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Critically analyse the direct, indirect and induced economic impact of the Rugby World Cup 2015 for England?
Despite widespread publication of a positive economic impact resulting from the Rugby World Cup in 2015, issues such as overspending, forecasting accuracy, and the focus of the reporting itself, suggests there are also factors which may materially reduce the overall impact. Because of this, it is possible the widely publicised outlook for this event is overly optimistic. This report will critically analyse the direct, indirect and induced economic impact of the Rugby World Cup 2015 for England. Beginning with a summary of the economic impact, issues will then be examined with reference to the stated impacts, relevant literature, and comparable events around the world such as previous Rugby World Cups. The analysis concludes that the economic impact of the 2015 Rugby World Cup, while sizeable, may not be as significant as predicted.
Summary of Economic Impacts
A report by Ernst & Young forecasts a number of economic benefits to the 2015 Rugby World Cup, including over $2 million in economic output, and a direct boost to GDP of $463 million (Arnold and Grice, 2015; summarised in Table 1). Media promoting these benefits is widespread, with the Ernst & Young report often cited to describe and support the positive impacts of the 2015 Rugby World Cup. The many media examples include Bergson (2015), Menary (2015), and Wilson (2015). Due to the credibility of the financial services firm Ernst & Young (Aubin, 2012), as well as the wide-spread publication of these results, the economic impact by Arnold and Grice (2015) will be used as the basis for this analysis, as summarised in Table 1.
|Contribution Type||Impact Category||Impact Source||Amount (millions)|
Ticket revenue (international)
|Indirect and induced||$1,165|
Ticket revenue (international)
|Indirect and induced||$518|
Table 1. Summarised from Arnold and Grice (2015, pp18-20)
For the purpose of this analysis, direct impact is considered to be initial spending stimulus arising from the event, including infrastructure expenditure and ticket revenue. Indirect economic impacts result from transactions that occur as a result of the initial spending, such as additional tourism expenditure in other areas. Induced impacts are the result of increased consumer spending due to higher income, such as greater support for sports and health overall. These definitions are outlined by Saayman and Saayman (2012, p223) and are consistent with the examples provided in the report by Arnold and Grice (2015).
Support and improvements for the Forecasted Economic Impact
The publicity of a major sporting event is said to improve the local brand overall, resulting in additional foreign investment, including business and tourism. While arguably temporary, this publicity can stimulate activity during a time of economic slowdown, which in turn creates indirect economic impacts such as increased demand for manufacturing, and induced effects such as higher overall employment, in particular in the hospitality industry (Arnold and Grice, 2015; Statistics New Zealand, 2012).
While purely financial transactions are not included as part of GDP increases (McConnell et. al, 2010), some GDP growth may occur on the back of a strong financial market, driven by the Rugby World Cup. Increased publicity for the host country, coupled with high consumer excitement and mass sponsorship exposure may explain why share prices tend to improve during mass sporting events.
For example, during the 2013 Wimbledon, the 10 largest listed companies in Scotland experienced a 7.5% increase in share price, while the FTSE100 increased by 5.1% (Thanapathy, 2015). In addition, the first trading week following the announcement of a significant sponsorship agreement saw sponsoring companies in the U.S.A. experience significant share price gains (Harrow and Swatek, 2011). While not mentioned in the report by Arnold and Grice (2015), an induced economic impact to the Rugby World Cup may be increasing investment in additional goods and services, as business confidence increases due to the strong financial market.
The Multiplier Effect and Social Good
An additional contributor to GDP and output is the result of the multiplier effect, that is, the increase in investment bringing about a disproportionate increase in GDP via spending and re-spending (Saayman and Saayman, 2012; McConnell et. al, 2010). The multiplier effect during an event such as the Rugby World Cup is likely to be significant, not only through increased consumer and business spending, but in areas such as an increased interest in sports, which in turn encourages a higher focus on public health overall.
The social benefits of large sporting events are evident in the Comrades Marathon, where induced economic impacts included the benefits of increased income and spending reaching the poor. Saayman and Saayman (2012) note that their findings regarding the social benefits of the Comrades Marathon are consistent with broader literature, which also finds the economic impact of large scale sporting events reaches both rich and poor. Thus the direct impact of increased output and income generated by the Rugby World Cup is likely to increase GDP more than the initial investment, creating indirect and induced impacts via the multiplier effect.
Including both Domestic and International spend
When measuring economic impact, Arnold and Grice (2015) exclude domestic spend on sporting events because, it is argued, this money would remain in the economy regardless, being spent elsewhere if not on the Rugby World Cup. However, domestic spend may also be relevant as this recreational income could easily be spent in a different economy, were it not for this event (Saayman and Saayman, 2012).
Given the proximity of England to European destinations, and the cultural relevance of Soccer in England and Europe (Gibbons, 2014), it is likely that English income would be spent in other countries if the Rugby World Cup was held elsewhere – either to another destination for a holiday, or to the country hosting the World Cup. During the 2011 Rugby World Cup in New Zealand, the second most popular tourist origin was direct from the U.K.; a significant number of additional sports tourists from the U.K. arrived via Australia (Statistics New Zealand, 2011). Thus both domestic and international expenditure on the Rugby World Cup 2015 is significant.
Amending visitor and ticket revenue, and revenue derived from food and beverages, to include domestic consumers may be more accurate than focusing solely on additional international income. New Zealand, for example, note an increase in domestic household spending during the Rugby World Cup 2011, driven primarily by food and beverage, in addition to international spend (Statistics New Zealand, 2011). Similar to the Canadian analysis of Sports Tourism, domestic income may be included on a separate line for clarity and completeness (The Outspan Group Inc, 2009).
