Economic Impacts of Sport

Transcription

1 J Ö N K Ö P I N G I N T E R N A T I O N A L B U S I N E S S S C H O O L JÖNKÖPING UNIVERSITY Economic Impacts of Sport Events Case study Of The European Championships in Figure Skating Malmö City 2003 Paper within: Bachelor Thesis within Economics Author: Lina Nordin Tutor: Lars Pettersson Jönköping: May 2008 i

2 Bachelor Thesis within Economics Title: Economic Impacts of Events- Case study of The European Championships in Figure Skating Malmö City 2003 Authors: Lina Nordin (830918) Tutors: Lars Pettersson Date: VT08 Keywords: Event, Economic effects, Athlete associations, Public funding, Multiplier analysis, Braunerhielm and Andersson (2007), Municipality Abstract This thesis is based on two questions: What are the differences in the outcome of a sport event depending on the choice of method to be used for evaluation? And what method is the most appropriate one in terms of evaluation of the economic effects of sport events? There are two methods used: and the first one is the traditional multiplier analysis and the second method used is introduced by Braunerhielm and Andersson (2007). The economic results of the two different methods used in this thesis have been applied on a real life event, The European Championships in Figure Skating in Malmö City The two methods is of great importance and they provide us with two suggested results that are of interest, but what method to be used depends on who is making the evaluation and for what purpose. The suggested method by Braunerhielm and Andersson (2007) results in an outcome representing the economic effects of the event concerning all areas in the municipality involved both the private sector and the public sector. This method is of best use for athlete organizations that wants to keep a continuous record of their contribution towards the municipality through events and the positive result will help them promote their importance of existence to the municipality so that they can get public funding for arranging future events and gain more profit by increasing the interest of their association. Whereas, the multiplier analysis is appropriate to use for the municipality, as the results is the tax revenue gained from the event that is to be reinvested in e.g. new schools or roads the result will then help promoting the public funding of sport events to the public. The appropriate method to use is the multiplier analysis as it generates results that is of interest for the public as it calculates the effect for the municipality as a whole and not only the effects for the once directly involved in the sport event. ii

3 Table of Contents 1 Introduction... Erreur! Signet non défini. 1.1 Problem discussion... Erreur! Signet non défini. 2 Background of Events Background the European Championships in Malmö City Theoretical findings Earlier Studies Multiplier analyses... Erreur! Signet non défini. 3.3 Braunerhilem and Andersson (2007) Empirical result Summery of Survey Multiplier analysis Braunerhielm and Andersson (2007) Analysis Conclusion Problems Suggestions for further research References Appendix Appendix Appendix iii

4 Figures and tables: Equation 1: W=F (U, U,...,U ) 1 2 n Figure 1.1: Illustration of rivalry and excludability (Lindwall, 2007) Figure 2.1: Three levels of evaluations according to a bottom up perspective (Mossberg, 2000) Figure 3.1: general model of the effects of events on the public sector. Bold text within the boxes represents the effects that have an impact on the public sector. (Andersson et al, 2000) Figure 4.1: The multiplier through the economy (Klaesson, 200) (See Appendix1) Table 1: Secondary effects, revenues of the event budget Table 2: Secondary effects, expenses of the event budget Table 3: Spending pattern per person and day (The Swedish Research Institute of Tourism, 2003) Table 4: calculation of the multiplier used 1.4 Table 5: Percentages of the primary input factors Table 6: Value added of the four primary input factors Table 7: Calculations of Value added Table 8: Financial effects on the public sector Table 9: Distribution of Income generated to Malmö City Table 10: Comparison of results between the two different methods iv

5 1 Introduction This thesis will analyze the economic effect of a stadium event in a municipality. To see the economic effect more clearly this thesis will be written as a case study of the European Championships in Figure Skating in Malmö city Events are held all over the world in different forms and scales and most of us view events as something entertaining. If a municipality decides to arrange an event not only people directly involved in the event will be affected. The reasons for hosting an event are many, but it has often its ground in economic nature as the generation of tourist expenditure is of great means for the municipality. The demand that is created for an event does not only include the actual event but also the range of related services, which are called the ingredients of the tourism experience: accommodation (hotel, youth hostel and boarding- house), food (restaurant, hamburger and hot- dog stands and café), travel (bus, boat, train, bike, canoe and car rental) and activities (museums, amusements parks, sports and bathing facilities) (Mossberg, 2000). There are many ways to analyze the economic effects of events and finding the most appropriate one is of great means, since money generated from events are of great importance for a municipality. The money that finances events is often public funding which creates a need for an appropriate method to be used, as it enables the municipalities to promote the existence of the event to the public. This thesis will be based on two research questions: What are the differences in the outcome of an event depending on the choice of method to be used for evaluation? And what method is the most appropriate one to use in terms of evaluating the economic effects of a sport event? To answer these questions two methods will be applied on The European Championships in Figure Skating in Malmö City The data used in this thesis is based on an evaluation of The European Championships in Figure Skating in Malmö City 2003 that was made by The Swedish Research Institute of Tourism (2003) commissioned by the municipality of Malmö City. The two method that will be applied to the case are: The traditional multiplier analyses and/or an input- output analyses (Andersson & Samuelsson, 2000) and The second method is one that recently been introduced by Braunerhielm and Andersson (2007) that is a simplified method to be used by associations within the municipalities. The result of these two methods will enable us to answer the two research questions and fulfill the purpose of finding an appropriate method to be used when calculating the economic impacts of sport events. 1.1 Problem discussion The topic chosen is interesting due to that the advantages for public sector investments are difficult to promote. Göran Långsved is in charge of tourism development in Stockholm and expressed the following for the discussion of the problems of convincing people about advantages of an event (Andersson, 2000). A significant problem with events is to convince for example taxpayers, journalists and politicians of the advantages of the investments due to the fact that the financing is often based on public money. It is ques- 1

