Economic impact analysis

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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 and this chain of spending is estimated via multipliers so 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 definition within its major events strategy that is "the net economic change in a host community that results from spending attributed to a sports event or facility.

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The change is caused by activity involving the acquisition, operation, development, and use of sport facilities and services (Lieber Alton, 1983) and 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 so 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 and 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, and Keith, 1993; Howard and Crompton, 1995).

The initial construction of a $10 million sports facility provides an initial impact of $10 million on the local economy and this is the direct impact and clearly, the construction of the facility will require concrete, steel, construction workers, and so forth so the money spent on these materials and services comprises the indirect expenditures, or the indirect impacts. (Hefner 1990, pp 4-5)

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 so 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 so 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 therefore, 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 and also 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 so these visitors can come from elsewhere in the same country or from overseas so 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 and 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 but however, this may be of little concern to local organizers 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.

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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 as 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 so 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 resent over and over, becoming income for others in the economy so 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 and if the multiplier does not depend on the spending source, then it is useless in the comparison of alternative projects therefore 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 and 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 so 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 and 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, and 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 and Navarro, 1993), and IMPLAN (Impact Analysis for Planning) (Bushnell and Hyle, 1985; Dawson, Blahna, Keith, 1993; Donnelly, et al, 1998; Howard and Crompton, 1995; and Wang, 1997) and from these modeling techniques, IMPLAN is one of popular methods. The IMPLAN model was developed by the U.S. Forest Service and Engineer Economics Associates, Inc and also 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 and 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 and Kelsey, 1992) also; a lot of simple formulas were developed to conduct economic impact study of sport events by local sport commission companies.