Economic Impact Analysis

EconomicImpact Analysis

Fosteand Greyser (2006) provide that stadiumsare an important part of the business in sports. They make up a majorsource of revenue for the majority of clubs. The difference betweenthe lowest and the highest revenue clubs lies in the difference inthe clubs stadium revenue generating and the difference in contractsthat are shared by the contracts. Stadiums play an important role inthe economic revival of cities by attracting tourists. Factors thatinfluence the decisions to the business side of a stadium managementinclude the owner of a stadium, the operators and managers andfinally, the number of sporting clubs that are tenants to thestadium. Great flexibility is enjoyed where a club owns, operates andis the single tenant in the stadium. It enjoys the freedom to namethe sponsors, price the tickets and the rent for the stadium. Thereare complexities in decision-making where a stadium is owned by thethird party and has a single anchor tenant.

Accordingto Foster,and Greyser (2006), asthe costs of constructing stadiums escalate, the financing from thepublic keep on changing. For example, in the year 1990, theconstruction of Tampa Bay Devil Rays stadium- Tropicana Field cost 85million United States Dollars and received 100% public financing. Incontrast, the construction of San Diego Padres – Petco Park stadiumin the year 2004 cost 450 million United States dollars and receivedonly 66% public funding. The major disadvantage of public financingis the possibilities of cities to place constraints on the use of thestadium, the naming, pricing of the tickets and even constraints onalternative uses of the stadium.

TheGiants Stadium History

TheSBC Park is a stadium to the San Francisco Giants. The stadium wasconstructed in the year 2000 (This great game, nd). Fosterand Greyser (2006) provide that thepark is associated with some interesting facts. First, it is amongstthe most expensive stadiums built within the period of 1990 to 2004at a cost of 350 million United States Dollars. Concerning costs, theSBC is ranked fourth from the Seattle Mariners at 517, Petco Park at450, and Bank one ballpark that cost 354 Million United StatesDollars. Second, the most interesting fact is that despite being oneof the most costly stadiums, it received 0% public funding for itsconstruction (Foster,&amp Greyser 2006).

Foster,and Greyser (2006) and Chastang (2010), claim that during theinitial plans to construct the stadium, Peter Magowan was thepresident and managing partner of the investor group that paid100Million United States Dollars for the Giants in the year 2002. Theprofitability of the team had declined due to the loss of the Giantsto the Anaheim Angels in the year 2002. The initial plan to build thestadium faced skeptics during the year 1995. First, was theunpopularity of the baseball game due to a crippling strike.Consequently, the Bay voters had turned down the club`s four requeststo provide public financing for the construction of a new stadium.The manager was faced with skeptics that he will never get electednor get financed for the facilityand

BothGordon (2004) and Foster and Greyser (2006), agree that attemptswere made to fund the stadium privately.The team used food andbeverage concession companies that preferred paying higher upfrontfees to protect a lower operational commission cost. The teamobtained a contract for 12 million United States dollars for 20 yearsand consequently a total of 75 Million United States dollars upfrontfrom the advertising concession contracts. The team later usedcharter seats contracts that enabled the purchasers to haveunderlying rights to a given seat in the stadium. The underlyingrights gave the fans the right to control their tickets. Decisionswere made to sell one-third of the seats and made the seatstransferable. Besides, it decided to promise the fans that ticketsprices would not increase beyond 2% each year for the next ten years.

Accordingto WrightLee (2008) and Gordon (2004), economicimpact analysis involves the assessment of the net economic change ina host community due to an event or a facility. It is a cost benefitsanalysis approach. In addition, Fosterand Greyser (2006), assert that theanalysis is based on the assumption that a dollar that flows into aneconomy from the outside serves as a benefit to the local community.The analysis is conducted for sports events, teams and facilities.Economic analysis pays attention to two basic setting parameters.Firstly, it focuses on the geographical area that has experiencedtheimpact.That is, the geographic region considering the funding ofan event or a facility. Secondly, it also analyzes the type ofspending.