6 tioned whether public money should be financing events of whether it is a better investment to build kindergartens or new roads. One reason for the debate is the difficulties in assessing the economic impacts. Also, there are difficulties in presenting the potential real effects in an easy pedagogical way in the media. Events are therefore vulnerable. It is easier to argue for investments in the leisure and congress market. (Andersson, 2000) At a given time every municipality have a certain amount of resources for their disposal, the economical system that is used will make sure that the resources are used in the most effective way. The resources can be used in a numerous way, how much and what is going to be produced, how shall the production be organized, how much of the municipalities inhabitants time should be put on production respective of spare time, and how much environmental resources should be used in the production etc. etc. To be able to answer the question that concerns the matter of priorities among different activities, it is important to clarify what goals the economic system has and after what criteria s the different ways of using the resources should be assessed. It could be omitted that the resources are used in the best possible way for the inhabitants in the municipality, which could be seen as resources are being used to maximize the welfare in the municipality, in economic theory it is expressed as followed: W=F (U 1, U 2,...,U n ) (1) Where W stands for welfare and U is the utility level for individual i. This utility explains each individual s utility. For this function to be maximized for each individual in a municipality during the time of an event an appropriate method that calculate and highlight the utility for the individuals in a municipality caused by an event is of importance. An event is of interest when talking about rivalry and excludability, it is a concept that categories different utilities that could be illustrated in a figure. In origin there is no rivalry and no possibility to exclude individuals from consumption. In spot X everyone that does not pay the price will be excluded and the rivalry is complete, meaning that only one consumer can consume one unit of the utility. Examples of utilities in origin could be measures that improves the ozone layer, counteract pollution etc. Examples of utilities in X are clothes, provisions etc. If there is no excludability and no rivalry it is called collective utility, which means that everyone can consume it, but ones consumption does not effect ones consumption. The picture below shows the relationship between rivalry and excludability (Lindwall, 2007). 2

7 RIVALRY x EVENT EXCLUDABILITY Figure 1.1: Illustration of rivalry and excludability (Lindwall, 2007) 1 Background of Events The event is a one-time or recurring event of limited duration, which is held no more frequently than once a year, has a program, an organizing body, a number of participants and it is open to the public, and Apart from the intrinsic objectives (e.g. sport, culture, religion) is developed primarily to enhance awareness, appeal and profitability of the host/region/country as a tourist destination. (Ritchie, 1984) The impact of an event can be divided into three categories: Social Impact- The social part for a community to arrange an event is the benefit of improving the social ties and an opportunity for the community to demonstrate that they can pull it together for the greater good. (Parry & Shone, 2004) Political Impact- Sporting events play a political role in addition to the social and economic roles. This is because of the perceived economic effects but on the other hand it is also positive political impacts, such as improving the international image of the country or in the case of some events as a means of gaining other political benefits such as public exposure. (Parry et al, 2004) Economic impact- Tourist town has long understood that the benefits of running events can during the tourist season bring more people to the town and thus encourage further spending in local shops and businesses or it can extend the season in some way. (Parry et al, 2004) The impact on a local community of major events let it be a sporting event, or a large cultural event such as a festival can be looked at in terms of a cost- benefit analysis or through an economic multiplier analysis. (Braun & Rungling, 1992; Tribe, 1999) Special events may not provide huge direct employment, but the indirect effects on local businesses, local services and local infrastructure and environment could be extremely significant. The indirect effects of incoming spending of this kinds may include the support of activities such as retailing, visitors buying anything from magazines to clothing, and catering, visitors using restaurants, coffee shops and pubs, to less obvious visitor support of services such as, transports, taxis, printers, technical equipment, local musicians and entertainers, marquee contractors photographers and many other types of supplies and suppliers. Some resorts and cities have seen special events as their economic salvation (Parry et al, 2004). 3

