By Robbie Butler
Chapter 18 of The Oxford Handbook of Sports Economics (Volume 2) is written by Peter von Allmen and is essential reading for those interested in the multiplier effect and the local economic impact of sport.
von Allmen (2012) commences the chapter by saying:
“projects that promise to generate substantial increases in income and employment effects are likely to garner widespread public support”.
This is often thought to be the case with sports franchises and sporting events. However, many studies have been carried out to date which all find clear evidence of little or no net gain from the presence of sport related activity in a city, state or country. Despite this evidence, many people espouse the opposite view and maintain that sporting events can generate a net gain to the host economy. According to von Allmen, this standpoint is often reliant on ex ante impact studies, funded by the interested parties
“that (mis)use economic tools and terminology – most notably the multiplier effect, - to explain why investment in [sports] facilities” will lead to an increase in incomes across the economy.
The multiplier is the increase in economic activity that follows from an injection into the economy. von Allmen suggest that hosting a major sporting event has two forms of initial expenditure; construction e.g. stadium construction, redevelopment, etc. and operations e.g. match day activities. According to investigative work by both Crompton (1995) and Hudson (2001) construction is likely to generate no net gain. There is simply either an increase in the national debt to pay for construction costs or an increase in taxes to fund the cost. There is also the opportunity cost to consider (what else could have been done with the money?).
Multiplier effects from operation are often overstated too. A common misnomer can be put down to consumption on match days. If spending increases in bars, restaurants and pubs near to constructed stadium, advocates often suggest an increase in economic activity. This is often not the case but rather a substitution effect. If local citizens decide to spend their money on these activities other vendors, away from centralised locations, are losing out. Leakages are also apparent on match days. Is all money spent staying in the domestic economy? The answer is often no. Should a supporter decide to buy a replicate shirt made by a foreign manufacturer, a large proportion of this spending does not stay locally but is instead repatriated back to the manufacturer’s home country. Crompton (1995) and von Allmen (2012) point out that
“increased spending (i.e. sales), however, does not necessarily mean increased income”.
Food for thought...
Chapter 18 of The Oxford Handbook of Sports Economics (Volume 2) is written by Peter von Allmen and is essential reading for those interested in the multiplier effect and the local economic impact of sport.
von Allmen (2012) commences the chapter by saying:
“projects that promise to generate substantial increases in income and employment effects are likely to garner widespread public support”.
This is often thought to be the case with sports franchises and sporting events. However, many studies have been carried out to date which all find clear evidence of little or no net gain from the presence of sport related activity in a city, state or country. Despite this evidence, many people espouse the opposite view and maintain that sporting events can generate a net gain to the host economy. According to von Allmen, this standpoint is often reliant on ex ante impact studies, funded by the interested parties
“that (mis)use economic tools and terminology – most notably the multiplier effect, - to explain why investment in [sports] facilities” will lead to an increase in incomes across the economy.
The multiplier is the increase in economic activity that follows from an injection into the economy. von Allmen suggest that hosting a major sporting event has two forms of initial expenditure; construction e.g. stadium construction, redevelopment, etc. and operations e.g. match day activities. According to investigative work by both Crompton (1995) and Hudson (2001) construction is likely to generate no net gain. There is simply either an increase in the national debt to pay for construction costs or an increase in taxes to fund the cost. There is also the opportunity cost to consider (what else could have been done with the money?).
Multiplier effects from operation are often overstated too. A common misnomer can be put down to consumption on match days. If spending increases in bars, restaurants and pubs near to constructed stadium, advocates often suggest an increase in economic activity. This is often not the case but rather a substitution effect. If local citizens decide to spend their money on these activities other vendors, away from centralised locations, are losing out. Leakages are also apparent on match days. Is all money spent staying in the domestic economy? The answer is often no. Should a supporter decide to buy a replicate shirt made by a foreign manufacturer, a large proportion of this spending does not stay locally but is instead repatriated back to the manufacturer’s home country. Crompton (1995) and von Allmen (2012) point out that
“increased spending (i.e. sales), however, does not necessarily mean increased income”.
Food for thought...
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