Aus dem Institut für Sportökonomie und Sportmanagement der Deutschen Sporthochschule Köln Geschäftsführender Leiter: Prof. Dr. H.-D. Horch Estimating the Intangible Benefits of Hosting the 2016 Olympic and Paralympic Games for Potential Bid Cities: Berlin, Chicago, and San Francisco Von der Deutschen Sporthochschule Köln zur Erlangung des akademischen Grades Doctor of Philosophy (Ph.D.) in Sportmanagement genehmigte Dissertation vorgelegt von Kevin Heisey aus Manheim, Pennsylvania, U.S.A. Köln 2009 Erster Referent: Prof. Dr. Heinz-Dieter Horch Zweiter Referent: Dr. Theodore Fay Vorzitsende des Promotionsausschusses: Univ. -Prof. Dr. I. Hartmann-Tews Tag der mündlichen Prüfung: 19 May 2009 Eidesstattliche Versicherung “Hierdurch versichere ich: Ich habe diese Arbeit selbständig und nur unter Benutzung der angegebenen Quellen und technischen Hilfen angefertigt; sie hat noch keiner anderen Stelle zur Prüfung vorgelegen. Wӧrtlich übernommene Textstellen, auch Einzelsätze oder Teile davon, sind als Zitate kenntlich gemacht worden.” Kevin Heisey Erklärung Hierdurch erkläre ich, dass ich die „Leitlinien gutter wissenschaftlicher Praxis‟ der Deutschen Sporthochschule Kӧln in der aktuellen Fassung eingehalten habe.” Kevin Heisey ACKNOWLEDGEMENTS I am sure that every dissertation is the result of great trial and struggle and this one is no different. With me every step of the way is my wife Kristina who saw every all-night writing session and working weekend with faith that the effort would someday come to fruition. Every word here is dedicated to you. Of course a research project taken on by a resident of the northeast United States that calls for data collection in northeastern Germany, the US Midwest and the Pacific Coast could not be completed without assistance. I owe sincere debts of gratitude to; Thorsten Dum, who assisted in German translation and collecting data in Berlin; Alexandra Vahl and Leonore Von Popp, students from the Deutsche Sporthochschule Köln; Byron Thomas, a student from the University of the Sunshine Coast in Australia, and Arman Medina a student from the University of San Francisco for assistance in collecting data. I am also grateful for the guidance and assistance from my dissertation committee led by the chair Dr. Horch, who has always made time to meet with me and has helped me manage the bureaucracy of being an international student. Dr. Preuss has been an enormous help to me as he has always been readily accessible and eager to share his impressive expertise as well as interesting thoughts and ideas. Finally, none of this would have been possible without the inspiration and guidance of Dr. Fay, who I met in the summer of 2003 when I was a developing economies/food security economist teaching sports economics as a part-time lecturer. Dr. Fay introduced me to the field of sports economics and sport management and encouraged me to take on the task of conceptualizing and carrying out a dissertation project while working more than full-time hours. i TABLE OF CONTENTS Chapter 1. Introduction……………………………………………………………………1 Problem Statement…………………………………………………………………..1 Research Questions………………………………………………………………….6 Importance and Contribution of the Dissertation…………………………………..10 The CVM…………………………………………………………………………...14 The Structure of the Dissertation…………………………………………………...17 Chapter 2. Literature review……………………………………………………………..18 Introduction………………………………………………………………………...18 Sports Economic Impact Studies: Common Misapplications………………………21 Failing to distinguish between net and gross expenditures………...………24 Inaccurate cost determination………………………………………………27 Failing to choose an appropriate multiplier…………………………………28 Improper definition of geographic area under consideration……………….31 Summary of Hudson‟s results………………………………………………31 Differences in European and North American Perspectives………………………..32 The Economic Impact of Sport Mega-Events………………………………………34 Estimates of Consumer Surplus in Sport……………………………………….…..40 Conclusion…………………………………………………………………….……57 ii Chapter 3. 2016 IOC Host Selection Process and City Profiles……………………...58 Introduction……………………………………………………………………....58 IOC Host City Selection Process…………………………………………………59 USOC 2016 Selection Process …………………………………………62 German Olympic Sport Federation (DOSB) 2016 Selection Process...….63 Profiles of Cities………………………………………………………………….63 Berlin……………………………………………………………………..63 Chicago…………………………………………………………………...69 San Francisco……………………………………………………………..73 Conclusion………………………………………………………………………..82 Chapter 4. Economic Theory…………………………………………………………...87 Introduction………………………………………………………………………87 Macroeconomic Theory of the Economic Impact of Mega-Sport Events………..89 National Income Accounting Identities…………………………………..90 Multiplier effect…………………………………………………………..93 Microeconomic Approaches to the Olympic Games Bid Process………………...97 The IOC as a Rent Extracting Monopolist………………………………..98 iii The Winner‟s Curse……………………………………………………….99 Public Choice…………………………………………………………….101 Revealed Preference……………………………………………………..101 The Economic Theory Behind the CVM…………………………………..