8 In the context of a community the running of a major event it is often perceived as having a positive social and economic impact, in much the same way that the construction of a factory or tourist attraction would. This economic impact is not very well documented, but some studies especially on sport events give various clues about these benefits. Some events is seen as a matter of civic business, that is to say, the event my be organized or even sponsored by the city or town council and based, at least in part on the economic and social benefits that it brings to the community, in terms of increased numbers of visitors or an increased visitor spend. Given the size and the extent of some events, the economic and social benefits may be very greatly (Law, 1993). Events have a great impact and have been a feature of society from its early days. Events serve to strengthening social bonds, to bring enjoyment and celebration to individuals, families, community and the society as a whole. Events are also stimulated by social and economic benefits including the provision of direct and indirect employment, the enhancement of facilities and the improvement of local services. (Parry et al, 2004) Economic impact analysis are used to evaluate the effects of events and are used for various reasons, First level- the effects directly attributable to the event as such are evaluated and Second level- as events have impacts on the region involved as, well as on the public sector and the society at large, the effects on these levels will also be taken into account (Andersson & Samuelsson, 2000). Welfare evaluations +/- Consumers and producers surplus, externalities, distribution effects The public Sector +/- Direct and indirect effects, opportunity cost, taxes, reduced unemployment The Event Figure 2.1: Three levels of evaluations according to a bottom up perspective (Mossberg, 2000) 1.2 Background the European Championship in Malmö City 2003 Malmö city organized the European Championships in Figure Skating that were held between 19 th of January and 26 th of January

9 The European Championships in figure skating is held yearly for the purpose of designate the skaters from 40 different countries participating. There were two types of tickets sold to enter the event: All- event tickets- including the whole championship week plus the final show and single tickets- including only one competition day The European Championship in figure skating is the first figure skating arrangement of the year. It is one of the largest media covered event in Europe. Approximately 400 visitors of the event originate from international and national media. The event requires a lot planning and an extensive organisation to pull the event together. Approximately 400 volunteers were involved during the competition. Around the event there were a lot of other activities, such as: opening ceremony, parties and a closing banquet. On public areas inside the stadium selling of souvenirs, food and snacks, figure skating equipment were held, there was also a lunch restaurant available in the event area. The European Championships in figure skating is prestigious and public attractive. It is one of the largest events arranged by Malmö City Ticket sales amounted up to in addition to that VIPs and media were amounted to 800 persons. 3 Theoretical findings This section will start with presenting some earlier studies that represent some real economic effects from events. The second part of this section will present the common purpose of the two different methods used in this thesis. The third part of this study will go through the input- output- and multiplier analysis, which is a traditional method of evaluating economic effects of events (Andersson et al, 2000). The fourth part of this section will go through the steps in the simplified method that is suggested by Braunerhielm and Andersson (2007) to use when to analyze the economic effects of events. 3.1 Earlier Studies There have been many earlier studies of evaluating the economic effect of events, but not every event is interesting too look at, as it is not relevant for this paper. Events can be classified into four categories. Mega- events- largest events targeted at international market. All such events have a specific yield in terms of increased tourism, media coverage and economic impact (Van Der Wagen, 2001). Hallmark events- Hallmark events are to increase the appeal of specific tourism destination or region through annual events (Van Der Wagen, 2001). 5

10 Major events- events attracting significant local interest and large number of participants, as well as generating significant tourism revenue (Van Der Wagen, 2001). Minor events- Most events fall into this category, meetings, parties, celebrations, award ceremonies, sporting finals and many other falls into this category (Van Der Wagen, 2001). The European Championships in Figure Skating in Malmö City 2003 could go into the category of minor event, but since the specific yields suits the one of mega events, studies concerning both types of events are of great means for this thesis. Spilling (2000) analyzed the long- term industrial impacts of mega- events of the Olympic Games in Lillehammer The main conclusion made from this study is that megaevent is a temporary phenomenon, and the main impacts of the Lillehammer Olympics may be characterized as an intermezzo. (Spilling, 2000) There are long- term effects, but they are seen as marginal compared to the activity of the region. If the hosting region were to be covering the deficit that arises, serious economic problems would have developed, but the government paid it all and did also provide local authorities with extra funding. Hosting the Winter Olympics has been mainly been looked upon as an advantage, but in the national perspective the conclusion in economic terms is the opposite (Spilling, 2000). The main conclusion made from Spilling (2000) is that: looking beyond the intermezzo, which is the main mechanism of an event, it turns out guite clearly that the long- term industrial impacts are very marginal and in no way justify the huge costs of hosting the events. Andersson (1985) analyzed the economic effect of Bruce Springsteen concert in Göteborg This type of event is classified as a minor event and, which is of much smaller size than the earlier discussed case of the Winter Olympics in Lillehammer The main conclusion of the event was that the event resulted in an increase of the welfare in the society without decreasing the welfare for someone else. Bruce Springsteen concert in Göteborg 1985 is analyzed in relation to the main goal of achieving a good event politics. Andersson (1985) states in his results that through the analysis of different events the knowledge of the different economic effects and the prerequisites to create supplies that meet the three event politic goals increases. Uddholm Swedish Rally (USR) is Scandinavians biggest annual event, this could be classified as a hallmark event. Calculations show that USR generates 40 million Swedish Crowns to the municipality of Värmland. It is also recognized that this event is held during low season causing that the used resources would without the event been unused, causing the opportunity cost to be low, whereas if it were to be held during high season the opportunity cost would have been high and generated income would be lower (Braunerhielm & Andersson, 2007). By studying the flow of capital to and from the athlete associations, the purpose of estimating the role of sport events on a local, regional, national and international level is possible. When the association s income and expenses are traced to different private and public actors it enables us to view the association s economical network. If the local association contributes more to the municipality than what it takes the result for the municipality is posi- 6

