2012 Economic Impact of Los Angeles County Visitor Spending

2012 Economic Impact of Los Angeles County Visitor Spending by Roy Weinstein and Kristina Stanford Micronomics An ERS Group Company March 2013 www.micronomics.com www.ersgroup.com

Executive Summary Micronomics has quantified the local economic impact of 2012 visitor spending on Los Angeles County. Based on our analysis, we have concluded that visitation to LA in 2012 produced at least $30.5 billion in economic benefits to Los Angeles County, including $3.2 billion from transportation, $4.4 billion from lodging, $4.3 billion from food and beverage, $1.7 billion from entertainment, $1.8 billion from shopping, $1 billion from other tourism activities, and $14 billion in multiplier effects. Tax revenues include $1.1 billion in state tax revenue, $422 million in Transient Occupancy Tax ( TOT ) revenue, $17 million in Tourism Market District ( TMD ) tax revenue, $186 million in local sales tax revenue, and $437 million in other local tax revenue. Background Los Angeles County attracts millions of visitors every year. It is the entertainment capital of the world and features unequaled nightlife, food, fashion, and art. Los Angeles County includes 88 cities and has the largest population of any county in the nation. 1 Los Angeles has an expansive reach of over 470 square miles filled with unique regions that illuminate its rich culture and diversity. 2 The county s varied landscape allows visitors to experience the local beauty in both mountainous and coastal terrain. Popular beach cities include Venice, Santa Monica, and Malibu. These coastal attractions offer entertainment-filled piers, farmers markets, and sport venues for beach volleyball, surfing, handball and tennis, among others. 3 The San Gabriel Mountains, located in the northern part of the county, provide an excellent spot for hiking, skiing, and camping. 4 Griffith Park, the largest municipal park with an urban wilderness area in the United States, is also frequently visited by tourists interested in a scenic view of the iconic Hollywood sign and Universal Studios Hollywood as well as hiking and horseback riding. 5 Over the last few years, downtown Los Angeles has transitioned from a business-only region to a substantial urban center. 6 Revitalized restaurants, museums, entertainment, and nightlife are now open on the weekends and bring in a new stream of visitors. 7 L.A. LIVE is centrally located downtown and includes the Nokia Theatre and the STAPLES Center. Both venues host an 1 2012 2013 Economic Forecast and Industry Outlook, LAEDC Kyser Center for Economic Research, February 2012, p. 44. 2 2012 2013 Economic Forecast and Industry Outlook, LAEDC Kyser Center for Economic Research, February 2012, p. 44. 3 Things to Do in Beach Cities, Los Angeles Tourism and Convention Board website (http://www.discoverlosangeles.com/explore/regions/beach-cities-lax). 4 San Gabriel Mountains, The American Southwest website (http://www.americansouthwest.net/california/san_gabriel_mountains/index.html). 5 General Information, Department of Recreation & Parks, City of Los Angeles website (http://www.laparks.org/dos/parks/griffithpk/gp_info.htm). 6 Downtown L.A. s real estate transformation is building speed, Los Angeles Times, December 27, 2012. 7 Downtown / LA Metro, Los Angeles Tourism and Convention Board website (http://www.discoverlosangeles.com/explore/regions/downtown-la-metro). 1

impressive list of concerts and sporting events. The Lakers, Clippers, Kings, and Sparks all play in this entertainment complex. Other downtown attractions include the Walt Disney Concert Hall at the Music Center, the Museum of Contemporary Art, and Exposition Park. 8 While downtown has always appealed to the discount market and those in business and finance, it has now become a popular region for those interested in art, music, and entertainment as well. Hollywood is typically an essential destination for visitors to Los Angeles County. The city features venues such as the iconic Dolby Theatre, best known for hosting such events as the Academy Awards. Other famous venues include the TCL Chinese Theatre, the Hollywood Walk of Fame, Universal Studios Hollywood, and the Hollywood Bowl, an internationally renowned outdoor amphitheater that features the top names in music. 9 This glitzy area is also known for its elaborate shows, restaurants, and shopping. Other popular regions in Los Angeles County include Beverly Hills, home to more than one hundred designer and couture boutiques on the world famous Rodeo Drive; West Hollywood and its stunning views of the Los Angeles skyline, Hollywood Hills and Sunset Strip; Santa Monica, California s most celebrated beach city; and Pasadena, host of the Rose Bowl and Parade. 10 According to Tourism Economics, an Oxford Economics firm specializing in tourism analytics, Los Angeles County attracted a record 41.4 million visitors in 2012 (see Graph 1). 11 This represents a 2.5 percent increase over 2011 visitor attendance. 12 Domestic visitation accounted for approximately 85 percent of total visitation while the remaining 15 percent were international visitors. 13 China became the county s top overseas market for the first time with 460 thousand people visiting in 2012. 14 8 Downtown / LA Metro, Los Angeles Tourism and Convention Board website (http://www.discoverlosangeles.com/explore/regions/downtown-la-metro). 9 Hollywood, Los Angeles Tourism and Convention Board website (http://www.discoverlosangeles.com/explore/regions/hollywood). 10 How to Explore Regions of LA, Los Angeles Tourism and Convention Board website (http://www.discoverlosangeles.com/explore/regions#region-2). 11 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 3. 12 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 4. 13 Los Angeles Tourism Breaks Record in 2012 with 41.4 Million Visitors, Los Angeles Tourism and Convention Board Press Release, January 15, 2013. 14 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 3. 2

