Monday, 17 December 2018

Where's my hockey rink?

Treasury has updated its CBAx cost-benefit analysis tool to bring in some of the measures from its new Living Standards Framework.

And I think I can get a proper* hockey rink out of it.

Let's walk it through.

According to the CBAx tool, being able to express your cultural identity is worth $9,563 per year per point of increase on a four-point scale. Canadians living in the Wellington region would enjoy at least a one-point increase in their ability to express their cultural identity if there were a hockey rink here. It's plausible that it could even increase from zero to four. Let's call it only a two-point increase, to err on the side of being conservative here. So that's then about $19,000 per Canadian per year. Over a 20 year lifespan of a rink, at a 6% discount rate, that's worth $218,000 per Canadian.

Winnipeg's MTS Place cost $134m CAD - let's call it $150 million NZD.

But wait! I've forgotten the deadweight cost of taxes needed to fund the thing. That $150m rink really costs $180m. And projects like these always have cost blow-outs. Let's say $250m all-up to be conservative.

That really isn't a problem that cannot be surmounted by CBAx and the World-Leading Living Standards Framework™.

You see, all season ticket holders, and anyone going to more than three games per year, would also be a member of the Canadian Hockey Club. Being a member of a club, per membership, is worth $2,536 per year in Treasury's new framework. And gaining a friend is worth $592 per friend gained. Everyone who joins Hockey Club would be making at least two friends. So we're already at an additional $3,720 per year - if we conservatively estimate only two new friends. Friends!

And let's say that one Canadian in ten would report a one point reduction in their feelings of loneliness. A one point reduction in loneliness, on a 0-4 scale, is worth $17,633 per year. Since we are being very conservative here and assuming that only one Canadian in ten would experience that reduction in loneliness, that's $1,763 per Canadian on average.

So we've already added another $5,483 in benefits per person per year - in addition to the $19,000 in cultural identity benefits. So $24,500 in annual benefits - capitalised over 20 years, that's $281,000 per Canadian.

If there are at least 890 Canadians in the Wellington area, (let's round up to 900 Canadians - again to err on the side of being very conservative here), then building us a hockey rink totally makes sense. All of my assumptions have been conservative here too. And I've not considered the benefits to others in Wellington. For example:

  • Hockey improves mental health. Every one point change in mental health (on a 100-point scale) is worth $4,608 per year. Really, claiming a point or two increase on this one across a big enough population can justify just about anything. 
  • People could go skating and become more fit. Every one point improvement in physical health (on a 100-point scale) is worth $1,158 per year. 
I wanted to check whether there were enough Canadians in Wellington to justify the programme, but all the circuits at Stats are occupied in calculating our spiritual health - "just coping with that problem right now, and wow, it's a biggy! Be with you in a while." 

Anyway, I think we can easily conclude that Treasury's World-Leading Living Standards Framework™ completely overturns what every other economist in the world has ever concluded on the economics of stadiums. We've just shown it with a series of very conservative assumptions. 

Oh - and the memberships thing also means that the government should pay my membership fees at the Wellington Club if I would otherwise let my membership lapse because of the cost. The benefits outweigh the club fees. 

* Hockey is played on ice with skates. It shouldn't need an 'ice' prefix to distinguish it from that NZ game played on grass with comically tiny sticks.


  1. I like the cut of your jib. Build it and they will come!

  2. You've shown that building an ice hockey stadium is a good use of $150 million if you use the LSF, but you haven't shown that it is the best use. Other projects, quite possibly ones that are already being funded, may well show an even better LSF outcome.