Wednesday 19 December 2012

Rugby Boosterism

Breathtaking. The Ministry of Business, Innovation & Employment produced a report, "The Stadium of Four Million", on the 2011 Rugby World Cup.

The first sections of the report are pretty unabashed boosterism, lauding the successes of the event. It's a bit surprising that they talk about the benefits of enhanced stadium infrastructure in Dunedin with nary a mention of, well, this:
The stadium was pushed as a multi-purpose venue. An appendix to the "CST Feasibility Masterplan Report" of 2007 said it was important it was "perceived at a community level to be multi-purpose and cater for more than rugby". Since it opened last August, only two major non-rugby events have been held: a gig by Elton John, and the 150th birthday celebrations for Otago Daily Times publishers Allied Press. Neither paid a stadium hire fee. In June 2008, two major concert promoters had told the D-Scene newspaper what should have been self-evident: Dunedin was too small, remote and student-oriented to provide the sales base to attract big-name acts. In February this year, council-owned stadium management company Dunedin Venues Management Limited's (DVML) chief executive David Davies said concert bookings for the stadium would be "thin" in 2012. "What's thinner than one?" asks Garbutt. Cull says the council has to leverage the advantage of having a roof, guaranteeing events won't be rained off. Farry, who wanted to run the stadium for its first two years, is disappointed the council hasn't attracted more concerts.
The council envisaged DVML would return a substantial annual dividend to help defray loan repayments. Incredibly, DVML were told to borrow money, if they had to, to ensure a return. "There is no way a company could be milked like this without blowing apart at the seams," says University of Otago academic Rob Hamlin. DVML duly baulked, the board was sacked and replaced by new directors, Denham Shale and Bill Baylis, both former South Canterbury Finance board members. "A 100 per cent commonality of board membership with a company described as the biggest corporate fraud ever in this country takes real genius," laughs Hamlin. DVML predicts a $2.4m loss this year, saying it cannot cover the cost of debt-servicing on the stadium loans, and Davies cried at a press conference to announce his resignation. Cull says it was "completely unrealistic" to expect the stadium to service its own debt (it was originally predicted to make an annual profit of around $100,000); instead he's instigated a review to find the best operating model and how it can run at the lowest possible cost. Farry, meanwhile, reckons the trust would have run the stadium at a modest surplus. Pro-stadium councillor Syd Brown also says the stadium can be profitable: "It will work, it is an asset."
Hamlin argues it may never be viable: if it cost $200m in loans, that means raising $500,000 a week to cover the interest. "Every person from the child born yesterday to the octogenarian blowing bubbles down the old folks' home would have to go to that stadium once a week, without fail," he says. Garbutt believes it would be most sensible to mothball the stadium.
Some benefit. This matters more because the report does not provide any kind of Cost-Benefit Analysis. Rather, it's all economic impact and effects on GDP. They assume that all of the stadium upgrades happened because of the RWC (not that implausible); increased construction expenditure in the CGE model will turn into larger GDP. Except Dunedin could yet go bankrupt over it.

Roger Procter, MED Chief Economist, notes at pages 94-95 of the report some of the report's rather strong limitations. He writes that while CGE modelling can be an important input to a cost-benefit assessment, we still need that cost-benefit assessment to assess any net economic benefit. And as best I can tell, there's no cost-benefit analysis in this report. Maybe it'll be in a subsequent report.

Further, a lot of the benefits tallied depend on the counterfactual that's used. At page 15, they talk about overseas visitor spending being 16.2% higher in September and December 2011 compared with September and December 2010, and retail trade being up 5.7% over the same interval. But the world economy strengthened considerably from 2009 to 2010 and continued strengthening through 2011. The CGE modelling should account for that, but they are taking the increase in visitor numbers as an input. And the graph presented at p. 43 makes it look as though they're estimating excess visitor numbers in 2011 based only on actual numbers from 2010: the "But for the RWC" 2011 figures coincide with realised 2010 visitors for the period of the RWC. If we would have expected numbers to have gone up with continued American and Australian economic recovery, then this may overestimate the RWC's effect. And, again, the estimated RWC-visitor-bump is an input into the CGE model.

A final bit of fun. The boosterish early part of the report talks about the potential gains from increased international business contacts as foreigners travel to New Zealand to see rugby. And that is indeed a plausible but hard-to-quantify benefit. But the notes for the CGE modelling say that much domestic NZ RWC attendance was not displacement from other domestic tourism activities but rather displacement from international travel. That lets that domesticly diverted attendance count as a gain in the CGE modelling. But it also attenuates the benefits of "international connectedness". That bit doesn't get noted in the early boosterism.

For a future honours project, it would be rather fun to have a student check whether countries represented in the RWC, as compared to comparable matched non-RWC countries, had enhanced longer term tourist flows. The report makes a lot of surveys of visitors happily reporting that they'd recommend New Zealand to friends. If that's true and substantial, it should show up in aggregate tourist flows by country sometime over the next few years. It would also be neat to compare these effects with per capita LOTR and Hobbit box office revenues by country.

I chatted with Radio New Zealand's Eric Frykberg about some of these issues late this morning.


  1. 'Duuh, it just never made any sense to build in the first place'. Fantastic.

  2. I've been in Seoul for the past three weeks. Every single local to whom I've spoken connects NZ with LOTR. Not one of them connects NZ with rugby. I can't figure out if this is a marketing fail or a marketing win by New Zealand.

  3. I'd put better than even odds on that the government's LOTR investments have paid off, and reasonable odds that they've paid off well. Not rugby.

  4. Ha! Thanks. I hadn't heard that one.