Playbooks and Checkbooks is the title of the 2009 book by sports economist Stefan Szymanski. In the book Szymanski considers the impact of sport on our lives and asks whether the sports business generally shares its gains with the citizens supporting it.
One of the more interesting chapters is called “Sports and the Public Purse”. The author examines what is known as the “sporting money illusion” – the theory that sporting events bring large amounts of income into a host city, country or region. Szymanski goes on to illustrate how this is not the case with the use of examples at the national level.
Here’s a micro example. I managed to get to two days of the Irish Open at Fota Island Resort recently. Many people might have had the view that Cork, and indeed Ireland, benefits economically from this event. Is this so?
It all depends on where people come from.
By far the majority of people at the event were from Cork itself. Their decision to attend the event does almost nothing for the local economy, expect possibly increase the velocity of money in circulation. This is obviously debatable. A resident of Cork (spending money in Fota at the event) is simply substituting their consumption. e.g. cinema is quieter, restaurants less full, city centre bars not as busy.
Irish residents not from Cork, and attending the event, do boost the local economy. Money spent in Fota or the surrounding area would probably not have been spent in Cork hence the city and/or county are better off. As a result, one can argue that the event has large local economy benefits. On the flip side however other counties lose out, be it Dublin, Kerry, etc. Furthermore, these Irish residents bring no net gain to the Irish economy. GDP is no bigger.
The only benefit to the Irish economy comes from international visitors. I can tell you these were few and far between at the Irish Open. However, the income they spend is a win-win from both Cork and Ireland. Hotel rooms, restaurants, bars, etc. all benefit from their presence and the money is additional to what would have been spent had the Irish Open not been here.
So next time some tells you how much an event is worth to the local economy, consider if it is does anything at the national level. More often than not people mistake local benefit with a substitution effect.