11 tive. Money from national and international sponsors and contributions and visitors passes through the athlete association and further out to the public and private sector by the purchase of goods and services, rent and taxes, these things generates income for the municipality (Braunerhielm et al, 2007) 3.2 Multiplier analyses There is a general model that describes the most important variables to be taken into account when evaluating the effects on the public sector of events. 1. Attractiveness of the event of the area 2. Number of visitors, TV and sponsor coverage, etc. Primary effect 3. Event organiser s 4.Tourism Industry 5.Public sector Secondary direct effects 6. Indirect effect on suppliers and subcontractors Secondary indirect effects 7. Gross wages 8. Gross profit 9. Indirect taxes 10. Gross Import Tertiary effect 11. Local taxes 12. Social Security Fees 13. Total State Taxes Tertiary effects on the Public sector Figure 3.1: general model of the effects of events on the public sector. Bold text within the boxes represents the effects that have an impact on the public sector. (Andersson et al, 2000) 7

12 The general logic behind this model starting at the top: The attractiveness of the event- determines the primary effects that generate demand from visitors and TV and Sponsors- this demands means revenues and costs to different secondary beneficiaries, such as: Event organisation, Tourism Industry, Public Sector. Secondary beneficiaries will have to purchase resources of different kinds from different suppliers and this will result in various so- called indirect effects. (Andersson et al, 2000) Value added among the four primary input factors consist of the four basic economic elements (Andersson, 1999) Salaries and Wages, Gross profit, Indirect taxes (e.g. VAT), Import (are of greatest importance to the public sector) (Andersson et al, 2000) these economic elements constitute the tax base and are treated differently in different countries. Thus the tax effect for the public sector will vary between countries according to tax legislation and other institutional arrangements prevailing in each country. (Andersson et al, 2000) In the final stage the tax effects for the public sector determines, i.e. taxes and fees levied by the municipalities and includes local taxes, social Security Fees, total State Taxes (Andersson et al, 2000) When these steps are calculated the overall effect can be determined. The first variable to be determined is the magnitude of the primary effects to see the future and the actual effect of an event. (1 and 2) (Andersson et al, 2000) This is done by answering the two questions: How many visitors will the event attract?, How much money can TV and sponsors rise? These two estimates are often included in the event budget. Secondary effects- combine direct and indirect effects Getz (1997) overview the estimators of how direct tourism effects are carried out. Canada and Sweden are examples of countries publishing so- called Tourism satellite account as and aid to show normal amount spent by visitors and tourist of different kinds and on different objects. Examples of some direct secondary costs are health care and police services that could affect the public services which in some cases financed by the event. These direct secondary costs can to some extent be financed by the visitor through payments of health care received. The remaining part will be financed through public budgets. There will be no net effect on the economy if the governments choose to switch public spending from one activity to another. If public spending were to be raised through a tax increase the extra tax amount levied should be calculated as the marginal cost for public funds. The so- called dead weight loss should be accounted for, which in Sweden is done by adding 30% to the amount raised. (Andersson et al, 2000) To be able to make a fair estimate of the indirect secondary effect the first thing to do are to determine the net financial contributions related to an event. When comparing the direct secondary effect and the opportunity cost we can clarify the amount that represents an increase spent in a region and what amount that only represents a change in the use of these contributions from one activity to another. The net increase in the funds is the only thing that is to be taken into account when calculating the indirect effect. (Andersson et al, 2000) net contributions Are money spent from visitors outside the region and will induce the indirect effects. The boarders of the region need to be clearly identified when this classification is made. The money that is spent among visitors within the region will represent a change of object of spending and will not generate a net increase in the level of spending. The effect of the event of each individual industry should be made by using a multiplier, which shows the effects on the revenues of the indirect industries for each direct industry. Multipliers are available in several countries with different level of aggregation. The applicability in certain case has to be determined (Getz, 1997). There are two different ways of calculating multipliers. Both are based on the mathematical properties of infinite series and they are both the result of work by outstanding economists (Andersson et al, 2000). 8