Directimpacts

Accordingto Lee(2008), thedirect economic impact of an event entails the increase inexpenditure specific to the event. The study evaluates the spendingof incremental visitors that come to town due to the event otherwisethey would not have visited. The assumption is that people that visita town due to an event end up visiting the event. Foster,and Greyser (2006) argue that theassumption is however not reasonable as there are people that visit atown due to an event but end up not visiting the event due to somereasons. Consequently, the impact study research fails to account forthat situation and causes overestimates.

Thestandard impact study aims at providing a conservative study andconsequently ignores the spending by residents, casual visitors andtime switchers. The impact study should evaluate the expenditure ofcasual visitors who were in town for different reasons but decided toattend the event. Although revenues from casual visitors do notamount to new spending, there is evidence that casual visitors end upspending extra expenditures that are relevant. The conservativeestimates are void of the expenditure by time switchers who wouldhave come to town at another time but then decided to switch due tothe event. The avoidance of using incremental spending by casual andtime switchers emanates from the hardship in estimating theirexpenditure without the event. Consequently, such assumptions lead tothe underestimation of the impacts (Andreatta,2009 Greyser, 2006).

Inaddition Foster and Greyser (2006) contends that theassumptions fail to recognize the effect of reverse time switchers.They are residents that leave the town due to the event.Consequently, the expenditures that time switchers would have spentin town end up being spent elsewhere. As a result, the impact studyresults into an overestimate.

Multiplieranalysis- direct and induced impacts

Amultiplier assists researchers to quantify indirect and inducedeconomic impacts. It measures the change in output for every industrydue to the injection of one dollar of direct impact into any of theindustries. The analysis first separates the components of inducedand indirect impacts (Butler,2014 Foster &amp Greyser, 2006).

Fosterand Greyser (2006) claim that theanalysis assumes that the recipients of revenues from an event spendit in various ways. Firstly, the expenditure occurs with otherprivate sector businesses in the same local economy. Secondly, theemployees incur expenses in the economy in the form of wages,salaries and tips. Thirdly, the local government introduces expensesas sales tax or property taxes. Fourthly, the non-local governmentsincur costs such as sales and profit taxes. Finally, the costs mayalso come as expenditures with employees, business or organizationsthat reside outside the economy. The expenditures with other privatesectors, employees, and local government are assumed to circulatewithin the economy.

Incontrast, the expenditures with non-local governments and employeesresiding outside the local economy are assumed to be leakages. Theydescribe the movement of money outside the geographical boundaries ofan economy and reflect the extent of economic isolation. The initialspending results into a ripple effect called the multiplier effectconsisting of indirect and induced impacts (Foster, &amp Greyser,2006).

Fosterand Greyser (2006) assert that there are three types of multipliersin impact analysis. First is the output or sales multiplier thatmeasures the indirect and induced effect of an extra unit of directspending on economic activity from the spending and respending of theinitial spending. Second is an income multiplier that measures theindirect and induced effects of an extra unit of spending on thelevel of household income in the economy. It relates the change inincome to the initial change in expenditure. Finally is theemployment multiplier that measures the direct, indirect and theinduced effects of an extra unit of spending on employment. Itmeasures the number of fulltime employment jobs supported by visitorexpenditure.

Fosterand Greyser (2006) agree with Mueller (2014) thatthe economic impact analysis has a shortcoming as it only focuses oncurrent income and fails to account for future income from revisitsmade to the country. The impact analysis methodology also lacks theassumption to aid in measuring the media impact. The televisioncoverage and radio advertisement during an event has the effect ofinspiring viewers to visit the host city. Besides, the impactanalysis fails to account fully for fiscal impacts. For example, theuser fees related to energy usage and airport taxes levied per personin the local airport. It is, therefore, likely to underestimate theimpact (Fried, 2005).

