2004: Impact studies: More fiction than fact?
Last month’s PGA Championship and next week’s Ryder Cup will pour $225 million into the Wisconsin and Michigan economies, according to economic development officials in those states.
Or maybe not.
Whenever a major event takes place, government officials in the host cities routinely attach economic-impact estimates to the event. The numbers sometimes are used to justify public subsidies, such as new roads or security.
For the PGA Championship at Whistling Straits, state and local officials in Wisconsin were quoting economic-impact estimates of $70 million to $75 million. In Detroit, the figure being thrown around for the Ryder Cup is twice that: $150 million.
In the past decade, a cadre of independent economists have written scores of lengthy research papers and books challenging the rationale used in these impact studies. One of the leaders in this area, Robert Baade, an economics professor at Lake Forest College in Illinois, likes to say that “if you move the decimal point one place to the left, you’re more likely to identify a more reasonable number for the impact.”
Public officials and quasi-governmental bodies around the country churn out an abundance of impact studies touting the economic benefits of everything from minor conventions to major golf tournaments to Super Bowls.
“The quality of the studies vary enormously, none of them are done well and some of them are ridiculous,” says Andrew Zimbalist, a professor of economics at Smith College in Northhampton, Mass., and a frequent writer on the subject.
A $75 million figure was attached to this year’s U.S. Open in New York, and Rep. Max Burns of Georgia claimed in April that the Masters generates $100 million to $150 million in spending. Those figures are routinely dwarfed by the Super Bowl. The Host Committee for this year’s game in Houston estimated that it contributed $300 million to the local economy, and in some years the estimate has been more than twice that amount.
But, says Brad Humphreys, an associate professor in the department of recreation, sport and tourism at the University of Illinois at Urbana-Champaign, “The academic literature is pretty much conclusively against the sizable economic impact of major sports events.”
The sources for the Wisconsin and Detroit numbers are difficult to trace. Jerry Huffman, communications director for the Wisconsin Department of Tourism, says, “The number we have been using is the number that the PGA gave us.” But a PGA spokeswoman says the association doesn’t do any economic-impact analysis, leaving that job to officials in the cities that play host to its tournaments.
Huffman says a Madison, Wis., firm called NorthStar Economics Inc. would do a post-event analysis of the PGA’s economic impact. That report is not due until October.
Larry Alexander, president and chief executive officer of the Detroit Metro Convention & Visitors Bureau, says his group borrowed its $150 million projection from an economic-impact report produced by the Greater Boston Convention and Visitors Bureau following the 1999 Ryder Cup. He adds that a post-Ryder Cup survey of attendees will be done to gauge how much money they spent during the tournament.
In an e-mail, a spokeswoman for the Greater Boston CVB says a study was done in 1999, but says “the problem is we can’t seem to locate it internally.”
“There is often the ‘missing study syndrome,’ ” deadpans Victor Matheson.
Matheson is an assistant professor at the College of the Holy Cross who has produced, often in concert with Baade, extensive research critical of economic-impact reports. He says he sees several common flaws with these reports.
They routinely assume that all of the money spent at an event would not otherwise have been spent, he says, when in fact “it’s just money that’s being rearranged.” He notes, for example, that a friend drove from Milwaukee to Whistling Straits to watch a PGA practice round.
“It’s a gain for golf in the area and a loss for the Milwaukee Brewers,” Matheson says.
He also says fans attending a big event will simply “crowd out” other tourists who otherwise would have visited that area. Similarly, says Baade, many people who live in the area might decide to leave during the event because of concerns about traffic, noise or other issues, thereby offsetting the visitors’ impact.
And, Baade adds, “There clearly is some dead time before these mega-events,” because potential visitors fear prices will be jacked up.
The money also won’t typically stay in the area. “If the Hyatt raises the room rates for a big event, they’re not raising the salaries of the staff,” Matheson says. “It’s only benefiting the corporate shareholders.” And even if hotel occupancy rates rise during an event, he adds, “you don’t build a hotel unless you can fill it most of the time.” So the net gain even during a major event tends to be minimal.
There’s also the phenomenon economists call “time switching.” For instance, people might plan to visit Detroit, but won’t make the trip during the Ryder Cup, anticipating traffic tie-ups or higher prices. Conversely, they already might have planned to visit Detroit, but altered their travel schedule to coincide with the Ryder Cup so they could attend.
Impact reports, Matheson says, also tend to overlook a budget line-item that has escalated sharply in the post-9/11 era: security costs. That exacts a direct toll on public resources.
Matheson doesn’t completely discount the possibility that a major golf tournament could have a modest impact if it creates economic activity that wouldn’t otherwise occur. The Ryder Cup might fit that description.
“Having a golf tournament in September in Detroit may not be such a bad thing because there may not be much of a crowding-out effect,” Matheson says.
And he allows that there might be a small legacy effect for the area around Haven, Wis., site of the PGA Championship. “Wisconsin is a place that really isn’t on most people’s maps,” he says, so some of the television viewers might be inspired to visit Whistling Straits in the future. But this impact is difficult, if not impossible, to measure.
Similarly, economic-development officials often tout an intangible – civic pride – that an event will generate.
“That’s valuable, it really is,” says Humphreys, “but that’s not the same thing as creating jobs.”
Perhaps, Zimbalist suggests, economic-development agencies should simply savor events like the PGA Championship and the Ryder Cup for what they are.
“It’s not really an economic event,” he says, “it’s a golf tournament."