Let’s party: How do events impact on economic well being?

Government expenditures on sporting and cultural events are often evaluated and justified by numbers of visitors who are attracted by the event, the tourism dollars they bring, and the stimulus this provides to the economy.

But is this the correct lens through which to analysis the benefits associated with sporting and other events?

Subsidies are paid for by the local citizenry, not the tourists who benefit from free or cheaper events. If economic stimulus is the correct measure, we first need to determine whether subsidised events really do provide a stimulus, and, if they do, that the benefits to local residents outweigh the costs.

Extensive literature exists on the economic effects of mega-sporting events like the Soccer World Cup. This literature clearly shows that, when costs are properly accounted for, mega‑events like the Soccer World Cup and the summer Olympics very often have negative economic effects on the countries that host them^[1].

A study undertaken after the 1994 Soccer World Cup in the US found that host cities may have experienced cumulative losses of between $5.5 and $9.3 billion^[2].  A large scale global study on the impacts of the Soccer World Cup and Summer Olympics over the last 30 years found that these sporting events have no significant impacts on economic growth other than the year in that Soccer World Cups are held – and that this effect is negative – that is, the Soccer World Cup, on average, has a negative effect on economic growth in the year in which it is held^[3].

In an Australian context, perhaps the most comprehensive of these studies is an ex poste economic impact analysis of the Sydney Olympics conducted by the Centre of Policy Studies at Monash University.  The authors estimate that, nationally, the Sydney Olympics generated a net consumption loss of approximately $2.1 billion.  Interestingly the same authors had conducted an economic impact analysis prior to the Games which showed there would be large economic benefits. After the event, the authors were able to show that many of the assumptions used in the original study were incorrect, particularly assumptions relating to induced tourism demand (which they show never eventuated), construction and other costs, and the state of the labour market (which was much tighter than had been anticipated when the study was first conducted).

It is much harder to determine the economic effects of smaller events since their impacts tend to get lost in the hubris of other economic events. Nevertheless, there is a growing body of evidence that disputes the notion that these events provide a direct stimulus for economic growth. Audits conducted of V8 supercar races in Canberra and Sydney, for example, concluded that:

conduct of the 2000 and 2001 races  had significant negative economic results for the ACT^[4]

Post-event analysis indicates that costs are more than planned and that economic impacts are less than estimated largely because of fewer visitors from interstate^[5] So if we think that sporting and other events provide little boost for economic growth, does this mean that we should advocate for removing or reducing public subsidies for events? To answer this, we need to take a much wider view of the benefits that events provide to society.

We’ve all hosted a party or had invited friends over for dinner. Hosting these events costs money, and we wouldn’t pay for them unless they provided us with some kind of benefit. It’s unlikely that hosting a party is going to generate us more income. Rather, we host these events because they make us feel good, help us bond with others and help build social capital.

There is no reason why we shouldn’t consider publicly funded events in the same way.

Public events can provide enormous social benefit.  Sporting events have been shown to bond communities and foster pride. One the notable things about the Sydney Olympics was the way that it brought the community together, with over 45,000 people volunteering to help out. Similarly, one cannot help but notice the number and diversities of people out and about during the Brisbane Festival, when the city is offered a host of music and cultural events and the riverside is transformed into a festival atmosphere culminating in RiverFire, a spectacular fireworks and light display.

Who benefits from these events? Certainly, there are some benefits accruing to shop keepers and accommodation providers from additional tourist activity. But these benefits are small compared to the benefits received by the hundreds of thousands of locals who participate in these events.

Perhaps then, event evaluation (and justification) should focus on the benefits to local residents. After all they are the ones who pay for it – both through taxes, but also through inconveniences such as noise and additional congestion.

Events could be justified and evaluated primarily on the numbers of people attending and whether they had a good time or not.^[6]  This would not only ensure that event evaluation captures the major benefits, but also help to focus expenditures on the kinds of events that maximise benefits to those who pay for them.

This may even have the effect of increasing the attractiveness of events for tourists. Most events are popular with tourists because they are well attended and enjoyed by locals. Anyone who has been caught up in the party atmosphere in Thailand during Songkran (the festival of water) or Brazil’s Mardi Gras can attest to this. After all, there is nothing more depressing than an event that is poorly attended.

And there’s one final benefit we might get from changing the focus of event evaluation – it might stop economists droning on about how sporting and other events aren’t good for the economy.

[1] There are a number of studies which show positive economic impacts arising from mega-sporting events, but these are usually undertaken prior to the event and are undertaken on behalf of event organisers.  These studies tend to exaggerate benefits since they usually ignore crowding out effects, over-exaggerate legacy benefits, don’t account for government expenditures and overlook significant costs (such as spending on health, safety and security).

[2] Baade, R. & Matheson, V. 2004.  The Quest for the Cup, Regional Science, Vol. 38 no.4.

[3] Syzmanski, S. 2002.  The Economic Impact of the World Cup.  World Economics, Vol. 3 no 1.

[4] ACT Auditor General’s Office, 2002.

[5] NSW Auditor General, 2010.

[6] There are a number of accepted valuation methods which can be used to measure event enjoyment. These methods could be used to develop a standard framework for event evaluation, allowing comparison between events or as a tool for measuring events against competing demands for Government funding.