The Importance of Import Substitution in Marathon Economic Impact Analysis

Xavier University Exhibit Faculty Scholarship Economics 5-2007 The mpI ortance of Import Substitution in Marathon Economic Impact Analysis Steven Cobb Xavier University - Cincinnati Douglas J. Olberding Xavier University - Cincinnati Follow this and additional works at: http://www.exhibit.xavier.edu/economics_faculty Part of the Business Commons, and the Economics Commons Recommended Citation Cobb, Steven and Olberding, Douglas J., "The mporI tance of Import Substitution in Marathon Economic Impact Analysis" (2007). Faculty Scholarship. Paper 66. http://www.exhibit.xavier.edu/economics_faculty/66 This Article is brought to you for free and open access by the Economics at Exhibit. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Exhibit. For more information, please contact [email protected]. Internationaljournal of Sport Finance, 2007, 2, 108-118, ©9 2007 West Virginia University The Importance of Import Substitution in Marathon Economic Impact Analysis Steven Cobb' and Douglas J. Olberding' 'Xavier University Steven Cobb, PhD, is an associate professor in the Department of Economics. His research interests include economic impact analysis and the valuation of local public goods. Douglas J. Olberding, EdD, is an associate professor in the Department of Sports Studies. His research interests include examining strategic management in sport organizations. On the first weekend in May, 2006, Cincinnati hosted its an increase in the number of marathons being staged. In eighth Flying Pig Marathon event. Nearly 5,000 runners 2005, for example, there were 28 new marathon races registered for the signature race, the marathon, and about staged in the US. Moreover between 2000 and 2005, there the same number of runners registered for the half- was an average of 15 new marathons staged each year marathon. Overall, nearly 15,000 individuals registered with at least 1,000 finishers. The proliferation of for the various races that comprise the Flying Pig marathons and increases in marathon participation Marathon event. Staging marathon events is an increas- responds to the growing numbers of people who enjoy ingly common phenomenon in U.S. cities. According to running for fitness reasons and the propensity of MarathonGuide.com, the number of marathon finishers marathon organizers to use such events to showcase in the U.S. increased nearly 30% between 2000 and 2005 downtown areas to both suburban and out-of-town race with about 400,000 marathon finishers in 2005 alone participants and their guests. Such events also may gener- ("USA Marathoning: 2005 Overview," 2006). The report ate significant economic impact to area economies and also suggests that this increase is due, at least in part, to the large numbers of marathon economic impact studies Importance of Import Substitution attests to the broad interest in estimating the amount of York ("Marathon will add at least $88 million," 2000), such impact. and Chicago (Hewings, 2003), as well as for races staged in Determining the economic impact of a marathon would cities like Cleveland (Campbell, 2004), Phoenix seem to be a relatively simple process: estimate the (Northern Arizona University, 2004), Washington amount of incremental direct spending in the area attrib- (Madigan, 2002), Honolulu ("2004 Honolulu Marathon utable to the marathon event, and then account for any generates over $90 million," 2005), San Diego ("$78 mil- multiplier effects generated by this spending. However a lion dollar rocker," 1999), Tampa ("Marathon's econom- review of recent marathon economic impact analysis sug- ic impact tripled," 2001), Portland (Smith, 2006), and gests that most, if not all, such studies have errors of vary- Austin, Texas ("The 2005 Freescale Marathon," 2005), it is ing significance in their impact estimates. These errors clear that they collectively describe an approach to con- arise for many reasons, often because of the use of either ducting economic analysis that suggests the use of widely faulty data or unrealistic multipliers. More importantly, varying methodologies. For example, the per runner these studies err with regard to their handling of an impact estimates vary dramatically across these studies, important source of impact, one which arises because of from less that $1,000 in Washington, D.C. (Madigan, local participation in the marathon event. This impact 2002), to as much as $4,200 in Boston ("Marathon 2000 occurs whenever local race participants redirect their by the numbers," 2004). While larger metropolitan area spending from outside the area into the local economy events, where the races are often viewed as "national" in because of their participation in the event, and is a phe- character and therefore might be expected to draw