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Impact of Major Sports Events on the Economy

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Introduction

The use of sports markets to explore questions of economic interest has a long history as the majority of this literature analyses US sports, notably American football, basketball, baseball, and ice hockey, whilst there is also a considerable interest in soccer, the leading world sport (For example, the 1998 European Short Course Swimming, 1999 European Show Jumping and the 2001 World Half Marathon Championships).

Over the past two decades there has been increased competition among cities, regions and countries to host mega sporting events Therefore Government and other proponents of major sporting events usually seek to back up their claims of the event providing an economic boost by commissioning an economic impact statement. For example, Economic Research Associates' (1984) study of the Los Angeles Olympics, Humphreys and Plummers' (1992) study of the Atlanta Olympics, and KPMG Peat Marwick's (1993) study of the Sydney Olympics.

Hosting a sport event has revealed a number of benefits in our communities and of those benefits, some reasons like increasing community visibility, positive psychic income, and enhancing community image are all common and acceptable postulations. Economic impact in sporting events can be defined as the net change in an economy resulting from a sport event and the change is caused by activity involving the acquisition, operation, development, and use of sport facilities and services (Lieber and Alton, 1983)which in turn generate visitors' spending, public spending, employment opportunities, and tax revenue. In study of economic impact Expenditures can be categorized as direct, indirect, and induced effects. For example direct expenditure is the investment needed to meet the increased demand of visitors for goods and services. Indirect effects are the ripple effect of additional rounds of re-circulating the initial spectators' dollars. Induced effects are the increase in employment and household income that result from the economic activity fueled by the direct and indirect effects (Dawson, Blahna, & Keith, 1993; Howard & Crompton, 1995).

Sports Economics possesses substantial experience in economic consulting to the sports industry, with specific knowledge of the economic impact of facilities, events, and teams so considering the publicity and scrutiny surrounding such studies, it is imperative to select a firm that not only has substantial experience, but also has a reputation for consistently providing an accurate assessment of economic impact.

There are following reasons to conduct economic impact studies of sport events and Firstly, because many sport events in our communities were financed by public tax support, economic impact studies continue to be an important public relations tool for city government. Secondly, there is doubt that sporting events may actually help develop a community in relative to its economy therefore, accurate estimates should be proposed and the results should be reported to community members and Thirdly, as sport is not just an entertainment but an industry so the results of economic impact may be a cornerstone to develop many related businesses in communities. Finally, positive or negative economic results of sport events may be an important method to determine communities' draft budget for the coming year so as an example in July of 2001, Beijing was awarded the 2008 Summer Olympic Games so most people assume that such an event will bring enormous economic benefits to the host city not just during the event, but for years afterward. "The scale of the organization, facilities and infrastructure required for such a huge undertaking are such that the Games cannot but have substantial economic effects" (Sydney 2000 Games, p 2) but what exactly are these economic effects, and how do they affect the quality of life of local residents?

The relevance of studies for example, it seems logical that a less developed country will have more to gain from long term growth opportunities. Matheson and Baade (2003) argue, however, that the prospects of mega-sporting events are even worse for developing countries and the opportunity costs of providing state of the art facilities are much higher and lack of modern infrastructure requires significant additional investment.

This report examines the wider benefits that move beyond the economic impact and proffers the adoption of the 'balanced scorecard' approach to event evaluation. Moreover, the data from the past economic impact studies were used to produce an economic impact forecasting model designed to predict the economic impact attributable to an event prior to it taking place.

This Research have been developed by undertaking wider evaluations of some of the events, for example, the 1998 European Short Course Swimming, 1999 European Show Jumping and the 2001 World Half Marathon Championships. Beyond the economic impact generated by an event, these wider evaluations have also examined the public profile achieved by the events and looked in particular at the media value associated with television coverage and place marketing effects linked to such coverage.

This Report also provides additional analysis which helps to put IPL event into context by:

  • Outlining the generic economic benefits and return on investment to a country's economy of hosting a major event such as IPL.
  • Profiling IPL and comparing it to other similar international events in respect of the key elements underpinning economic impact.
  • Identifying regional factors and drivers that may affect the economic impact of IPL in different regions
  • Outlining the possible contribution to a Host Nation's Government via taxation, as a result of hosting IPL, investment and cost associated with IPL.

Literature Review on Economic Impact Studies

Precursor

The aim of this literature review is to understand direct and indirect impact of major sports events on economy and understand how major sports can open new dimension in economy. This has been done through referring various journals, articles and magazines; also a survey has been carried out as part of primary research to analyze impact of major sports event on Economy; however validation of data collected is subject to sources and prevailing conditions. Final phase of this study on IPL covers analysis of contribution of IPL to Indian economy, It analyze that how IPL has opened a new dimension for Indian economy to grow and attracts domestic and foreign investors. This phase also covers SWOT analysis of IPL, reasons critical to success of IPL and future ahead.

Statement of Purpose

Previously many research studies have contributed to understand economic impact of sport and/or recreational events; however most studies are based upon the researchers' personal perception and arguable methodology. The purpose of this study was to review previous economic impact studies and to construct framework for conducting an economic impact study. This entire theoretical framework has been tested by analyzing a case study of economic Impact of mega sports events like "Indian Premier League" on Indian economy.

Literature Review

To study Economic impact of sports is challenging topic in the field of management fields because estimating the economic impact of sporting events and make some constructive statement is very difficult and subjective. Due to the subjective nature of social science, ideas and methodology vary from person to person for conducting economic impact studies. The main barrier behind conducting social science research is based on the level of competitiveness and belief in understanding of the material. and also social objects are hidden behind a screen of pre-constructed discourses which present the worst barrier to scientific investigation, and countless sociologists believe they are talking about the object of study when they are merely relaying the discourse which, in sport as elsewhere, the object produces about itself, whether through its officials, supporters or journalists (Bourdieu, 1999). Therefore, construction of truly scientific objects implies a break with common representations, which can notably be effected by taking these pre-notions as the object of study so this report examines the wider benefits that move beyond the economic impact and proffers the adoption of the 'balanced scorecard' approach to event evaluation. This consolidated piece of research builds on the original 'Measuring Success' in 1999 which was based on the premise that major sports events have the potential to achieve significant economic impacts for the host town, city or area but economic impact is now one of the parameters upon which an event's success is measured.