Graph 1: Visitors to Los Angeles County, 2009 2012 15 The tourism industry is one of the county s highest job generators. 16 The growth seen in visitation to Los Angeles in 2012 has led to a corresponding growth in employment in the leisure and hospitality industry. 17 As Los Angeles continues to revitalize regions and introduce new attractions, the county will reap significant economic benefits through tourism. Economic Impact of 2012 Visitor Spending in Los Angeles County Our analysis addresses two components of the economic impact associated with the ability of Los Angeles to host domestic and international visitors in 2012. The first is direct spending by visitors to Los Angeles. This includes spending on transportation, lodging, food and beverage, entertainment, and shopping. The second is the multiplier effect understood by economists to reflect the circulation of incremental spending within the local economy. Growth in the number of visitors to Los Angeles County provides increased income for taxi and airport shuttle operators, restaurant and club owners, hotel employees, etc. Recipients of this income use at least a portion to make purchases that they otherwise would not have made, thereby producing another round of beneficiaries. These multiplier effects are directly attributable to visitor spending since they would not benefit Los Angeles if people visited elsewhere. Methodology for Calculating Visitor Direct Spending We used reported spending figures by category provided by the Los Angeles Tourism and Convention Board ( LATCB ) as the focal point of our analysis. These spending figures were broken down to reflect both domestic and international visitors (see Tables 1 and 2). The sum of 15 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 3. 16 2012 2013 Economic Forecast and Industry Outlook, LAEDC Kyser Center for Economic Research, February 2012, p. 44. 17 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 5. 3

domestic and international spending was taken to calculate the total visitor spending by category (see Table 3). According to Tourism Economics and Dean Runyan & Associates California Air Visitor Analysis, both domestic room demand and domestic air arrivals in Los Angeles grew in 2012. Domestic room night demand grew an estimated five percent and domestic air travel grew three percent in the first three quarters of 2012. 18 Transportation was the largest spending category for day visitors and lodging was the largest spending category for overnight domestic visitors. Altogether, domestic visitors to Los Angeles County spent approximately $11 billion in 2012. 19 Table 1: 2012 Domestic Visitor Spending by Category in Los Angeles County Category Day Overnight Total Domestic (Percent) (Millions) (Percent) (Millions) (Percent) (Millions) (1) (2) (3) (4) (5) (6) (7) (3) + (5) 1. Transportation 29% $223.1 20% $2,053.9 21% $2,277.0 2. Lodging 0% - 29% 2,978.2 27% 2,978.2 3. F&B 24% 184.7 28% 2,875.5 28% 3,060.1 4. Entertainment 13% 100.0 10% 1,027.0 10% 1,127.0 5. Shopping 13% 100.0 8% 821.6 8% 921.6 6. Other 21% 161.6 5% 513.5 6% 675.0 7. TOTAL 100% $769.4 100% $10,269.5 100% $11,038.9 Data provided by Tourism Economics indicate that international visitation to LA grew 1.2 percent in 2012. 20 Although international growth was modest overall, visitation from China grew by an estimated 35.5 percent making it the number one overseas market for international travel to Los Angeles. 21 According to the LATCB, lodging was the largest spending category for international visitors. They also tend to spend more on shopping and entertainment than domestic overnight visitors. As a result, their spending per day and average daily hotel rates are typically higher as well. 22 Domestic overnight spending breakdowns were used for categorizing visitor spending from Mexico and Canada due to their close vicinity to the United States. Total international visitor spending in LA County was approximately $5.4 billion in 2012. 23 18 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 6. 19 Data from Los Angeles Tourism and Convention Board. 20 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 4. 21 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 4. 22 Marketing and Planning Resource for Members, Los Angeles Tourism and Convention Board, 2011, p. 17. 23 Data from Los Angeles Tourism and Convention Board. 4

