Stadiums

The Rugby World Cup folks have apparently been getting tetchy about the Herald's critiques of the cost of the RWC

Former All Black Frank Bunce said it had been known from the beginning that money would be lost.

Mr Snedden, CEO of Rugby NZ 2011, lashed out on radio on Tuesday night against the Herald's survey of costs.

"In my view, it's a piece of junk," Mr Snedden said.

"And it's really rare that I would get into any sort of public slanging match about the media."

Mr Snedden said it was unfair to count projects that the tournament could have been staged without.

"For God's sake, the Rugby World Cup could easily have taken place without anything being done to the airports or ports."

He also said ticket revenues should have been included as an economic benefit to the country.

I've not looked at the Herald's tabulation of costs in any particular detail. Treatment of ticket revenues is a fun one though. Assume that the event were a purely private enterprise. Ticket revenues would be a benefit to the event organizers, a cost to the public, and the smallest possible lower bound estimate of the gross benefit enjoyed by those attending the event. None of those is an "economic benefit to the country", though the surplus net of ticket cost enjoyed by those attending the event is a benefit accruing to those attending and the surplus of ticket revenues over event costs is a benefit accruing to the promoter.

Now suppose that the event were entirely publicly funded, with the government as residual claimant on profits and losses. Every dollar spent on a ticket then counts as a cost to the attendee, a benefit to the government, and a lower bound estimate of the potential gross benefit enjoyed by attendees. In that case we'd be right to count ticket revenues as a benefit to the country inasmuch as it offsets some of the crazy losses we're imposing on taxpayers. It would be a mistake to tabulate the costs to the government without considering the ticket revenues accruing to the government.

Whether to count ticket revenues then as a benefit to the country depends on the contractual arrangements between RWC and the government. If the government is on the hook for losses and if ticket revenues reduce the amount by which the government is on the hook, we can count those revenues as a benefit to the country - a reduction in the gross cost for which we're otherwise liable. If the ticket revenues accrue to the promoter, it's a benefit to the organizer. So Snedden's right in the case in which the government is residual claimant on losses net of ticket revenues. If every dollar that RWC fails to lose is a dollar for which taxpayers won't be liable, then ticket revenues get to count as a benefit. But we'd want to be sure that the cost estimate also includes all the potential operating losses for which the government would be on the hook.

Michael Dickison noted some of the relevant literature in today's New Zealand Herald. Where he's previously had Tim Hazeldine citing the economic insanity of benefit estimates on these kinds of events, he now has me on deck. That probably counts as a broad consensus of New Zealand economists. It looks like Tim's done the work reverse engineering the purported benefit figures. Excellent.

Here's some of the relevant literature:

• Zimbalist and Noll. "Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums". Brookings Institution, 1997. The book's key findings are summarized here. They come out strongly against such spending, noting that government investments in stadiums are regressive, with the main benefits going to rich folks (players, team owners). The key takeaway for NZ purposes:

  As noted, a stadium can spur economic growth if sports is a significant export industry—that is, if it attracts outsiders to buy the local product and if it results in the sale of certain rights (broadcasting, product licensing) to national firms. But, in reality, sports has little effect on regional net exports.
  
  Sports facilities attract neither tourists nor new industry. Probably the most successful export facility is Oriole Park, where about a third of the crowd at every game comes from outside the Baltimore area. (Baltimore's baseball exports are enhanced because it is 40 miles from the nation's capital, which has no major league baseball team.) Even so, the net gain to Baltimore's economy in terms of new jobs and incremental tax revenues is only about $3 million a year—not much of a return on a $200 million investment.

• Dennis Coates's work. he has a lot of papers out on the topic, but the main findings are summarized in this article in The American. Note that Brookings, above, is a top notch center-left think tank; AEI runs center-right. In one telling paper, he finds that strikes in professional sports leagues impose no economic cost on cities that have sports franchises; if the economic benefits of stadiums and sporting events are high, we'd expect serious losses. Instead, there's no effect. Others have found the same thing, or that effects are relatively small.
• John Crompton, "Economic Impact Analysis of Sports Facilities and Events: Eleven Sources of Misapplication". He lists some of the ways folks fudge the numbers when they want to purport that stadium spending confers large national benefits. It would be mildly interesting to run it as a tick sheet against benefit estimates for the RWC.
• Baade and Dye, "The Impact of Stadium and Professional Sports on Metropolitan Area Development".

  The evidence presented here is that the presence of a new or renovated stadium has an uncertain impact on the levels of personal income and possibly a negative impact on local development relative to the region. These results should serve as a caution to those who assume or assert a large positive stadium impact.

  See also Baade 1996

And of course Cowen's classic "Should Governments Subsidize Stadiums and Events?".

Paul Walker gave a nice summary as well in the leadup to the government's decision to subsidize stadium construction in Dunedin.