Major sports events have the potential to achieve significant economic impacts for the host town, city or area, Countries, who host the mega sports event, should make a roadmap for significant investments in sports venues and other infrastructure. It is generally assumed that the scale of such event and roadmap of the preparation for it will create large and long lasting economic benefits to the host country. This would result in huge economic benefits that would have significant economic impact. However unfortunately these studies are constructed around misapplications of economic theoretical framework that virtually guarantee their projections will be large. Ex-post studies have consistently showed no evidence of positive economic impacts from mega-sporting events even remotely approaching the estimates in economic impact studies. For example, in the 2008 Summer Olympic Games in Beijing, China have put up huge investments in infrastructure and facility recreation to a new level. The opportunity for long term economic benefits from the mega sports event like Beijing, critically depend on how well mega sports events related investments in venues and infrastructure can be incorporated into the overall economy in the years following the Games

In current scenario economic impact studies have become standard operating procedure for supporters of public funding for sports events. It has led to acceptance of their findings by the government and public due to their prevalence with no critical evaluation. Due to the huge investment involve in such high profile mega sports events, large and positive Economic effects are taken as given; the studies confirm what is already believed. "The promise of worldwide exposure and economic gain has made hosting these major and regularly scheduled sporting affairs a lucrative goal for aspiring cities around the world" (Short 2000, p. 320).

Hosting a mega sport event like Olympic, has exhibited a number of large and long lasting benefits in our communities like enhancing community image, increasing community visibility and positive psychic income are all common and acceptable postulations. However, sport is not just limited to an entertainment, also it act as full fledge industry, the results of economic impact may be a cornerstone to develop many related businesses in communities. Positive or negative economic results of sport events may be a critical factor to determine communities' draft budget for the coming year.

Mega-events" such as the Olympic Games require large sums of public money to be spent on venues and infrastructure improvements. Economic impact studies are often commissioned In order to justify the use of large sum of public money towards invariably large inflows of money that will have a long-term positive effect on the economy by such means as job creation and visitor spending. Scale of the mega sports event which attract large amounts of money from outside a local economy, are forecasted to have economic impacts in the billions of dollars

The simple elegance of economic impact studies, injections of money circulating over and over in an economy to create a multiplier effect, has an alluring "something for-nothing" quality that is hard to refute. However to justify a counter argument can be difficult due to numerous mistakes made in economic impact studies. Critics have focused on numerous subjective areas like: 1) using multipliers that are too large, 2) treating costs as benefits, 3) ignoring opportunity costs and 4) using gross spending instead of net changes.

In hosting mega sports event the major part of investment required on constructing stadiums, which to a large degree is spent on hiring construction workers and purchasing materials from local suppliers, is counted as a benefit to the local economy. However It is backward looking and the most egregious error in economic impact studies, which looks on production cost benefit of the project and ignores the effect of the actual consumption of the products on economy.

Ex-post studies, however, have consistently found no evidence of positive economic impacts from mega-sporting events even remotely approaching the estimates in economic impact studies. In a study of the impact of Super Bowls on local economies, Philip Porter (1999) found "no measurable impact on spending associated with the event. The projected spending and spill over benefits of regional impact models ever materialize" (Porter 1999, p. 61) Porter's explanation is that capacity constraints in the hotel industry cause room prices to increase with no change in occupancy rates. Higher rates contribute to the crowding out of regular traffic and net spending in areas other than hotel rooms changes little or not at all.

Longer term sports programs, usually involving stadium subsidies to attract or keep professional teams, have also failed to deliver on projected economic benefits. Even for cities that usually are considered success stories for sports development strategy, such as Baltimore (Hamilton and Kahn 1997) and Indianapolis (Rosentraub 1994), empirical research does not find evidence of statistically or economically significant positive impacts.

Sports economists, on the other hand, have found economic impact studies lacking both in theory and practice. Ex-post studies have consistently failed to find evidence of any economic benefits related to sports teams and facilities. In examining recent retrospective studies, Coates and Humphreys (2003, p. 6) concluded "building new sports facilities and attracting new professional sports teams did not raise income per capita or total employment in any US city." A closer look at the methodology of such studies reveals an appealing but fundamentally flawed line of economic reasoning that virtually guarantees a forecast of large economic benefits.

The term "economic impact analysis" refers to rigorous surveys, research, and modeling to estimate the direct and indirect economic effects of an entity or event on the local, county, state, or U.S. economy, as measured by employment, tax revenue, income, or gross product (overall economic output).

The impact of an economic event is the summation of direct effects and indirect effects. For example, when a hundred dollars is invested in building a new library in a city, that money (the stimulus) flows through the local economy multiple times as construction supplies are purchased, and as construction workers spend their paychecks at local supermarkets, restaurants, and other retailers, who in turn buy more inventory, and so on. That is, an initial stimulus triggers a chain of spending. This chain of spending is estimated via multipliers.