Table 2: 2012 International Visitor Spending by Category in Los Angeles County 24 Category Overseas Mexico Canada Total International (Percent) (Millions) (Percent) (Millions) (Percent) (Millions) (Percent) (Millions) (1) (2) (3) (4) (5) (6) (7) (8) (9) (3) + (5) + (7) 1. Transportation 16% $640.7 20% $197.0 20% $86.3 17% $924.0 2. Lodging 26% 1041.2 29% 285.7 29% 125.1 27% 1,452.0 3. F&B 20% 800.9 28% 275.8 28% 120.8 22% 1,197.5 4. Entertainment 11% 440.5 10% 98.5 10% 43.1 11% 582.1 5. Shopping 20% 800.9 8% 78.8 8% 34.5 17% 914.2 6. Other 7% 280.3 5% 49.3 5% 21.6 6% 351.1 7. TOTAL 100% $4,004.5 100% $985.2 100% $431.3 100% $5,421.0 Of the estimated 41.4 million visitors that came to Los Angeles in 2012, 13.5 million were domestic day visitors, 21.85 million were overnight domestic visitors, and 6.01 million were international visitors. 25 Lodging was the largest overall spending category followed by food and beverage. In total, visitor spending in Los Angeles County was an estimated $16.5 billion. 26 Table 3: 2012 Total Visitor Spending by Category in Los Angeles County Category Total Spending (Percent) (Millions) (1) (2) (3) 1. Transportation 19% $3,201.0 2. Lodging 27% 4,430.1 3. F&B 26% 4,257.6 4. Entertainment 10% 1,709.1 5. Shopping 11% 1,835.8 6. Other 6% 1,026.2 7. TOTAL 100% $16,459.9 According to Smith Travel Research, Los Angeles County sold a record 26.62 million hotel room nights in 2012. 27 Using the 2012 average daily hotel rate, we estimated hotel revenue to be approximately $3.5 billion (see Table 4). 28 This revenue is included in the lodging spending category noted in Table 3. 24 Transportation does not include conveyance to the U.S. 25 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 3. 26 Data from Los Angeles Tourism and Convention Board. 27 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 3. 28 Tracking Visitor Volumes for Los Angeles, Tourism Economics PowerPoint, December 2012, p. 3. 5

Table 4: 2012 Visitor Spending on Hotels in Los Angeles County Multiplier Effect Room Nights Average Hotel Rate Total Spending (Dollars) (1) (2) (3) (1) x (2) 26,620,000 $130.12 $3,463,794,400 Economic multiplier models are used to estimate the additional impact from circulation of direct spending through the local economy. These models reflect the relationship between inputs and resulting economic outputs, and recognize the impact that an increase or decrease in economic activity in one sector of the economy can have on economic activity in other sectors. The Minnesota IMPLAN Group, Inc. compiles data that provide the framework for an economic multiplier model used to measure output gains resulting from increased spending in sectors such as transportation, accommodations, food and beverage, entertainment and shopping. Based on the estimated incremental spending noted above, total direct spending associated with 2012 visitation to Los Angeles resulted in a secondary economic impact of $14 billion. Included in this estimate is approximately $2.16 billion in state and local tax revenue. Using information from the California State Board of Equalization, we were able to further break down the tax revenue data provided by IMPLAN. 29 We calculated $1.1 billion in state tax revenue, $421.9 million in local TOT revenue ($174.7 million of which went to the city of LA), $17.1 million in city of Los Angeles TMD revenue, $186.3 million in local sales tax revenue ($73.1 million of which went to the city of LA) and $436.9 million in other local tax revenue resulted from the hosting of visitors in Los Angeles County (see Table 5). Altogether, the economic effect is estimated to be $30.5 billion. This economic benefit supported 324,099 jobs in Los Angeles County (see Table 6). 30 29 IMPLAN Economic Impact Modeling System. Tax Departments, California State Board of Equalization website (http://www.boe.ca.gov/info/taxoverview.htm). California City and County Sales and Use Tax Rates, California State Board of Equalization, Publication 71, January 1, 2013. 30 IMPLAN Economic Impact Modeling System. 6