…….105 Empirical Models………………………………………………………………...109 Labor Supply Theory and the Value of a Volunteer‟s Time……………………..113 Conclusion………………………………………………………………………..122 Chapter 5. Methodology……………………………………………………….124 Introduction……………………………………………………………..124 The CVM………………………………………………………………..126 Public Goods, the Olympic Games and the Components of Value…..126 The CVM Approach ………….………………………….……..128 Data Collection and Sample Size……………….………………132 The Timing of Data Collection………………………………….135 The Survey Instrument………………………………………….136 Conclusion………………………………………………………148 iv Chapter 6. Results………………………………………………………………149 Introduction……………………………………………………………..149 Intangible benefit estimates……………………………………………...151 Berlin…………………………………………………………….151 Chicago………………………………………………………….154 San Francisco……………………………...…………………….156 Comparisons of WTP and WTV: Berlin, Chicago, and San Francisco…158 Descriptive Statistics……………………………………………………160 Empirical model results ………………………………………….163 Avid fans of popular sport and Olympic bid support…...………………167 Intensity of Preference Measure (BIF)………………………………….173 Chapter 7. Conclusion/Discussion of Key Results……………………………176 Introduction……………………………………………………………..176 Key Results……………………………………………………………...176 Conclusion………………………………………………………………181 Bibliography……………………………………………………………………184 v LIST OF TABLES Table 2.1 Ex-ante Olympic economic impact studies……………………….……37 Table 2.2 Ex-post Olympic economic impact studies………………………..……38 Table 3.1 IOC timeline for2016 Olympic host city selection: Phase 1…….……...60 Table 3.2 IOC timeline for2016 Olympic host city selection: Phase 2…….……...61 Table 3.3 Berlin data…………………………………………………….…………66 Table 3.4 Chicago data………………………………………………….………….72 Table 3.5 San Francisco data…………………………………………….…………75 Table 4.1 Expected signs of coefficients…………………………………………..112 Table 5.1 Components of value……………………………………………………128 Table 6.1 Berlin WTP/WTV data…………………………………………………151 Table6.2: Distribution of WTP and WTV responses (Berlin)……………………..152 Table 6.3- Aggregate estimates of total intangible benefits (Berlin)…..……….….153 Table 6.4: Chicago WTP/WTV data………………………………………………154 Table 6.5: Distribution of WTP and WTV responses (Chicago)…………………...154 Table 6.6: Aggregate estimates of total intangible benefits (Chicago)……………..155 Table 6.7: San Francisco WTP/WTV data…………………………….…...………156 Table 6.8: Distribution of WTP and WTV responses (San Francisco)……………..156 vi Table 6.9: Aggregate estimates of total intangible benefits (San Francisco)…...…..157 Table 6.10: Descriptive statistics (other variables)…………………………………161 Table 6.11: Descriptive statistics (demographic variables)…………………………162 Table 6.13: Berlin regression results……………………………………….……….164 Table 6.14: Chicago regression results……………………………………….……..165 Table 6.15: San Francisco regression results………………………………………..166 Table 6.16: Respondents‟ favorite sport to follow by city…………………….…….170 Table 6.17 Avid soccer fans and support for Olympic bid- Berlin………………….171 Table 6.18: Avid baseball and football fans and support for Olympic bid- Chicago.172 Table 6.19: Avid baseball and football fans support for Olympic bid- San Francisco173 Table 6.20: BIF measures…………………………………………………………….174 vii LIST OF FIGURES Figure 1.1 Sydney 2000 Revenue Sources……………………………………………….5 Figure 3.1 Map of California Counties………………………………………………….74 viii LIST OF ABBREVIATIONS BIF Bid Intensity Factor CBA Cost-benefit Analysis CGE Computable General Equilibrium CVM Contingent Valuation Method DOSB German Olympic Sports Confederation ESPN Entertainment and Sports Programming Network FIFA Fédération Internationale de Football Association GDP Gross Domestic Product HCCM Heteroscedasticity Consistent Covariance Matrix IAAF International Association of Athletics Federations IF International Federation IPC International Paralympic Committee IOC International Olympic Committee MLB Major League Baseball MPCL Marginal Propensity to Consume Locally MSA Metropolitan Statistical Area ix NHL National Hockey League NFL National Football League NOAA National Oceanic and Atmospheric Association NOC National Olympic Committee NSW New South Wales OCOG Organizing Committee of the Olympic Games OLS Ordinary Least Squares SARS Severe Acute Respiratory Syndrome SOCOG Sydney Organizing Committee for the Olympic Games TOP The Olympic Partner Programme UEFA Union of European Football Associations UK United Kingdom US United States of America USOC United States Olympic Committee WTA Willingness-to-accept