The term 'economic impact' used in isolation can be interpreted in different ways in both the short term and long term. Therefore, in order to be clear what is meant in the context of the sixteen events reviewed in this report, UK Sport has adopted the following definition within its major events strategy:

The net economic change in a host community that results from spending attributed to a sports event or facility. Turco & Kelsey (1992)

The change is caused by activity involving the acquisition, operation, development, and use of sport facilities and services (Lieber & Alton, 1983). These in turn generate visitors' spending, public spending, employment opportunities, and tax revenue. Specifically, the economic impacts of expenditure are composed of direct, indirect, and induced effects. Direct effects are the purchases needed to meet the increased demand of visitors for goods and services. Indirect effects are the ripple effect of additional rounds of re-circulating the initial spectators' dollars. Induced effects are the increase in employment and household income that result from the economic activity fueled by the direct and indirect effects (Dawson, Blahna, & Keith, 1993; Howard & Crompton, 1995). The initial construction of a $10 million sports facility provides an initial impact of $10 million on the local economy. This is the direct impact. Clearly, the construction of the facility will require concrete, steel, construction workers, and so forth. The money spent on these materials and services comprises the indirect expenditures, or the indirect impacts. (Hefner 1990, pp. 4-5)

In high level terms economic impact studies aim to measure the increased economic activity surrounding an event. For sporting events, the key stimulants of activity are the expenditure of spectators, event organisers and other stakeholders, which flow through the local economy to expand total regional and national GDP. The diagram below illustrates the principal components of economic impact. There are three broad areas in which impact will occur, as follows:

  • Core impacts - primarily comprising expenditure by, or generated from, international spectators attending sports events from tickets and match day catering;
  • Other direct impacts - comprising spending by spectators and other visitors on accommodation, food and beverage, transport and other spending, as well as investment in infrastructure; and
  • Indirect and induced impacts - relating to the 'ripple effect' as the direct spending is recycled through the economy. The primary components are indirect impacts, achieved largely by businesses spending on suppliers, and induced impacts, as recipients reinvest money in the economy themselves. In addition, there is also significant expenditure by domestic residents. Domestic spending comprises an important element of the full value of sports event to a Host Nation.

Economic impact is based on the theory that a dollar flowing into an economy, that otherwise would not have been spent, is a benefit to the economy. Economic impact studies not only measure economic impact, but are also used to provide information in the decision to publicly fund sports venues or sports commissions/authorities, or to measure the "success" of events hosted in a local community in generating positive economic outcomes for both the event owners and the locale.

Economic impact analysis measures new spending in a local economy due to the presence of, for example, a facility or an event. The change in the economy is measured in terms of total new spending, fiscal impact (total new taxes collected), personal income generated, and jobs created, both directly and indirectly. By increasing the new money in an economy, the economic benefit is serving a greater good by increasing government tax revenue, augmenting business income, and ultimately resulting in more jobs and higher personal income for residents of that economy. In developing the model there are specific regional factors and drivers that will have an influence on the economic impact The diagram below illustrates the key components in determining the potential economic impact :

Event Economic Effects/Impacts (Pre-event & Post-event phases)

  • Economic growth (GDP) and impact
  • Targeted growth in economic relevant sectors
  • Direct and indirect employment created
  • Direct, indirect and induced impacts ("Multipliers Analysis")
  • Economic-social Net Present Value
  • Touristy flows ("visitors economy")
  • Olympic legacy ("stadia & infra-structures")
  • Globalization ("Global branding & exposure")

Sports Economics possesses substantial experience in economic consulting to the sports industry, with specific knowledge of the economic impact of facilities, events, and teams. Considering the publicity and scrutiny surrounding such studies, it is imperative to select a firm that not only has substantial experience, but also has a reputation for consistently providing an accurate assessment of economic impact. Sports Economics' methodology is sound and defensible, and we are qualified to and capable of affirming our results to any audience necessary

The benefit in economic terms to a host economy is defined according to the additional expenditure by visitors to that economy which is directly attributable to the staging of the event. These visitors can come from elsewhere in the same country or from overseas. If the visitors come from elsewhere in the same country, any economic impact is actually a redistribution of money around that country's economy and is not necessarily 'new' money to the economy. Visitors from overseas actually provide 'new' money in the form of invisible exports and potentially a 'net export effect' on overall GDP. One might argue that the quality of economic impact can be gauged according to the net export effect associated with an event, namely the extent of any 'new' money brought into the UK economy from overseas visitors (and other sources) as a result of staging an event. However, this may be of little concern to local organisers who do not care whether any additional expenditure is attributable to someone from for example the USA or elsewhere in the UK, hence redistribution is not an issue.

The main point of note is that only some people are eligible for inclusion in the economic impact calculations i.e. visitors to the host city or area specifically as a result of an event being staged. The remainder live locally and their expenditure would have been made regardless of a specific event taking place, hence such expenditure is termed 'deadweight' and not eligible for inclusion in the calculations.

Obtaining a value for the initial impact of a team or event is the first step in any economic impact study. The initial impact is then magnified through the use of a multiplier, based on the idea that money brought into a local economy will be respent over and over, becoming income for others in the economy.

In this way a multiplier also magnifies the errors made in calculating initial impact, especially by once again failing to recognize opportunity costs. The multiplier is applied to any new spending in the economy regardless of the source. If the multiplier does not depend on the spending source, then it is useless in the comparison of alternative projects.

The multiplier effect accounts for the overall economic impact of a sport event. The multiplier effect demonstrates the process through which initial spending in a region generates further rounds of re-spending within the region. The ripping process of subsequent re-spending is the multiplier effect. The basic principle of the multiplier effect begins with an initial spending as an increased income into an economy. A portion of the increased income is spent and further re-spent within the region (Archer, 1984; Crompton, 1995; Wang, 1997). In summary, there are three elements that contribute to the total impact of visitor spending: Direct impact (the first-round effect of visitor spending), Indirect impact (the ripple effect of additional rounds of re-circulating the initial visitors' dollars), and Induced impact, which is further ripple effects caused by employees of impacted business spending some of their salaries and wages in other business in the host community (Howard & Crompton, 1995).

A variety of multiplier used modeling techniques are available: TEIM (Travel Economic Impact Model), RIMS (Regional Input-output Modeling System) (Donnelly, Vaske, DeRuiter, & Loomis, 1998; Wang, 1997), TDSM (Tourism Development Simulation Model) (Donnelly, et al., 1998), RIMS II (Regional Input-output Modeling System, version II) (Wang, 1997), ROI (measuring financial Return On Investment) (Turco & Navarro, 1993), and IMPLAN (Impact Analysis for Planning) (Bushnell & Hyle, 1985; Dawson, Blahna, Keith, 1993; Donnelly, et al., 1998; Howard & Crompton, 1995; and Wang, 1997). Of those modeling techniques, IMPLAN is one of popular methods. The IMPLAN model was developed by the U.S. Forest Service and Engineer Economics Associates, Inc. The IMPLAN develops input-output models for all states and counties in the United States. This model was used to estimate the employment, income, and net sales and adopted as the regional impact analysis program-of-choice. Another often-used model is RIMS, which was developed by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA). This model also offers input-output tables down to the country level (Turco & Kelsey, 1992). Also, a lot of simple formulas were developed to conduct economic impact study of sport events by local sport commission companies.

