impact Why are economic impact estimates frequently overstated? Measuring activity versus impact Poorly considered counterfactual One-time versus ongoing impact


Question: Activity vs. Impact: Question: Activity vs. Impact Suppose, at a sporting event in St. Louis, an out-of-town vendor sells a t-shirt, made outside of St. Louis, for $25. Does this cause $25 of economic impact?


Economic Activity vs. Impact: Economic Activity vs. Impact Economic Activity is the value of new goods and services exchanged in the area. Economic Impact gives the new income (or other variable) in the area.


Question: Establishing the Counterfactual: Question: Establishing the Counterfactual Suppose that Gateway International Raceway is able to attract a Winston Cup Race. Should we include the impact of all expenditures (on locally produced products) at the track for the entire weekend?


Establishing the Counterfactual: Establishing the Counterfactual It is important to carefully determine what the region would look like without the event. This “what if?” is called the counterfactual. Must be careful not to include expenditures by local people, if they would have spent the money locally anyhow. Must be careful not to include impact from events that would have occurred anyhow.


Question: Establishing the Counterfactual: Question: Establishing the Counterfactual Part of the impact of SIUE on the region is that students spend money on movies, food, rent, etc. Which students should be included when measuring this impact?


Question: One-time vs. Ongoing Impact: Question: One-time vs. Ongoing Impact Suppose a new racetrack is being built. Is the economic impact likely to be the same from year to year?


One-time vs. Ongoing Impact: One-time vs. Ongoing Impact Many of the largest expenditures are one-time expenditures: Facility construction Legal, financial and architectural services


Three Types of Impact: Three Types of Impact Direct Impact: expenditures made to complete project (payments to construction company). Indirect Impact: expenditures made by suppliers (construction company buys raw materials and equipment). Induced Impact: expenditures made by workers with extra income (construction worker buys a new car).


Alternative Uses of Public Money: Alternative Uses of Public Money Virtually any use of local money will cause an economic impact about twice the value of the initial expenditure. Economic impact is greatest when: Expenditures occur locally Use of product improves productivity (university) Attracts visitors to area (and keeps their money)


Examples of economic impact: Examples of economic impact Winston Cup race at Gateway One-time: $53M; 421 jobs Annual: $46M; 762 jobs Lowe’s Motor Speedway (Concord, NC) Annual: $276M Phoenix International Raceway Annual: $226M Hosting a Superbowl One-time: $306M


Examples of economic impact: Examples of economic impact Atlanta Motor Speedway (two Nextel Cup races): $455M. Gross, Doug, “Atlanta makes pitch for NASCAR Hall of Fame,” AP, Yahoo! Sports, August 17, 2005.


Examples of economic impact: Examples of economic impact Motor speedway in the Puget Sound Region (Seattle) $256M during construction $87M to $181M annual1 Berk & Associates, “Economic Benefits Analysis of a Motor Speedway in the Puget Sound Region,” May 19, 2004.


Application: A new Busch Stadium?: Application: A new Busch Stadium? Which expenditures would be one-time? Which would be annually recurring? What is the counterfactual? Which fans should have their expenditures counted? Which expenditures should be counted? Would the Ballpark Village revitalize downtown? Other uses of the public money?