13 The Keynes (1933) type of multiplier assumes a marginal propensity to consume and assumes this to be valid for the whole economy. To analyze an event the marginal approach seems appropriate, but less precise when assuming the same marginal effects for the tourism industry as for any other part of the economy. Specific multipliers for the tourism industry have been developed for various countries `Leakage` is a central concept and determines the size of the multiplier. The smaller the area studied the greater the leakage and the smaller the multiplier. The comprehensive multiplier for Sweden has been estimated at somewhere in excess of 50% whereas on regional basis multipliers of 20-35% have been used (Andersson et al, 2000). (See Appendix 1) The input- output type of multiplier (Leontief, 1936)- is on a basis of a detailed analysis of industries. Every fifth year a detailed input- output table for a little less than 100 industries are produced in Sweden. The table is produced on the basis of the average behaviour of each industry regarding input requirements from other industries and from primary input factors such as labour and capital. Leontief versus Keynes, the advantage of Leontief multiplier is the detailed analysis by sector but Keynes marginal approach is more appropriate Leontief s marginal approach when evaluating an event (Andersson et al, 2000). (See Appendix 2) 3.3 Braunerhielm and Andersson (2007) Braunerhielm and Andersson (2007) have worked out a method that can be used as a when evaluating sport events. This method is based on three different table s labelled R7- R9. R7, presents the associations Income, R8, presents the associations Expenses R9, calculations from R7 and R8 are transferred into the R9 table. The purpose with R9 result report is to show the balance between the public and the association. R9 shows total income and expenses from both private and public sector. The net result shows the income and expenses from each geographical area. R9, Shows from which geographical zones the associations have contributed to capital inflow. The purpose with this last step is to show contributions from visitor expenses of e.g. food and accommodation in connection to the event. Braunerhielm and Andersson (2007) have suggested different questionnaires, which make it possible to do an audience profile. There is also a table labelled R10 that is to be used to calculate the involvement of the event from the association s point of view. This table will not be presented in this thesis as it is not of relevance. When the results from R7, R8 and R9 are clear they are summarized in a table that calculates the tax income effect to the municipality both from the private and the public sector. Appendix 4 presents the suggestions from Braunerhielm and Andersson (2007) of all tables and questionnaires to be used, when applying their method. By studying the flow of capital to and from the athlete associations, the purpose of estimating the role of sport events on a local, regional, national and international level is possible. When the association s income and expenses are traced to different private and public actors it enables us to view the association s economical network. If the local association contributes more to the municipality than what it takes the result for the municipality is positive. Money from national and international sponsors and contributions and visitors passes through the athlete association and further out to the public and private sector by the pur- 9

14 chase of goods and services, rent and taxes, these things generates income for the municipality (Braunerhielm and Andersson, 2007). 4 Empirical result 4.1 Summary of Survey Effects on the public sector of this event will be evaluated and some figures used in this paper for calculations made to evaluate the economic effects originates from the research made by The Swedish Research Institute of Tourism (2003), commissioned by Malmö City. The figures applied are on the basis of the questionnaire made during the event. (See Appendix 3) The event lasted for a whole week and personal interviews were made by, The Swedish Research Institute of Tourism, experienced interviewers. 414 people were interviewed of which 99 did not want to answer and constitutes reduction. There were 315 carried out interviews, which results in a qualitative basis for the analysis of the results. 76 percent answer frequency is normal compared to similar events. Visitor type- The majority of visitors were women, 77 percent compared to 23 percent men. The share of women was higher among Swedes than international visitors 80 percent compared to 65 percent. 76 percent of the figure skating visitors were from Sweden of which 21 percent from Malmö region and remaining 55 percent from other regions. 7 percent of the visitors came from the Nordic countries and 16 percent from other countries in Europe. Who visit the European Championships in Malmö city? 26 percent had visited the European championships in figure skating before whereas 73 percent had not. From 26 percent 14 percent were Swedes and 63 percent were abroad visitors. 97 percent of the visitors were in Malmö with European Championship as purpose. Transportation- Out of all the visitors barley 50 percent came to Malmö city by car out of the Swedish visitors and 26 percent by train and 15 percent by bus. 50 percent of the abroad visitors came to Malmö city by plane and 25 percent by car and 14 percent by train and 7 percent by ferry. Guest nights- 59 percent of all the visitors stayed the night within Malmö city region among the Swedish tourist 55 percent stayed the night and 69 percent of the abroad visitors stayed the night. 62 percent stayed in hotels, 21 percent with family and friends and 13 percent stayed in youth hostel. The average lengths of stay were three days and two nights irrespective of purpose. 4.2 Multiplier analysis The Primary effects: The European Championships is attracting numbers of visitors, although this number might not be exactly correct as it is based on the numbers of 10