In addition to the standard projections of economic impact, Olympic studies also include longer term benefits sometimes referred to as the "Olympic Legacy." These legacy effects, derived from positive publicity from the Games, include increased tourism after the Games, attraction of business, and infrastructure investments that improve the urban environment. Legacy impacts are generally not incorporated into the economic impact numbers, but rather offered as an additional, unquantifiable benefit. The lack of any ex post study that finds improvements in economic growth or living standards due to mega events should cast some suspicion on the legacy effects of Olympics, or at least the ability of such effects to be transformed into real economic benefits to the local economy. Baade and Matheson (2002) found "the evidence suggests that the economic impact of the Olympics is transitory, onetime changes rather than a 'steady-state' change" (p. 28).

Empirical Analyses of Economic Impact Statements

It is one thing to point out bias that could potentially be introduced in impact studies. It is another thing altogether to examine whether actual economic impact studies are, in practice, truly flawed. One tool that can be used to determine the accuracy of economic impact studies is ex post comparisons of predicted economic gains to actual economic performance of cities hosting sporting events. Empirical studies have been conducted on the observed economic impacts of large sporting events as well as on the construction of new sport facilities.

On the sport facility side, numerous researchers have examined the relationship between new facilities and economic growth in metropolitan areas (Baade & Dye, 1990; Rosentraub, 1994; Baade, 1996; Noll & Zimbalist, 1997; Coates & Humphreys, 1999). In every case, independent analysis of economic impacts made by newly built stadiums and arenas has uniformly found no statistically significant positive correlation between sport facility construction and economic development (Siegfried & Zimbalist, 2000). This stands in stark contrast to the claims of teams and leagues, who assert that the large economic benefits of professional franchises merit considerable public expenditures on stadiums and arenas.

On the events side, nearly every national or international sporting event elicits claims of huge benefits accruing to the host city. For example, the National Football League typically claims an economic impact from the Super Bowl of around $400 million (National Football League, 1999), Major League Baseball attaches a $75 million benefit to the All-Star Game (Selig et al., 1999), and the NCAA Final Four in Men's Basketball is estimated to generate from $30 million to $110 million (Mensheha, 1998; Anderson, 2001). Multi-day events such as the Olympics or soccer World Cup produce even larger figures. The pre-Olympics estimates for Atlanta's Games in 1996 suggested the event would generate $5.1 billion in direct and indirect economic activity and 77,000 new jobs in Georgia (Humphreys & Plummer, 1995).

In many cases, variation in the estimates of benefits alone raises questions about the validity of studies. A series of economic impact studies of the NBA All-Star game produced numbers ranging from a $3 million windfall for the 1992 game in Orlando to a $35 million bonanza for the game three years earlier in Houston (Houck, 2000). The ten-fold disparity in the estimated impact of the event in different years serves to illustrate the ad hoc nature of these studies. Similarly, ahead of the 1997 NCAA Women's Basketball Final Four, an economic impact of $7 million was estimated for the local economy in Cincinnati, while the same event two years later was predicted to produce a $32 million impact on the San Jose economy (Knight Ridder News Service, 1999). Such increases cannot be explained by changes in general price levels or growth in the popularity of the tournament. Instead, they are explained by the fact that economic impact studies are highly subjective and vulnerable to significant error as well as manipulation.

In further cases, the size of an estimate can strain credulity. The Sports Management Research Institute estimated the direct economic benefit of the U. S. Open tennis tournament in Flushing Meadows, NY, to be $420 million for the tri-state area, more than any other sporting or entertainment event in any city in the United States; this sum represents 3% of the total annual direct economic impact of tourism for New York (United States Tennis Association, 2001). It is simply impossible to believe that 1 in 30 tourists to New York City in any given year are visiting the city solely to attend the U. S. Open. Similarly, the projected $6 billion impact of a proposed World Cup in South Africa in 2006 would suggest that soccer games and their ancillary activities would represent over 4% of the entire gross domestic product of the country in that year (South Africa Football Association, 2000).

As in the case of sports facilities, independent work on the economic impact of mega-sporting events has routinely found the effect of these events on host communities to be either insignificant or an order of magnitude less than the figures espoused by the sports promoters. In a study of six Super Bowls dating back to 1979, Porter (1999) found no increase in taxable sales in the host community compared to previous years without the game. Similarly, Baade and Matheson (2000) found that hosting the Super Bowl was associated with an increase in employment in host cities of 537 jobs, for a total impact of approximately $32 million, less than one-tenth the figure trumpeted by the NFL. In a study of 25 Major League Baseball all-star games held between 1973 and 1997, Baade and Matheson (2001) found that, in the case of three all-star games in California (1987, 1989, 1992), the events were correlated with worse-than-expected employment growth in host cities and were furthermore associated with an average reduction in taxable sales of nearly $30 million. Finally, Baade and Matheson's examination (1999) of the Olympic Games held in Los Angeles in 1984 and Atlanta in 1996 found total observed increases in economic activity of $100 million and of $440 million to $1.7 billion, respectively. While the range of the economic impact for Atlanta exhibits a great deal of uncertainty, even the most favorable figure is only one-third of the amount claimed by the host committee.