Table 5: TOT and Sales Tax Collected by the City of LA and LA County 31 Table 6: Impact of 2012 Visitor Spending on Los Angeles County Conclusion Category City of LA LA County (Millions) (1) (2) (3) 1. Sales Tax $73.1 $186.3 2. Transient Occupancy Tax 174.7 421.9 3. TOTAL $247.8 $608.2 Category of Impact Amount Employment (Millions) (Jobs) (1) (2) (3) 1. Direct $16,460 229,136 2. Indirect 5,216 32,691 3. Induced 8,833 62,272 4. TOTAL $30,510 324,099 Visitor spending produced significant economic benefits to Los Angeles County. We have estimated an impact of at least $30.5 billion in identifiable benefits. This includes: Approximately $11 billion spent by domestic visitors. Approximately $5.4 billion spent by international visitors. Approximately $14 billion in multiplier effects, including the following: o $1.1 billion in state tax revenue o $421.9 million in Transient Occupancy Tax ( TOT ) revenue o $17.1 million in Tourism Market District ( TMD ) tax revenue, o $186.3 million in local sales tax revenue, and o $436.9 million in other local tax revenue. 31 City of LA taxes are a subset of the LA County taxes. Detailed Descriptions of the Sales & Use Tax Rate, California State Board of Equalization website (http://www.boe.ca.gov/news/sp111500att.htm). Tax Departments, California State Board of Equalization website (http://www.boe.ca.gov/info/taxoverview.htm). California City and County Sales and Use Tax Rates, California State Board of Equalization, Publication 71, January 1, 2013, pp. 2-4. Estimated Population of the 88 Cities in the County of Los Angeles, California Department of Finance, January 2010 (http://ceo.lacounty.gov/forms/population%20pg_color.pdf). 7

In 2012, Leisure and Hospitality was the leading sector in Los Angeles County job creation. 32 Because of multiplier effects, visitation to Los Angeles County supports approximately 324,000 jobs. This employment figure includes the addition of approximately 10,000 jobs due to tourism. 33 32 2013-2014 Economic Forecast and Industry Outlook, LAEDC, p. 34. 33 Industry Clusters of Southern California in 2011, LAEDC, November 2012, pp. 8-9. Los Angeles County Historical Monthly Data, CA Employment Development Department website (http://www.labormarketinfo.edd.ca.gov/content.asp?pageid=166). 8

Contributors Roy Weinstein is an economist and Managing Director at Micronomics. Mr. Weinstein has been engaged in economic research and consulting since 1969. Areas of expertise include industrial organization, antitrust economics, the valuation of intellectual property, wage and hour litigation, statistics, econometrics, and the calculation of economic damages. He has testified as an economic expert in numerous jurisdictions and has spoken before the American Bar Association, the National Association of Attorneys General, the National Association of Business Economists, and the Los Angeles County Bar Association. Mr. Weinstein s articles have been published in the Journal of the Patent and Trademark Office Society, The Journal of Law and Technology, and the Antitrust Bulletin. Mr. Weinstein received his Bachelor of Business Administration degree cum laude with honors in Economics from City College New York and his Master of Arts degree in Economics from the University of Chicago. He is a recent recipient of the Career Achievement Award from the Business and Economics Alumni Society of the Baruch School at City College. Kristina Stanford is an econometrician and Research Associate at Micronomics. Ms. Stanford received her Bachelor of Arts degree cum laude with honors in Mathematical Economics from Scripps College. Her interests include power procurement and renewable integration. Her senior thesis is among the most downloaded on Econometrics Commons.

Acknowledgements Micronomics is an economic research and consulting firm located in Los Angeles, California. Founded in l988, it specializes in the collection, tabulation, and analysis of various types of economic, financial and statistical data. Areas of expertise include industrial organization, antitrust, intellectual property, the calculation of economic damages, and employment issues. Industries studied include banking and financial services, computer hardware and software, entertainment, healthcare, insurance, medical products and devices, motion pictures, oil and gas, pharmaceuticals, semiconductors, sports, supermarkets, telecommunications and tobacco. Clients include law firms, publicly and privately held businesses and government agencies. ERS Group is a national leader in statistical and economic consulting, providing expert witness services and analyses for litigation, regulatory compliance, and risk assessment. ERS experts have worked with 70 of the Fortune 100 Corporations, over 200 federal, state, and government entities and on over 1,000 matters with attorneys at AMLAW 100 firms.