15 tickets sold and not on the actual numbers of visitors. The figures used are based on the investigation made by The Swedish Research Institute of Tourism (2003). The contribution of the International Skating Union were amounted to kr and sponsor money were amounted to kr. SUM: = SEK Secondary effects Calculates the Effects on the event organisation The budget of the event is based on estimated revenues kr and the costs of a similar amount. The income side is dominated by: Preparation cost Advertising, PR Hotel Income Ticket sales Sales Lottery Remaining Price money SUM: SEK SEK SEK SEK SEK SEK SEK SEK SEK Table 1: Secondary effects, revenues of the event budget Rent VAT Social Fees Marketing Printed matter Purchase Transportation Accommodation Entertainment Employment cost Replacement cost Fees Remaining Sum SEK SEK SEK SEK SEK SEK SEK SEK SEK SEK SEK SEK SEK SEK Table 2: Secondary effects, expenses of the event budget 11

16 The effect on the tourism industry are great and amounted to SEK. This result is not used in the calculations for the financial effects on the public sector, but this effect is interesting when analyzing the overall economic effect, as this figure includes income irrespective of sector it could be money that generates income both for the public sector and the private sector. Although, we assume that this amount mainly generate income for the private sector, but further investigation needs to be done to get the true figure. The effects on the tourism industry are great. Revenues carried out through tourist inflow caused by the event are calculated to SEK including expected increase from the abroad tourists. This figure is calculated by The Swedish research Institute of Tourism, 2003 and is based on the following calculations. The International tourists are expected to reach SEK, which corresponds to guest- nights. The national tourist is expected to reach SEK, which corresponds to guest- nights. Since the number of tourist beds in Malmö city is limited, one should expect considerable displacement- effects and high opportunity costs during peak periods in the tourist industry. There will be public sector effects that are not covered by the event budget, such as: police work and customs service. This is amounted to security transports + Medical care doping = SEK. The departments involved will face change in activities and some overtime work. There might also be an increase in health care services. These extra activities will be covered by extra revenues. The opportunity cost Defined as the revenue form the best alternative use of the resources utilized In the case of a small event analyses the effect could be that the resources used would otherwise have been unused. Examples of this are when free capacity in hotels and restaurants are used or an otherwise empty sports stadium is used, in these cases the opportunity cost will be very low (Mossberg, 2000). In this thesis we have assumed that the opportunity cost is equal to zero, the reason for this is because the investigation used as the basis for this thesis is based on that 97 percent of the visitors are in Malmö City for the purpose of The European Championships in Figure Skating and since the period of time the event is held is not a peak period, the opportunity cost is low and are of little interest. However, the assumption of zero opportunity cost is in reality not true as hotels and restaurant probably is of some use without the event. As the indirect effect is the difference between the direct effects and the opportunity cost and the opportunity cost of the event is equal to zero, we need to calculate the indirect effect through looking at the spending pattern per person and day, carried out by The Swedish Research Institute of Tourism (2003). We can assume that the money spent by all visitors would have been zero if there were no European Championships in Figure Skating, this because of the fact that 97 percent of all people participating in the investigation made, were in Malmö City for the purpose of visiting the European Championships in Figure Skating. 12

17 All visitors Swedish Visitors Abroad visitors Lodging 217SEK 146SEK 383SEK Restaurants 146SEK 152SEK 165SEK Pleasure 23SEK 18SEK 34SEK Shopping 125SEK 117SEK 147SEK Transportation 18SEK 14SEK 34SEK Entrance 294SEK 292SEK 299SEK Groceries 18SEK 18SEK 18SEK Gasoline 15SEK 13SEK 20SEK Parking 2SEK 13SEK 20SEK Remaining 5SEK 5SEK 6SEK Sum 873SEK 778SEK 1100SEK Table 3: Spending pattern per person and day (The Swedish Research Institute of Tourism, 2003) Indirect effects could be explained through using Keynes (1933) type of multiplier analysis. The investigation made by The Swedish Research Institute of tourism calculated the spending pattern per person and per day during The European Championships in Malmö City If 873SEK were to be put into the model of showing the multiplier way through the economy with a multiplier effect of 1.8 it will turn out as below. Visitors in the Region 873kr 174,6kr Event industry Producer Taxes 69,75kr 436,7kr 87,3kr 174,6kr 698,4kr 349kr Import Consumers 87,3kr 87,3kr 43,65kr Saving Figure 4.1: The multiplier through the economy (Klaesson, 200) (See Appendix1) 13