Tax impact

With its large economic footprint, long duration and significant international visitor numbers, mega sports event delivers substantial tax revenues to a Host Nation's government. This section outlines the potential types of tax revenue that can accrue to a sport event host government and an indication of the possible levels of such tax revenue. In summary, the tax revenues to the government of the Host Nation include:

  • Sales tax associated with sports event related revenues arising in the Host Nation; e.g. VAT (Value Added Tax) or GST (Goods and Services Tax). This would primarily be related to (i) direct expenditure in the host economy and (ii) ticket sales. By far the main driver of incremental tax revenues associated with hosting an international event is the sales tax associated with the incremental revenues arising in the Host Nation; e.g. VAT or GST. Sales tax rates differ significantly between countries (and in the case of the US, are different between states). The rates tend to be in the region of 10% to 20%, although lower rates prevail for certain types of revenues in some countries, and rates in Japan are all 5%. Consequently, the incremental tax revenue from sales tax that the government of potential Host Nation stand to generate from hosting the tournament will vary.
  • Company (corporation or corporate income) tax - generated from additional company profits as a result of sports event. Company tax would be generated from the incremental profits of companies in various industries which might benefit from hosting RWC - for example travel, food and beverage, hotels and so forth cascading right through the economy. This will therefore provide a financial input to the Host Nation Government. This company tax figure is included already in the GVA figures provided by the economic impact model. In certain countries (e.g. Australia), if National Governing Bodies (NGBs) of sport organize international events and keep a share of the profit, that share of the profit is exempt from direct tax. Some countries grant specific exemptions from direct tax for NGBs when they are set-up as not for profit organizations. In other countries, all income generated in a revenue cycle is allocated back to the game - therefore even extra profits from tournaments are re-invested and do not therefore generate direct tax.
  • Personal income tax - derived from the additional employment generated by sports event and hosting of international sportsmen. The economic impact of the tournament cascading right through the economy will create additional jobs (either temporary or permanent) in certain industries. These new jobs will therefore incur income tax. Personal income tax related directly to the tournament itself will not be significant for a number of reasons.

Hosting Mega sports event will obviously mean international players and officials visiting the Host Nation, and it will require a large number of volunteers to help run the event. It is likely that volunteers helping to organize the tournament will move from other sectors of the workforce, and will not generate incremental salary (and therefore income tax and social security contributions. From an individual's personal perspective this is unlikely to result in a significant increase in income tax suffered as such tax would be creditable against the individual's domestic tax liability. This therefore represents effectively a shift in taxation from the country of origin to the Host Nation. Given that Social Security Agreements may prevent a similar position on social security, and the overall numbers of individuals involved, it is unlikely that significant additional tax would be generated; and

Finally, the players and officials from competing nations would be in the country for approximately two months. This is insufficient time for officials (managers, coaches etc.) to become taxable in the Host Nation, but players are generally taxed on income associated with the performance of their duties in the Host Nation, unless the Host Nation chooses to offer a specific exemption. Again, it is likely that this tax will be creditable against the players' overall income tax liability in their country of residence thus effectively switching personal income tax from the country of origin to the Host Nation, but in the context of the overall economic impact of mega sports event the amounts are unlikely to be significant.

"Very substantial tax inflows to Government will potentially arise for any country hosting mega sports event. Looking at sales tax alone, the figure may reach over £100m in certain countries."

Benefits of Sports event impact analysis

Major sports events have the capacity to deliver significant benefits - both tangible impacts such as additional expenditure by visitors and intangible such as the impact on national pride, sport's profile and participation.

A sports event's economic benefits might arise in the form of media value linked to coverage at home or internationally. Moreover, linked to such coverage may be place marketing benefits for key aspects of the host city or area, which could ultimately impact upon tourism by increasing the number of visitors to the area in future as a result of media coverage afforded to an event. Public perceptions of places can also improve as a result of people's experiences at major sports events, which in turn might lead to repeat visits as evidenced by qualitative feedback from spectators at some of the events. Furthermore, an immediate benefit of staging an event might involve some form of sports development impact which could encourage more people to take up a sport being showcased. The long term effect of any increase in participation could be tracked, although it may be difficult to prove causality.

To illustrate some of these points, examples are drawn from events such as the European Short Course Swimming, World Amateur Boxing, World Half Marathon and World Cup Triathlon. In summary, this section has attempted to demonstrate some of the broader benefits associated with major sports events. Based on the evidence herein, these could include:

  • Place marketing benefits, which may indeed be more important than the economic impact as these have the potential for more long term effects (assuming the host area is clear about the type of image it is trying to portray), as visitors may return year on year based on their initial experiences at an event, or their perceptions of the host area from television coverage;
  • The value of the television exposure, which provides a notional measure of how successful an event, has been in promoting a host city or area. The key to an event's appeal and hence value may be a function of how organisers dress the event rather than the event by itself. This reiterates the need to work closely with the host broadcaster in order to maximise value from such coverage;
  • Major events attract huge amounts of media coverage and present an opportunity for a sport to increase its profile. This may lead to increased interest from current and potential fans and participants through media coverage of the event. RWC 2007 was broadcast in 238 countries to a cumulative worldwide audience of four billion.
  • Events present an opportunity to leverage the enhanced profile of the sport by increasing domestic attendances and participation at grassroots level. Many major events have been followed by an increase in popularity of the domestic game - for example, Australian Super Rugby attendances increased by 8% in the season following the country's hosting of RWC 2003 and Similarly, major football championships such as the FIFA World Cup and UEFA European Championships have subsequently been followed by increased domestic league attendances in the Host Nation.
  • During the course of the event additional manpower in terms of volunteers is likely to be required. There may be possibilities to develop the pool of volunteers working in sport by offering them opportunities after the event.
  • The increased profile of the Host Nation may lead to increased business activity and potential inward investment. In addition, should major infrastructural improvements take place (e.g. to transport systems) this can be the catalyst for significant regeneration activity.
  • Hosting a major event is often accompanied by a feeling of local pride and a feel good factor often permeates the Host Nation. There are also social benefits as a result of national unity and assisting social inclusion.
  • Finally, hosting a mega sports event can help develop best practice in environmental impact, assisting the development of policies and practices relating to climate change, waste management, public transport, and other initiatives. This can help a Host Nation's economy in the long term.