rela- nomenon that occurs with a wide variety of events (Cobb, tively large numbers of out-of-town participants, should Weinberg, Trebbi, & Tschiunza, 1989; Cobb & Weinberg, generate greater impact per runner because of higher per- 1993; Blackwell, Cobb, & Weinberg, 2002). We call this centages of out-of-town participants and bigger secondary phenomenon "import substitution" because it is analo- or multiplier effects, some of the largest per runner gous to the situation in international trade in which a impacts occurred in midsized cities like San Diego ("The country's residents substitute purchases of domestically $78 million rocker," 1999) and Honolulu ("2004 produced goods for imports. Unfortunately, inclusion of Honolulu Marathon generates over $90 million," 2004). A this effect has occurred only sporadically in the economic closer examination of the methods used to construct these impact analysis literature. Moreover, while it is even rarer estimates reveals evidence that race analysts used a wide to find incorporation of this effect in the impact analysis range of both assumptions and methodologies to estimate of sporting events, generally, there is absolutely no evi- marathon economic impact. For example, estimates of the dence that it has ever been included in marathon impact economic impact of the Napa Valley Marathon were con- studies. Therefore, the focus of this paper is to present evi- structed using only direct spending data and therefore dence that import substitution is a significant component failed to include any secondary (or multiplier) effects of economic impact in marathon events and, in the (Winitz, 2004). Another study, an analysis of the Florida process, corrects a widespread misunderstanding regard- Gulf Coast Marathon, relied on proxy data (e.g., "typical" ing how to measure and incorporate local spending in the visitor spending data from their local Chamber of calculation of economic impact of sport events. Commerce) as the basis for their direct spending estimates ("Marathon's economic impact tripled," 2001). Even Marathon Impact Review more significantly, many of the small city studies reviewed Marathon impact studies have been conducted for a num- completely ignore any potential contribution from local ber of years in cities all over the United States. When one race participants. examines the reports and press releases that provide Generally speaking, larger city studies are on firmer impact estimates for nationally known races such as methodological ground, basing their analysis upon actual Boston ("Marathon 2000 by the numbers," 2004), New survey data of their marathon participants and using con- ventional impact models to incorporate the secondary, or Volume 2 • Number 2 • 2007 11JSF 109 Cobb, Olberding multiplier, effects. However every one of the large city ty" (p. 28). Press releases describing the economic impact studies failed to correctly account for any impact generat- of marathon races recently run in New York, Chicago, ed by local participants. This failure to treat locally based Phoenix, and Cleveland (among others) include locally economic impact correctly is understandable. Impact gen- sourced impact based on actual local spending, but arbi- erated from local sources is a phenomenon that thought- trarily limit the local contribution to an amount varying ful impact analysts typically ignore because locally from 30-100% of total spending amounts. Patrick Rishe, generated spending is always presumed to be spending a sports economics impact consultant and president of that is merely shifted from another part of the area econ- Sportsimpacts.com, indicated that in treating locally omy. In fact, Crompton, Lee, and Shuster (2001) suggest sourced spending, he counts "anywhere between 0-20% four principles "central to the integrity of economic of their expenditures towards economic impact calcula- impact analysis" in which the first requires the exclusion of tion with a slant towards the higher end of that range the local residents from contributing to economic impact on larger the profile of the event" (P. Rishe, personal com- precisely these grounds, an argument that Crompton munication, April 4, 2003). However, if locally sourced repeats in a number of other papers (Crompton, 1995, impact does arise because of import substitution, the use 1999; Crompton & Lee, 2000; Crompton, Lee, & Shuster, of actual local spending data to estimate such impact is 2001). While Crompton and his co-authors are to be obviously problematic. With marathon events in particu- applauded for the care they exhibit in creating guidelines lar, we believe that import substitution will invariably for honest impact estimation, it is likely that the exclusion occur because of the nature of the event

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