18 The model shows the path through the economy of an injection of 873kr and how it generates both income and tax ground. Some part of the money goes to saving and some of it disappears out from the region by expenses for import. When analyzing the effect of visitor s expenses on products and services within the region it is referred to as the multiplier effect. (Klaesson, 2005) When comparing the direct secondary effect and the opportunity cost we can clarify the amount that represents an increase spent in a region and what amount that only represents a change in the use of these contributions from one activity to another. The net increase in the funds is the only thing that is to be taken into account when calculating the indirect effect. (Andersson et al, 2000) By using the amount spent per visitor and day the indirect secondary effects are calculated with the assumption that without the event, spending per person would have been equal to zero, the result of the calculations gives us the indirect secondary effect, which represents the increase of spending within the region. When calculating the indirect secondary effect a Keynes (1933) type of multiplier is used, this type of multiplier assumes a marginal propensity to consume and is to be valid for the whole economy. To analyze an event the marginal approach seems appropriate, but less precise when assuming the same marginal effects for the tourism industry as for any other part of the economy (Andersson et al, 2000). The size of the multiplier that is used in the calculations is 30% as it is the size normally used for regions in Sweden. By using this method we can see that 873SEK spent by each visitor generates an effect of 1 135SEK on the gross national product (GNP). These numbers are then used to calculate the actual income of all visitors to the municipality. As mentioned above we assume that the money spent by each visitor would have been zero if there were no event and therefore the total indirect effect will be as below. The total secondary indirect effect when using the Keynes (1933) type of multiplier would be: Multiplier effect: 873*1.3= 1135SEK Total Indirect effect: 1135* = SEK Table 4: calculation of the multiplier used 1.4 In the next step we are to calculate the tertiary effects and to enable us to do that some figures needs to be assumed. The expenses from salaries and wages come from the budget made by the event organisation. The gross profit is an estimated figure as we assume the cost for the event to be the same as the revenues for the event organisation, by taking away the cost from the direct secondary effect and the import we get an approximate figure of what might be the gross profit. The indirect taxes are the sum of VAT paid by the event organisation and is calculated according to Swedish fixed VAT rates of 6%, 12% and 25%, depending on industry. Import is calculated through the assumption of that some of the amount spent by each visitor goes to import and this is assumed to be 10%. Value added among the four primary input factors salaries and Wages, gross profit, Indirect taxes (e.g VAT) and Import (are of greatest importance to the public sector). These four 14

19 basic economic elements (Andersson, 1999) constitute the tax base and are treated differently in different countries. Thus the tax effect for the public sector will vary between countries according to tax legislation and other institutional arrangements prevailing in each country. (Andersson et al, 2000) Hypothetical Swedish tax rates applied to the four basic economic elements (Andersson et al, 2000) Gross Wages Gross Profit Indirect tax Import Local tax 21% 0% 0% 0 Social fees Security 31% 0% 0% 0% State tax 7% 6% 100% 0% Table 5: Percentages of the primary input factors In the budget made by the event organisation expenses for salaries and wages amounted to SEK.. The estimated gross profit is SEK. The indirect tax is the VAT of all incomes. The import is calculated through the estimated value of 10 percent of the indirect effects caused by the visitors spending patterns. Salaries and Wages Gross Profit Indirect taxes Import SEK SEK SEK SEK Table 6: Value added of the four primary input factors Gross Wages SUM: Gross Profit SUM: Indirect tax SUM: Public revenue SUM: SEK SEK SEK SEK Table 7: Calculations of Value added As The European Championships in Malmö City 2003 is an event of little scale. There will probably be no long term savings from reduced unemployment, but probably some short term savings. When using figures carried out from USK (a separate investigations and statistical bureau belonging to the city of Stockholm) we might be able to bring about an approximate number of the savings. The average cost, net of taxes and social security fees, for unemployed people is estimated to be SEK per man- year of unemployment. (Andersson & Samuelson, 2000) So the savings per month will be /12= 8 250SEK. 15

20 We can assume that 200 were employed due to the event and that it had no long term effect, this will cause savings from reduced employment equal to: * 200= SEK. We assume that the short term effect will last for a month as there will be work that has to be done before and after the event. The effects on the public sector are calculated on the basis of three types of economic effects: Direct secondary effects such as extra costs and/or revenue for public services; Tertiary effects in terms of increased tax revenues and social security fees; and Savings due to reduced unemployment payments and other kinds of support. (Andersson & Samuelson, 2000) The case study is based on figures found from the investigation made by The Swedish Research Institute of Tourism (2003), many figures necessary for the study are available, but some figures are assumed causing the discussion to be hypothetical with the main goal of to illustrate a useful model and an understanding of the possible effects which enables analysis of the economic effects of the municipality of Malmö City. Financial effects of the public sector Direct Secondary effect Direct secondary effect SEK Tertiary effects Local tax Social Security fees State tax Savings from the reduced unemployment SEK SEK SEK SEK Total effects on the public sector SEK Table 8: Financial effects on the public sector The public revenue is calculated to be SEK, however this figure is not of true nature as most of the figures in the calculations are assumed, but it gives us the channels from were the public can get its tax revenue. The savings from reduced unemployment is amounted to SEK this figure comes from pure assumption as there are no information available to calculate this figure. However, as it is an event of small scale we draw the conclusion that savings of reduced unemployment have no long term effect, but only short term effect for one month. The total financial effects on the public sector is amounted to SEK which is a positive result, even if the savings from reduced un- 16