Benefits for the Host Nation

  • Major events are likely to attract significant numbers of visitors, as international supporters congregate to follow the event. In addition, visitors may extend an existing visit to incorporate the event and bring additional family and friends with them, thus increasing the financial impact.
  • A large influx of international visitors, many of whom may not have visited the country or city previously, presents an excellent opportunity to showcase the country and secure repeat visits and positive word of mouth publicity when visitors return home. The IPL 2008 study estimated that 9% of outside visitors expected to return again, highlighting the potential long term tourism legacy of the event in terms of driving repeat visits to the Host Nation.
  • Innovative methods of promoting major events such as fan zones, live sites and festivals have successfully been introduced to major events to enhance the visitor experience and deliver increased commercial benefits.
  • The host city or country's profile enjoys a significant boost by hosting major events. The additional coverage presents a global 'banner' of advertising which the country can use as the basis of tourism campaigns. This strategy has been successfully employed at international level by Germany (2006 World Cup) and Ireland (Ryder Cup).
  • Major events can encourage increased participation in the sport which can deliver, in the medium to long term, significant benefits in terms of a healthier population and even reduced health spending.
  • Any sports development impacts and their potential for associated benefits through healthier lifestyles which is also high on the Government agenda.

Finally, given the complex aims and objectives increasingly associated with major sports events, in future more detailed analysis and evaluation will be necessary to satisfy the needs of different partners. Adopting a methodology linked to (for example) the 'Balanced Scorecard' could move beyond simple economic impact studies, to include TV, media and sponsorship evaluations as well as sports development, home soil advantage and other legacies.

Conclusion

"Hosting a major event is often accompanied by a feeling of local pride and a feel good factor often permeates the Host Nation. There are also social benefits as a result of national unity and assisting social inclusion." In recent years there has been an increasing realization of the significant benefits to be earned from hosting major international sports events. Many cities and countries now actively pursue hosting major events as a strategic priority and ensure that they leverage the event to the maximum.

  • Major sports events bring benefits to the sport. These include media coverage and increased profile, increased attendances and grassroots participation, and the development of the pool of volunteers working in sport. Flowing from these benefits may be significant commercial value for the sport's stakeholders.
  • There are also benefits to the Host Nation. Major events can drive significant numbers of visitors to the country during the event and act as an excellent shop window to showcase the country and develop tourism campaigns afterwards. Major events can also lead to increased business activity and potential inward investment. The benefits are not confined to the Host Nation with neighboring countries also able to benefit from increased visitor travel.
  • Innovative methods of promoting major events can make them available to those beyond the ticket holders and deliver greater commercial benefit to the Host Nation. Fan zones, live sites and festivals have successfully been introduced to major events including IPL to enhance the visitor experience and deliver increased economic benefits.
  • Domestic residents benefit from having a major event on their doorstep. Substantial domestic spend demonstrates a high level of local interest and supports a number of non-financial impacts that may be driven by hosting a major event.

IPL and impact on Indian Economy

Historically, cricket has been a game played over several days. Test cricket, generally seen as the pinnacle of the game by purists, takes five days, and even then may end in a draw. In response to changing lifestyles and customer demands, the cricket authorities have gradually introduced shorter versions of the game. One day international cricket, which as the name suggests takes a full day, was introduced in the 1970s. And in 2003, the English Cricket Board introduced Twenty20 cricket - an even shorter form of the game taking less than three hours and capable of being played in an evening under floodlights.

Twenty20 cricket was an immediate success in England and was rapidly exported to most parts of the cricket-playing world3, with the initial exception of India (which had a strong affinity for one-day international cricket). However, this last exception was overcome when India won the inaugural Twenty20 World Cup in South Africa in 2007. This win prompted the founding of the unofficial Indian Cricket League4; the response was the founding of the (official) Indian Premier League (IPL).

The Indian Premier League (IPL) is a new "Twenty20" cricket league which completed its inaugural season in 2008. Since Indian domestic cricket was dead as far as viewership is concerned, nearly a year prior to launch of IPL, BCCI think tank led by Top management was thinking of new ways of bringing about some innovations so as to revive the Indian domestic cricket. Looking at the craze of T20 (Twenty over cricket per-side cricket match) in England they decided to launch the similar format in India

Indian Premier League (IPL) has defined a new set of paradigm to do business in the Indian landscape. This was bound to happen someday, looking at the craze for the cricket in this country. IPL is not a yet another cricket extravaganza but an event where money is spinned around with many different angles and a lot many stakes are involved in it. IPL has corporatized the cricket in a unique way. It has added a new dimension of marketing and branding the sports in India. IPL is a business which has big economy of scale. You can't expect to be profitable right from the beginning unless and until God is favoring you. But it's very lucrative. India has seen the success of different businesses and the organizations or entrepreneurs running them and now it is the turn of IPL. Overall IPL itself has become a big brand under the leadership of Top management and it is a matter of interest that how it has been done as compared to the failure of its rival league ICL. The Value Positioning of IPL is "Fast and Quick Entertainment" Which has its own pros and cons according to the test and 50-50 Over Cricket Fraternity.

The IPL created eight franchises assigned to eight of the largest cities in India. In January 2008, an auction was held for ownership of these franchises, with a base price for owning a team for 10 years set at $50m. All the franchises comfortably exceeded this amount, with final bids ranging from $67m to $112m.5 The IPL prospectus outlined financial and marketing benefits to franchise owners, and media rights have been sold for over $1bn.6 The new franchises needed to acquire players. With no history for any team, the IPL hit upon a novel way of assigning players to teams - an (English) auction. The IPL worked on a franchise-system based on the American style of hiring players and transfers. These franchises were put for auction, where the highest bidder won the rights to own the team, representing each city. The auction for the same took place on January 24, 2008 and the total base price for the auction was $400 million. The auction went on to fetch $723.59 million. The auction had several rules, of which the notable rules for the purposes article are as follows:

  • Each franchise needs a squad of players, with 11 playing at any one time.
  • Only 4 players at any time are allowed to be non-Indian.
  • The franchises bid on the basis of the salary they are prepared to offer the player.
  • There is an overall salary cap of $5m, while franchises have to spend at least $3.3m.
  • Salaries are pro rated if a player is unavailable for part of the season, with the exception that if a player is unavailable for less than 25% of the season, the franchise is still liable for 25% of the salary and 25% of the salary is also counted towards the salary cap.
  • The salary offer is valid for three years, although there is the possibility of player transfers in future years.
  • Each team must also have four under 22 players.
  • Each bid starts with the base fee fixed by the IPL, and there is no upper limit.
  • Players were grouped into different bands within the auction based on the expectations of the organizers that they were of similar experience and ability.
  • Franchises were allowed to nominate one "icon" player who would have to play for their team - with the promise that they would earn 15% more than the next highest paid player on that team.

