Transcript continued - Human Kinetics

C H A P T E R
14
Macroeconomics
of International Sport
Holger Preuss, PhD; and Kevin Heisey, PhD
Chapter 14
Chapter Objectives
• Explain the general importance of sport in the
economy
• Identify the fundamental ways that sport
influences the macroeconomy
• Distinguish between tangible and intangible
benefits
(continued)
Chapter Objectives (continued)
• Determine the primary economic impact of
sport on an economy
• Explain the induced impact, or multiplier, effect
• Discuss short-term, long-term, and legacy
effects of international sport events
Chapter Outline
• Role of sport in a national economy
• Macroeconomic effects of sport
• Tangible and intangible effects
• Primary impact of a sport event
• Multiplier effect
• Long- and short-term benefits from sport
and the legacy effect
Types of Economic Outcome
• Pareto optimal—outcome in which no
member of the economy can be made better
off without making another member worse
off (Frank, 2006, p. 591)
• Pareto improvement outcome—outcome in
which an improvement in economic wellbeing does not come at the expense of
others (Varian, 1990, p. 17)
Sport Goods and Services
• Good
– Direct consumption good
– Indirect consumption good
– Direct investment good
– Indirect investment good
• Service
Examples of Goods and
Services in Sport
Global Sales of Sport Direct
Consumption Goods
See table 14.2 on page 306 of International
Sport Management.
Economic Benefits
• Tangible benefits (quantifiable)
• Intangible benefits (not quantifiable)
Consumer Surplus
• Consumer surplus is the extra benefit that a
consumer enjoys when he or she purchases a
good or service (Frank 2006, p. 160).
• Assuming that costs of all options are equal, if
members of the local economy choose to
attend sport events rather than other options,
although their actions do not represent a net
increase in spending, they do represent an
increase in consumer surplus and therefore an
increase in economic well-being.
Contingent Valuation Method (CVM)
• If the use of public resources for achieving
some social goals cannot be priced with a
market value, the determination of the costs
and benefits may then have to apply the
valuation techniques that are designed
specifically for valuing nonmarket effects of a
public policy (Fuguitt & Wilcox, 1999).
• An increasingly common method of evaluating
indirectly intangible benefits associated with
sport is the CVM.
A CVM Case
Read the sidebar on page 309 of International
Sport Management.
Calculation of Economic Impact
• The primary impact is the change in
consumption, investment, and export
spending that can be attributed directly to
the sport event.
• See equation, page 310, of International
Sport Management (shown on next slide).
(continued)
Calculation of Economic Impact
(continued)
Export of Services
vs. Import Spending
• Export of services (tourism spending as a
result of hosting a sport event). The service
being exported is the entertainment of the
event or other attractions associated with
the event; a benefit to regional economy.
• Import spending (foreign companies used
to build sport facilities or venues). The
spending of the event organizer on facility
construction is a cost to the host economy.
Import Substitution
• Sponsorship dollars earned by an organizer
of an international sport event from a local
corporation could not be considered a net
gain in spending in the regional economy.
• But if the local corporation will sponsor the
event no matter where it is held, an import
substitution occurs. In that case,
sponsorship money stays in the region
instead of being spent elsewhere. It results
in a spending gain locally.
Main Factors in Determining
Multiplier Effect
• Diversity of an economy.
• Size of the economy.
• Employment rate. If the economy is close to
full employment, the multiplier will be lower
than it would be if many resources were
underemployed (unemployed labor, idle
equipment, unused building materials).
Injections and Leakages Associated
With a Major Sport Event
Read the sidebar on page 314 of International
Sport Management.
Figure 14.1
Legacy Effect
• The amount that made up the primary
regional impact quickly dwindles after an
event.
• The impact created through the event
necessarily returns to its preevent state,
and the direct, total economic impact has
run its course. Only if the new infrastructure
permanently attracts new money to the
economy will the regional economy reach a
higher level (Spilling, 1999).
Long- and Short-Term Benefits
From Sport and the Legacy Effect
Cn = ΔA
Where
• C = the level of induced impact (0 < c <1)
• n = the number of time periods
• ΔA = the initial direct and indirect impact
(continued)
Long- and Short-Term Benefits
From Sport and Legacy Effect (continued)
• As n increases to infinity, the value of the
induced impact tends toward zero.
• The Olympics are an exception. During this
period, autonomous expenditures are made so
that the equilibrium income will not
immediately return to the starting point
following the event.
• Caused by varying autonomous injections
(ΔA), permanently changing demand functions
will exist during the remaining time.
Figure 14.2
Impact of Event Structure on Location
Factors and Its Economic Relevance
• Six types of event structures are usually
preserved after a megaevent.
• Four of these—infrastructure, know-how,
networks, and culture—develop almost as a
matter of course through the preparation for
the event, whereas two—emotions and image—
depend on the momentum that the event
develops (Preuss, 2007, pp. 92–97).
• Each of these six event structures transforms
the location factors of the host city.