The paper "Sporting Event Economic Impact" is a good example of a macro & microeconomics essay. As discussed by Soonhwan Lee (2001) in The Sport Journal issue this is a lot of controversy surrounding the validity of the economic influence of sporting events. It is in the view of economists that studies that are commissioned by leagues and events do not bring a clear picture of the economic effect that big sporting events and professional franchises have on the local communities. There is a lot of overstatement that has been caused by various factors. In the first place, the studies do not factor in the substitution effect.
This implies that people who attend these sporting events spent their money on those occasions forgoing other activities in the local economy. Consequently the sporting events occasions realignment of expenditures in the economy as opposed to the picture painted of real net increases in the economic activities. Secondly, the researchers do not include the crowding-out effect. In most cases, large sporting events are normal organized in communities that are considered to be already popular tourist destinations.
Restaurants and guest houses in the city hosting the event tend to be filled up to near capacity during this time when the events are being organized; consequently, the normal tourist economy is adversely affected as the tourists seek alternative destinations hence the crowding-out effect. Moreover, the studies conducted cannot authoritatively disclose whether the money in the sporting event venues stays within the local economy. There is no guarantee that the money does not leave the local economy. Besides, a large portion of the money spent on sporting events caters to rental cars, restaurants, and hotels.
Many of these hotels, restaurants and rental cars are national chains hence concrete evidence that the money realized is not exclusively spent within the organizing city hence not expanding the local economy. The profits that are associated with these investments are spread out in the country to the various stakeholders and not particularly in the local economy. The local citizens’ welfare cannot be tagged on the sporting events that are organized within the city. Furthermore, revenue realized from tickets sale is usually to a sporting ruling body or a league as opposed to local organizers.
Another factor attributed to the overstatement of the impact of sporting events on the local economy is the fact that non-economic costs like vandalism, traffic congestion, disruption of resident’ s lifestyles, and environmental degradation are often ignored as observed by Lee (2001). Lastly, whereas economic impact studies are largely used by sports boosters to gain access to public funds to be spent on infrastructure, the most important question to be asked with regard to the studies is whether research carried out by agents who have an interest in the matter can be regarded as unbiased when it comes to a clear reflection of the effect of sporting event on the economy. An empirical analysis of economic Impact Statements It is one point to analyze the potential bias that is perpetually carried in the impact studies.
It is another point, however, to investigate whether real impact studies ideally are twisted. One of the methods that can be utilized in determining economic impact studies accuracy is ex-post comparisons of forecast economic advantage to the real economic performance of those cities that play host to sporting events.
Investigations involving empirical studies have been carried out on the perceived economic impacts of large sporting events together with new sports facilities construction. Regarding sporting facility, studies have scrutinized the association between economic growth and new facilities in the metropolitan areas. As explained by Siegfried & Zimbalist (2000), in all cases, economic impacts analysis that are independently attributed to newly built arenas and stadia has conclusively established no-existence of a statistically fundamental positive association between the construction of sporting facilities and economic development.
This is contrary to the assertion of leagues and teams who explain that the huge economic advantage of professional franchises is reason enough for commissioning public expenditure on arenas and stadiums. When it comes to events, almost each international or national sporting event provokes clams of many advantages that are channel towards the city playing host. For instance, the National Football League obviously popularizes the claim of Super Bowl economic impact of close to $400million. Major League Baseball associates a $75million advantage to the All-Star Game. NCAA Final Four is rumored to generate close to $30-100million in men’ s basketball.
Multi-day like the soccer World Cup or the Olympics suggest even bigger amounts. Atlanta’ s Games held in 1996 pre-Olympic estimates pointed out that the event will culminate in the realization of $5.1 billion in indirect and direct economic activity as well as the creation of new jobs in Georgia estimated at 77, 000. In many circumstances, the disparity in the estimates’ benefits is enough reason to raise eyebrows with regard to impact studies validity. Various economic studies regarding the NBA All-Star game generated figures falling between $3 million windfalls for the game staged in 1992 in Orlando to a $35 million bonanza for the game hosted in Houston three years before.
The ten-fold difference of the event estimated the impact at different times is an adequate demonstration of the ad hoc nature of the studies that carried about. In the same breath, before the NCAA Women’ s Basketball Final Hour held in 1997, an economic impact amounting to $7 million was claimed for Cincinnati local economy, whereas the same event with a span of two years projected to generate a $32 million impacts on the economy of San Jose.
Such changes in estimated figures cannot be attributed to changes in price levels or an increase in the popularity of the organized tournament. However, they can be attributed to the inconsequential economic impact studies that are very subjective and prone to error and manipulation. Furthermore, the estimated size cannot increase credibility. The Sports Management Research Institute projected the economic impact of Flushing Meadows’ U.S. Open tennis tournament to be about $420 million for the tri-state area.
This surpassed any other entertainment or sporting event in any city in America. The sum of money represented 3% of the total yearly direct economic impact of tourism in New York City. It is very difficult to attribute the coming of 1 in any 30 tourists to the attendance of the U. S. Open. The estimated $6 million economic impacts of the World Cup held in South Africa in 2006 suggested that soccer games and associated activities represented 4% of the Gross Domestic Product of South Africa for that particular year. Just like in the case of sports facilities, investigation on the economic impact of sporting events has more often than not established the effect of these events on the local community economy being either insignificant or very minimal as compared to figures fronted by sports promoters. In research of 6 Super Bowls starting from 1979, Porter (1999) dispelled rumors of an increase of taxable sales in the local community as compared the other year that had no sporting event.
In another instance, Baade and Matheson (2000) found out that hosting the Super Bowl was linked with a surge in employment in the host cities of about 537 jobs, for an economic impact of close to $32 million, less than 10% of the figure popularized by NFL.
In an investigation into twenty-five Major League Baseball all-star games conducted from 1973 to 1997, Matheson and Baade (2001) established that, in regard to three all-star games held in California, the events were associated with worse than anticipated growth in employment in hosting cities and further linked to average shrinking in taxable sales of close of $30 million.
Lastly, the examination conducted into the Olympic Games staged in Los Angeles in 1984 as well as Atlanta in 1996 established increases in economic activity range of $100 million to $440 million. The huge disparity of the economic impact figures shows a big level of uncertainty; the most favorable amounts are only a third of the figure projected by the host committee. Discussion and recommendation There are adequate theoretical explanations to assert that economic impact studies of large sporting events may not present the true picture of the impact of the event.
Moreover, evidence indicates that in reality, the ex-ante figure estimates of economic benefits are far above the ex-post realized economic development in communities that play host mega-sporting events or construction of stadia. The host cities have to regard the figures projected for economic impact offered by sponsoring leagues, event organizing committees, and sports franchises with extreme caution.