While this may serve to increase forecasted output by increasing overall predicted spend, as discussed under ‘Forecasting Ticket Sales’, it is also possible that international spend reduces the economic impact of domestic expenditure in some areas, as the two may net each other out.
Limitations and Challenges to the Forecasted Economic Impact
The tendency to over-estimate
Historically, the economic impacts of sporting events have been overestimated by host countries (Leeds and Von Allmen, 2008; Horrow and Swatek, 2011). For example, the economic impact of the 2002 World Cup fell significantly short of the estimated $31 billion (Leeds and Von Allmen, 2008). While GDP and consumption was affected during the 2011 Rugby World Cup, New Zealand reports that it “did not contribute to the New Zealand economy, as measured in the BoP and national accounts” (Statistics New Zealand, 2011).
The Super Bowl XL publicised an economic impact of $300million on the back of sports tourism exceeding expectations, however figures later released by the Michigan Department of Treasury suggest the actual economic impact was negligible (Horrow and Swatek, 2011). It is thus highly possible that the economic impact for England has been similarly over-estimated.
Economic Impact Intention
As a general rule, economic impact reports measure total, as opposed to net, activity or income (Saayman and Saayman, 2012), and for this reason may appear overly positive compared to more balanced analyses, such as cost-benefit, where expenditure as well as income is considered.
While economic impact is sometimes defined as net benefit (Crompton, 2006 in Saayman and Saayman, 2012), the more widely accepted definition is “monetary payments as they move through a regional economy” for the purpose of measuring the impact of an event as it relates to that economy (Tyrrrell and Johnston, 2006, p3).
While omitting additional costs is technically correct, it can seem misleading in journal articles written for the general public, who may be unaware of these definitions. The article by Menary (2015), for example, presents an unrealistically optimistic view of the financial viability of the Rugby World Cup, as the public is only made aware of gains. Direct economic impacts, such as the $68 million in ticket revenue noted in the report by Arnold and Grice (2015) may return a far lower figure once additional costs such as administration have been taken into account. It is possible that GDP and output will increase by the stated amounts, however for a complete picture, more than the standard economic impact should be considered.
Forecasting: Ticket Sales as Incremental Income
It is possible that locals would attend the Rugby World Cup in place of tourists, were it not for the “influx of football fans” (Leeds and Von Allmen, 2008, p233) – a possibility that nets out the impact of international spend on tickets to some degree, since the international income is replacing local income – not adding to it. Further understanding local activity – the propensity to travel and attend local events – is therefore vital in understanding the true economic impact of international spending during the Rugby World Cup in 2015. As noted by Saayman and Saayman (2012, p232): “in order to increase the economic benefit of the event, expanding both these markets might be worthwhile”.
Further, one way Arnold and Grice (2015, p8) forecast ticket revenue and consumer interest is by measuring the historic percentage of seats filled during World Cup Events. While these percentages have hovered around 95% for the past two events, it is not known how many of these tickets were paid for, given away, or scalped. In the 2000 Olympics, for example, questions were raised regarding the distribution of tickets to sponsors and hospitality companies, while in the 2012 Summer Olympics, London began distributing free tickets to fill stadiums during events (Freid et. al., 2013). Predicting public interest is not as simple as measuring seats filled, and it is possible that increased output as a result of tickets sales is overstated.
Timeframe: Impact of one-off vs repetitive events
A number of impact drivers for the 2015 Rugby World Cup are short-term, which may help explain why the estimated benefits, in particular the induced benefits and assumptions regarding the multiplier effect, may be overstated. While regular, local events use existing infrastructure, require lower levels of investment, and have ongoing effects (Higham in Ritchie and Adair, 2004, p135), it is possible that larger events experience more temporary economic impacts, as the related investment is for a unique, rather than an ongoing, event.
In Japan, for example, Saitama currently spends nearly $4 million per year maintaining a stadium built to host the 2002 Rugby World Cup, despite the venue now only drawing around 20,000 spectators for local sporting events (Leeds and Von Allmen, 2008). In the U.S.A., an “abundance of abandoned and crumbling sports places” exist, many less than 20 years old (Horrow and Swatek, 2011, p3). As noted above under ‘The Tendency to Overestimate’, New Zealand experienced increased economic activity during the Rugby World Cup in 2011; however the long term impact was not as significant (Statistics New Zealand, 2011).
When measuring the economic impact in England, Arnold and Grice (2015, p11) refer to an induced economic impact of further investment on the back of “a lasting legacy for the sport”. In addition, infrastructure investment is listed as the second most influential direct economic impact. However, given the results in New Zealand, the U.S.A., Japan and Korea, and the nature of large, relatively infrequent sporting events, it is possible these benefits have been overstated, particularly in the long term.
In conclusion, it is likely the economic impact of the 2015 Rugby World Cup, as outlined by Arnold and Grice (2015), is a good overview. Increased economic activity leads to direct impacts including increased output and GDP driven by higher foreign and corporate investment, such as sports tourism and corporate branding respectively. Indirect impacts include high intermediary activity, including increases in the hospitality industry and spend on food and beverages, while induced benefits are as far reaching as social support driven by higher consumer income and the multiplier effect.
While these impacts are positive, it is believed the magnitude of the results have been exaggerated, due to limitations including the tendency of host countries to overestimate the impact of sporting events, and the temporary effects of short-term events – even those as large as the Rugby World Cup. Further, due to the scope of an economic impact statement, many costs have gone unmentioned, creating a disproportionate impression of gains and optimism.
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