IPL- The premise

The BCCI launched the Indian Premier League (IPL) on the lines of football's English Premier League and the National Basketball League (NBA) of the US. The IPL is a professional Twenty20 cricket league created and promoted by the BCCI and backed by the ICC. The Twenty20 league made its debut in April 2008, with eight teams comprising. The league lasted for 44 days and will involved 59 matches.

The eight teams were given to investors who submitted the highest bids. The franchise fees were to be paid over a 10 year period. The franchise 'brand' was an asset and remained with the franchisee, without time limit. The fees paid by franchisees ranged from $111.9 mln (Rs 469.9crores) for the Mumbai Indians which was paid by Mukesh Ambani of Reliance Industries to the lowest fee of $67million (Rs281.4 crores) paid by Emerging Media which is owned by Manoj Badale and Lachlan Murdoch along with a few others. A total of $723.6 mln (Rs 3039crores) was committed as franchise fee to the BCCI over a ten year period by all the eight franchisees. It does not stop there, each franchisee had to put in a minimum of $3.3 mln (Rs13.8crores) and a maximum of $5 mln (Rs 21crores) per year on player fees. This was apart from other expenses incurred in insurance, coaching staff, training facilities, accommodation, travel etc.

In return, the franchisee's were entitled to revenue streams which helped them recover their investments and generate handsome dividends. The IPL/BCCI passed on 72% of all central television broadcasting rights and 8% in the form of prizes to the franchisees. This share was to reduce by 10% every two years. Each franchise would get its share on the basis of TRP's generated by it, except in the first year, when it would be equally shared.

The central television rights were sold to Sony WSG for US$ 1.026 billion. US$ 918 million was to be paid for 10 year global rights and US$108 million was to be spend in promoting the event over the same period. Sony had a 5 year deal for $316 million and a right to renew it for the next 5 years at $ 608 million. Revenues from central sponsored rights were also given to franchisees to the extent of 54% and 6% were allotted for prizes. The title sponsorship from DLF was for Rs 210 crores for 5 years and Rs 102.5 crores came from the associate sponsors which included CitiBank, Vodafone, Hero Honda, Kingfisher.

Franchisees retained 80% of all gate collections generated by it in its home ground, 87.5 % of all merchandising income, 100% of all team sponsorship and hospitality revenues. The gate collections from the 8 venues which includes the largest Eden Gardens with 100,000 seats to the smallest Wankhede with 35,000 seats, came to roughly Rs 167 crores . Sponsors were signed on by various franchisees with a fair degree of success, estimated at Rs 160 crores per anum across the 8 franchisees.

The final arithmetic indicates that revenues justified the fees paid by the franchisees with the central pool in itself generating nearly Rs 44 crores per franchisee, leaving them to generate gate collections and team sponsorships to cover their operating expenses and player fees. Some franchisees generated profits too in the first year due to astute selection of the team like the Rajasthan Royals, while Kolkotta Knight Riders marketed their strengths in celebrity owners and players to garner lucrative endorsement deals and to ensure full houses and better gate collections. For others like Chennai Super Kings, led by M.S.Dhoni, it was a mixture of all this

IPL- Success of the decade!!!

The first level of argument would have it that IPL carried with it all the paraphernalia that accompanies marketing — the ads, the cheerleaders in their now-you-see-me-now-you don't Costumes, the celebrities, the assorted brands (teams, stars, cricketers, sponsors, Lalit Modi, etc) and that was the primary reason for its success. There is truth in this, but this is not the whole truth. These devices have helped but more by way of creating the right atmospherics around the event.

What makes IPL all about marketing is the concept itself. It began not with cricket but with what the consumer wants of cricket. A product is nothing but an intensification of all that is pleasurable about a thing. An object or an idea becomes a product when its existence becomes all about becoming desirable for consumption.

In converting something into a marketable product we make it easily accessible, we bring together all the bits that consumers really like and we package it attractively so as to seduce the senses. With IPL, cricket now officially belongs to people who can pay; the owners, the sponsors, the spectators and the viewers. The cricketers must perform to their satisfaction, they must account for every paisa spent on them (already newspapers have created a Paisa Vasool Index to figure out how much every run has 'cost') or else they can get publicly upbraided and sacked. What IPL has done is to take cricket pack in the best names, compress it in a timeframe that makes it easy to consume and sell it to viewers, broadcasters and advertisers alike.

Further let's analyze the timeline of IPL. From the time the auctions started there was a huge buzz which was created, much like the launch of any product. IPL across various media platforms, including television channels, newspapers, mobiles and the Internet. Further there were talks that the campaign would also go international and the whole BCCI campaign was around fun entertainment and total paisa vasool, a clear positioning strategy. Taking the whole marketing concept further, IPL also had its share of controversies all adding to the spice of IPL.

