The Golf Life: PGA Championship study gets caught in numbers game

August 13, 2017; Charlotte, NC, USA; Justin Thomas hits out of the fairway bunker on the 18th hole during the final round of the 2017 PGA Championship at Quail Hollow Club. Mandatory Credit: Kyle Terada-USA TODAY Sports Kyle Terada/USA TODAY Sports

The Golf Life: PGA Championship study gets caught in numbers game

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The Golf Life: PGA Championship study gets caught in numbers game

This month’s PGA Championship in St. Louis will generate $102 million in economic benefits for the state of Missouri.

Actually, it won’t. But inevitably, many fans watching or reading about the PGA Championship will hear or see that figure thrown about.

As in every sport these days, big events bring big claims of economic windfalls for the host cities. Tourism officials on Long Island projected the U.S. Open at Shinnecock Hills would generate $120 million in economic benefit. (Or maybe it was $130 million. Who’s counting?) A similar number was floated by the Angus (Scotland) Council this year with regard to the British Open at Carnoustie. Over the years, the Masters has been said to bring in a comparable nine-figure haul to Augusta, Ga.

These numbers bubble up from local chambers and tourism bureaus, are touted by local politicians and often are cited by tournament organizers and governing bodies.

Numbers don’t always add up

The problem is this: These estimates are wildly inflated, according to experts.

“The main thing that economists have a problem with is that maybe these economic-impact studies do an OK job measuring gross economic activity, but not net economic activity,” said Victor A. Matheson, a professor of economics at the College of the Holy Cross.

Matheson, who has researched and written on this subject for two decades, said these studies fail to address the key question: “How much new economic activity is taking place thanks to this event?”

The best guess is that it’s a small fraction of the nine-figure estimates widely reported.

One of the leading fallacies of economic-impact studies is they don’t acknowledge what economists call “the substitution effect.”

“If you don’t account for the fact that you’ve simply reallocated local spending, you’ve enormously exaggerated the economic impact,” said Robert A. Baade, an economics professor at Lake Forest College in Chicago. “To the extent that people spend time and money on a local PGA (Tour) event, that means they have less time and money to spend on other locally owned and operated entertainment activities.”

Economists also point to the “crowding-out” effect.

“If your hotels are generally full, and you have a big event, you’re just replacing regular tourists or business travelers with golf fans,” Matheson said. “You get one type of tourist being displaced by another.”

Mega-events typically cause hotels and other businesses to raise their rates. But even that doesn’t account for another economic reality – what economists call “leakages.” That is, most of the extra revenue doesn’t stay in the host city.

Augusta remains the exception

“If hotels double their prices because a big event is in town, they don’t double the wages of the desk clerks and room cleaners,” Matheson said. “All of those extra profits go back to corporate headquarters.”

The one major championship that is on slightly firmer footing is the Masters, which draws an inordinate number of out-of-town spectators to a small market.

“There’s no doubt that something special happens at Augusta,” Matheson said.

Local Augusta businesses reap a windfall during Masters week, but even then, Matheson noted, many regular business activities grind to a halt during tournament week.

Still, he allowed, “That’s clearly a mega-event.”

Steve Mona, CEO of the World Golf Foundation, acknowledges these studies don’t assess net economic benefit. But he argues there are less-tangible benefits for cities that host major championships. That includes “residual benefits,” such as the opportunity to promote tourism or host corporate executives who might want to expand their companies’ operations in the city.

“It’s tough to be exact here,” Mona said. “Most people who have hosted these (championships) would tell you that it’s been net positive for their economy to host it, even with all of the expenses loaded in – both in the short term for the event itself and in the long term for future tourism or business activity. Does it equate to the numbers that get used to measure economic impact? That can be debated, but there’s something there.”

Matheson and Baade concede this point but want to temper the economic hyperbole that’s inevitably attached to events such as the PGA Championship.

Baade said he never has seen evidence to support any economic-impact study he has reviewed, but allowed there could be “an economic legacy” – some benefit the community gains from the heightened visibility of the tournament.

Matheson said the rule of thumb among economists is to “move the decimal place one place to the left, and that’s probably a pretty good guess as to what’s going to happen to the economy of St. Louis.”

That would suggest an economic impact closer to $10 million for St. Louis. That’s nowhere close to the number being touted, but still nothing to sneeze at. Gwk

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