21 employment were to be taken away, as it might not be existing, the result would be positive. The positive hypothetical result allows us to draw the conclusion that the event resulted in an increase of the welfare in the society without decreasing the welfare for someone else. 4.3 Braunerhielm and Andersson (2007) The Income from The European Championships in Figure Skating in Malmö City 2003 are calculated by plugging in figures into the first table suggested by Braunerhielm and Andersson (2007) named R7. The numbers in the table are taken from the budget made by the event association. The total income of the event is calculated to be SEK. The figures are placed in the table labelled R7, which is the first step suggested by Braunerhielm and Andersson (2007), when evaluating the economic impacts of events. (Appendix 3, R7) The Income generated from the event are contributions both from the public sector, private sector and the associations, compared to the multiplier analysis the method divide the incomes amongst the public sector, private sector and the association causing the income portion to differ amongst the sectors causing the income effect to be more dominant in some sectors and this results in an outcome that not necessarily generate positive income effects from the event. The figures placed in the table for expenses is also taken from the budget made by the event association and the expenses were calculated to SEK. The figures are placed in the table labeled R8 suggested by Braunerhielm and Anderson (2007), to use when evaluating events (Appendix 3, R8). The expenses caused by the event is treated the same as for the income the expenses portion is divided up into categories amongst the private sector, public sector and the association causing the actual profit to differ. Compared to the multiplier analysis this method does not assume that everyone receives the same psotitve or negative economic effect from the event. As stated above the profit portion depends on how much income is generated minus the outcome. The profit amongst the different sectors is then taxed differently according to the tax regulations in different countries causing the effect to the public sector to differs compared to the multiplier analysis where the whole profit generated from the event is divided into different tax income categories where it is treated the same. Income generated to the region from The European Championships in Figure skating in Malmö City These figures are based on the research made by The Swedish Research Institute of Tourism (2003) as Braunerhielm and Andersson (2007) suggest that this table labeled R9 should be on the basis of a visitor profile. The region in this case will be the municipality as the income generated is only to the municipality of Malmö City and not the region. The income generated to the municipality of Malmö City is calculated to SEK (Appendix 3, R9). The figure is the total income generated from all the sectors, which again is not assumed to be the positive effect for the whole municipality as the income differs amongst the private sector, public sector and the association. 17

22 In the report made by Braunerhielm and Andersson (2007) they have an example on Scadevi Cup, on how to calculate the economic effects of an the event with the guidance of their suggested model. This example is using a table to summarize the effects, which is shown below, with figures taken from the tables R7, R8 and R9 (Appendix, 3). Distribution of Income generated to Malmö City The State SEK (30%) Region SEK (10%) Malmö City SEK (20%) Private Sector SEK (40%) SUM SEK (100%) Table 9: Distribution of Income generated to Malmö City The table shows how the income is divided among the different sectors and how the method does not assume that all sectors gain the same profit from the event and and does not assume the same thing as the multiplier analysis, that the income generated from the event is purely tax income that can be reinvested in favour to the public in the municipality, but rather shows that the effect is positive, but the portion of profit from the event differs and reinvested money do not necessarily have to favour the whole public living in the municipality. 5 Analysis The two methods have now been introduced and two different outcomes of the economic effects of events have been noticed. It is now time for this thesis research question to be answered what are the differences in the outcome of an event depending on the choice of method to be used for evaluation? And what method is the most appropriate one to use in terms of evaluating the economic effects of a sport event Two methods have been used and one of them is the traditional multiplier analysis and the second method is an analysis suggested by Braunerhilem and Andersson (2007). This thesis is written as a case study to enable an application of the two methods. The figures used in the calculations are taken from the research made by The Swedish Research Institute of Tourism (2003) and the budget of the event association. Many figures in this thesis are made upon assumptions to enable a proper application of the two methods, causing the results to be purely hypothetical. However, the thesis is not written for the purpose of getting a true result of this particular event, but for the purpose of highlight the most appropriate method to be used when evaluating the economic effects of events The case study for this thesis is The European Championships in Figure Skating in Malmö City This is an event that is viewed as a minor event, but studies of all types of different events are of great means for this thesis. In earlier studies different methods have been used to evaluate the effects of events and there are no standardized method, therefore the 18