It has re-packaged sports into an entertainment product with a view to maximize eyeballs. People like action, so here we have loads of it to keep the eyeballs glued — two hat-tricks already, a gazillion sixes and a slap here and a public sacking there. The league also caught the fancy of people across the world with outstanding response from the non-cricketing countries too. It was the media that had lapped up the product and taken it places. Every single market had appreciated the product and making IPL, IPL. This report will present the following:

  • The definition of economic impact;
  • Methodology section incorporating multiplier analysis;
  • The economic impact attributable to each event with selected comparisons across the events;
  • An analysis of the spending patterns of four key groups of participants at major events; competitors, officials, the media and spectators;
  • A comparison of the invisible exports associated with the spending of visitors to the events from overseas;
  • An analysis of the predictive qualities of the economic impact forecasting model;
  • A comparison of some of the wider benefits associated with certain events where data is available;

Research Methodology

The theoretical framework of this research is represented by various findings from extant literature, research papers, books, articles published in journals as well as on the internet. Furthermore, this framework also helps in assisting the right way how to approach the primary research and the arrangements /understanding, content and conveyance of the questionnaire. The information achieved from the literature research has also enabled to cover the area of research in general and also to identify particular variables of interest for further investigation.

This chapter will provide an explanation on the research methodology used and will also outline how the data was gathered and analysed for the dissertation. Research is the process of finding or discovering and involves collecting information and description. For conducting a comprehensive research one requires the combination of research ability and knowledge on existing research methods.

Significance of Research

The research is significant insofar as this case study explores the economic impact of mega sports events. And analyze the short and long lasting impact of it on hosting country economy. Mega sports event have various advantages from a strategic perspective but it also involves integration risks and has some Public Policy implications for the host country. Integration issue involves Implications of financial impact, cross-cultural integration, impact of the due diligence. Detailed investigation has analyzed the success factors of the sports industry, what the motivation behind hosting mega sports event, future outlook of sports event and what possible synergies the mega sports event would create.

Research Objectives

The Research objectives of this study are to understand sport events in terms of economic impact on hosting nation and world as a whole. And finally identify the behavior of various tangible and in-tangible factors, which has critical importance on economy like infrastructure development, cost and revenue analysis, and last but not the least public and government. As mentioned earlier "bigger is better" the following was main objective of this study:

  • Economies of Scale - To identify how economy of scale can be achieved by hosting mega sports event.
  • Economies of Scope - To identify potential of economy of scale at micro-level and macro level.
  • Multiplier effect- To define how multiplier framework work in understanding economic impact of mega sports event.
  • To assess the ROI of Community's investment and to measure the inflow of tourists' (non-resident) spending and the investments effect on new employment.

Research Design

An Event = an Action-Bomb

  • Planning of the "bomb" and "the target"
  • The bomb = often different from planning
  • The effects =
  • 1st wave, primary effects and stakeholders Athletes, organizers, volunteers, financing and funding
  • 2nd wave, secondary effects and stakeholders Accommodation industry, transport, per diem spending. Redistribution of money or "new" money. Multiplicators. Recipients different from funding.
  • 3rd wave = Branding effects, tourism effects on the long run, industry and firms, self confidence for a region. Press coverage.
  • 4th wave = Values; capital, democratization, health, criminality.

The choice of suitable methodology depends on the nature of research topic. During research people use their assumption about the world defined by the word paradigm (Hussey, 1997). Research paradigm usually provides a set of frameworks that can be a number of theories and methods prepared. So it is necessary to and identifies the paradigm that will use in research because it defines the whole process of research. There are two kinds of paradigms - positivist and phenomenological (Hussey, 1997, pp.47).

This methodology was developed for UK Sport at the time of the original six event research in 1997. The idea being that it can be employed to estimate the likely impact of an event prior to the decision to bid or not. In so doing it allows for a more strategic approach to the hosting of events, as the methodology makes clear that events which appear to be significant in World or European sporting terms are not necessarily so in economic terms. This can be explained as detailed below:

  • Type A - i.e. irregular major international spectator events generating significant economic activity and media interest such as the Olympic Games;
  • Type B - i.e. major spectator events generating significant economic activity, media interest and part of an annual domestic cycle such as the FA Cup Final;
  • Type C - i.e. irregular one-off major spectator/competitor events generating an uncertain level of economic activity such as Grand Prix Athletics;
  • Type D - i.e. major competitor events generating little economic activity and part of an annual cycle such as the national championships in most sports.

This methodology coupled with the economic impact forecasting model provides a useful combination of tools upon which to base key decisions about whether to stage a particular event or not. For example we have included sixteen events which can be contextualized by identifying the broad category into which each event falls as detailed in Table:

Table shows that 13 out of the 16 events studied are Type C events. These are characterised by having uncertain economic impacts and predictions are therefore particularly difficult to make. Realistically, Type C events are the events that UK Sport is most likely to be able to attract to the UK.

Type A events (e.g. Football World Cup, Olympic Games) are invariably subject to intense worldwide bidding and political factors are often as important as the quality of bids in determining "winners". Notwithstanding these comments, the UK was successful in bidding for and staging the 2002 Commonwealth Games in Manchester which is arguably a Type A event, although the economic impact is uncalculated. The rights to Type B events are typically controlled and exploited by the governing body concerned, for example the Lawn Tennis Association and the Tennis Championships held at Wimbledon, or the England & Wales Cricket Board and Test Cricket. Similarly, the FLM would not be the London Marathon if it was not staged in London and is controlled and run by the London Marathon Limited.

Data Presentation and Analysis

The purpose of this analysis is to consolidate the research undertaken to examining the economic impact of major sports events since 1997. During this time sixteen such analyses have been undertaken at a variety of events, and these have each attempted to establish the economic impact by calculating:

The total amount of additional expenditure generated within a host city (or area), which could be directly attributable to the staging of a particular event.

Economic impact is an important consideration in determining whether or not to support an event, then the number of spectators is the principal determinant of absolute economic impact. The information contained draws on the findings from the individual studies since 1997. The Marathon in particular provides an example of the potential there is for other cities across the UK to stage their own mass participation road races, and also as will become clearer, the event generated the most significant economic impact of all those evaluated. The events in question are detailed in Table

This consolidated piece of research builds on the original 'Measuring Success' in 1999 which was based on the premise that major sports events have the potential to achieve significant economic impact


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