Theassumptions in impact analysis are purely financial they lack waysto measure the psychic effect. For example, the impact analysislacks the assumptions that guide towards the measurement ofhappiness. Since the sports industry is majorly due to fanatics, thefans get happy to watch the sports. Consequently, the lack ofpossible measures to evaluate happiness is a major drawback and hasthe possibility of underestimating the impact. Finally, the impactanalysis fails to account for the cost of opportunity loss. It is thelost revenue when would- be visitors fail to attend an event due tolack of space in the host area or the stadium (Hanley,2012 Foster &amp Greyser, 2006).

. In conclusion, impact analysis is necessary to provideinformation on the viability of both the events and associatedfacilities. However, the process of measuring the impact of an eventfails to accommodate comprehensively substantial aspects.Consequently, the estimates of impact analysis may result inoverestimates or underestimates of the overall impact that ismisleading to the public. It is important to adjust the process ofestimates to accommodate issues about casual visitor’s timeswitchers and reverse time switchers. Besides, the process shouldprovide assumptions to enhance the measurement of non-financialfactors such as the happiness of the fans and the opportunity costsof facility deficiencies (Foster,&amp Greyser, 2006).

References

Andreatta,D. (2009, 13 Dec). Economic impact of sporting events may beinflated. Democrat&amp Chronicle.Retrieved on 10 Nov 2015 from

http://roc.democratandchronicle.com/article/20091213/NEWS01/912130350/Economic-impact-sporting-events-may-inflated

Butler,R. (2014, 20 Dec). The sports multiplier. TheEconomics of Sport.Web. Retrieved on 10 Nov, 2015 from http://www.sportseconomics.org/

Chastang,H. (2010, 13 April). Ten years later, AT &ampT park still goingstrong. BeyondChron.Web. Retrieved on 10 Nov, 2015 fromhttp://www.beyondchron.org/ten-years-later-att-park-still-going-strong/

Foster,G., &amp Greyser, S. (2006). Thebusiness of sports: Text and cases on strategy and management.Mason, OH: Thomson/South-Western.

Gordon,J. (2004, 14 May). In San-Francisco, the giants went private fortheir stadium. MinnesotaPublic Radio.

http://news.minnesota.publicradio.org/features/2004/05/14_gordonj_sanfranpark/

Hanley,J. (2012, 24 Oct). How Big Is the Multiplier? OrdinaryTimes on Culture and Politics.Web. Retrieved on 10 Nov, 2015 fromhttp://ordinary-gentlemen.com/blog/2012/10/24/how-big-is-the-multiplier/

Lee,S. (2008, 14 Feb). A review of economic impact studies on sportingevents. TheSport Journal.Web. Retrieved on 10 Nov, 2015 fromhttp://thesportjournal.org/article/a-review-of-economic-impact-studies-on-sporting-events/

Mueller,S. (2014, 10 Nov). Does it add up? Impact reports claim institutionsand events contribute a lot of money to The Durango Economy. TheDurango Herald.Retrieved on 10 Nov, 2015 from

http://www.durangoherald.com/article/20140426/NEWS01/140429625/

Reynolds,M. (2012). Why San Francisco giants` AT&ampT Park is major leaguebaseball`s best stadium. BrBleacher Report.Retrieved on 10 Nov. 2015 fromhttp://bleacherreport.com/articles/1440245-san-francisco-giants-att-park-is-major-league-baseballs-best-stadium

Thisgreat game, (nd). AT&ampT San Francisco California. TheBallparks.Web. Retrieved on 10 Nov 2015 fromhttp://www.thisgreatgame.com/ballparks-att-park.html

Thornton,P., &amp Champion, W. (2012).&nbspSportsethics for sports management professionals.Sudbury, MA: Jones &amp Bartlett.

Wright,J. (2014). The rights and wrongs of economic impact analysis forcolleges and universities. Emsi.Retrieved on 10 Nov 2015 fromhttp://www.economicmodeling.com/2014/01/07/the-rights-and-wrongs-of-economicimpact-analysis-for-colleges-and-universities/