Why Mega-Events May Not Mean Mega-Bucks

[M II A II R II K]

Why Mega-Events May Not Mean Mega-Bucks


August 17, 2012

Read More: http://online.wsj.com/article/SB1000...=ITP_pageone_1

Organizers and sponsors of big events such as this summer's London Olympics or the coming national political conventions in the U.S. like to tout the occasions' potential to boost local economies. Some economists, however, see less cause for celebration.

- Playing the role of party poopers are several economic observers who have gone back to study tax receipts and other signs of extra activity from earlier, similar mega-events, and generally haven't found much to crow over. "Prospective promises are not likely to materialize," said Robert A. Baade, an economist at Lake Forest College in Illinois who has studied the impact of sporting events and political conventions. Pointing out that organizers and sponsors often produce the widely reported estimates, Prof. Baade added, "You do have to ask yourself, 'Who's providing the analysis, for whom, at what price?' "

- The fuzziness of projecting the economic impact of an event that hasn't yet happened leaves ample room for debate. For instance, some estimates include government spending on security and transportation, but economists question whether this should count when those funds could have been spent elsewhere—or remained with taxpayers for their own, possibly more productive, use. Some estimates apply what is known as multiplier effects to account for how jobs created around the event lead the people who fill them to spend money at other local businesses, and so on, so that the initial effect of spending is multiplied, sometimes by two or three times. But some economists criticize the use of such multipliers when events are so big that workers from outside the area earn some of the money, or that inflated hotel rates go into profits for an out-of-town corporation.

- "Unless you have local owners, there is no reason to expect that money to be spent in the local economy," said Victor A. Matheson, an economist at the College of the Holy Cross in Worcester, Mass. Producers of the estimates defend their work. The host committee for the GOP convention later this month in Tampa has estimated an economic impact of $175 million to $200 million. Ken Jones, president and chief executive of the host committee, said that was based on "hard numbers"—funds raised by donors or allocated by the Republican National Committee or the Department of Homeland Security. The figure does include spending by visitors, but doesn't include multipliers, which makes it somewhat conservative. As for any spending lost from potential tourists being displaced by the convention, Mr. Jones cites typical occupancy rates for area hotels in late August, near low points for the year. Tampa "has a lot of excess capacity at that time of year," he said.

- The much larger estimate, covering 2005-2017, of the 17-day London Olympics' economic impact came from sponsor Lloyds Banking Group. It did take into account long-term effects, both before and after the games—which mitigates the disappointing sales reported by London retailers in the first week of the Olympics. It is "missing the point" to focus on that, said Chris Daniels, head of London 2012 for Lloyds. He said much of the boon will come from construction carried out in the lead-up to the Olympics, as well as the boost to London's business and tourism prospects after the Games—factors he says an earlier, government-funded report conducted by accountant PricewaterhouseCoopers, which projected an impact of just $3 billion, didn't fully account for. Outside economists criticized the report for counting government-funded construction spending, and for assuming London could have any higher of a profile on the world stage than it did before the games. "London was already on everybody's map," said Prof. Matheson. "It's not like you plucked a city from obscurity."

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[mhays]

If your hotel rooms normally fill to 80%, and the convention makes it 100%....they still count the 100%. That's dishonest and standard practice in these studies.

London also illustrated a very common problem: A lot of other people avoid the city. Both visitors who don't come, and locals who avoid the center or leave town entirely.

[Austinlee]

Yeah it's pretty much a PR thing. Otherwise I would think it's a logistical nightmare.