THE REALISED ECONOMIC IMPACT OF THE 2011 – A HOST CITY ANALYSIS

Sam Richardson1 School of Economics and Finance College of Business Massey University

Brown Bag Seminar, December 2012 (Work in Progress)

Abstract

The , hosted by New Zealand, was projected to make an operational loss of NZ$39.3 million, of which taxpayers were to foot two‐thirds of the bill. This was in contrast to profits of A$48 million for the 2003 tournament in Australia and €30 million for the 2007 tournament in . Part of the justification for incurring these losses was an expectation of significant economic benefits arising from the hosting of the tournament. This paper estimates the realised economic impact on host cities during the 2011 tournament. Estimates show that the aggregated realised impact was approximately 25% of pre‐event projections and the impacts were unevenly distributed across host cities.

1 E‐Mail: [email protected]; Telephone: +64 6 3569099 ext. 4583; Fax: +64 6 350 5660.

1

1. INTRODUCTION

The 2011 Rugby World Cup (RWC) was hosted in New Zealand, and is the largest sporting event held in this country to date. One of the selling points of the successful bid for the tournament in 2005 was that the country was described as a “stadium of four million”, which subsequently became the catchphrase synonymous with the event. In all, 48 matches were played in 12 cities during September and October 2011, while other cities also acted as bases for the 20 competing teams throughout their stay.

Despite previous tournaments making operational profits, the 2011 tournament was always likely to make a loss. The 2003 tournament in Australia made an A$48 million profit, while the 2007 tournament in France resulted in a €30m profit. Arguably the major reason for the poor financial projections was the significant hosting fee of in excess of £50 million that was paid to the International Rugby Board (IRB). The tournament was initially forecast to run a loss of NZ$39.3 million, of which the would pay 67%, and the New Zealand (NZRU) would pay 33%, although the NZRU’s contribution was capped at NZ$10 million.

The event itself was widely acclaimed as a success, both on and off the field (nzherald.co.nz, 2012). The host country won the William Webb‐Ellis trophy for the second time, with the first victory achieved in 1987 when the event was last held in New Zealand. There were several significant off‐field impacts associated with the tournament. These included over 133,000 visitors arriving in the country expressly for the Rugby World Cup (Statistics New Zealand, 2011), a significantly greater number than what was initially forecast2. These tourists were estimated to have spent in the order of NZ$390 million whilst in the country for the event (Ministry of Economic Development, 2012). Ticket sales also exceeded forecasts of NZ$268.5 million (International Rugby Board, 2012), which resulted in a smaller than expected operational loss of NZ$31.3 million (International Rugby Board, 2012).

While the operational performance of the tournament has been publicised and is generally well known, the tournament’s impact on the wider New Zealand economy and host cities is less well‐known. Rugby New Zealand 2011 chief executive officer Martin Snedden wrote “... New Zealand derived significant economic benefits, unprecedented (and very positive) international exposure, and a very timely nationwide boost of our morale” (Snedden, 2012, p.83). Media estimates of the costs of hosting the event were as much as NZ$1.2 billion (Ihaka, Dickison, Jones, and Vass, 2011), although the size of these estimates were refuted by tournament officials (Snedden, 2011). In addition to contributing to the likely operational loss, government spending that can be attributed to the tournament included a major contribution towards the upgrade of of NZ$190 million and smaller contributions towards upgrades of regional stadiums.

Post‐tournament reports of impacts on tourism‐related sectors and cities were somewhat mixed. The Tourism Industry Association of New Zealand surveyed its members in November, 2011 to gauge the impact of the tournament on their business. 46.3% of survey respondents felt that the RWC period was

2 Preliminary forecasts of visitor numbers in 2006 were 60,000 (Snedden, 2012), 85,000 visitors in May 2010 (Ministry of Economic Development, 2010), while the Reserve Bank projected 95,000 visitors in August 2011 (Richardson, 2011).

2 an improvement on the same time in 2010, 33.9% felt that it was worse, while 18.2% reported no change (3 News, 2012). Media reports in the months following the event suggested that while some host cities felt that the tournament was beneficial to their economies, others were no better off, and at least one city felt that the tournament may have even have made them worse off (Rankin, 2012).

The basis for claims made by high level officials, including the Minister of the Rugby World Cup, that the tournament would generate sizeable economic impacts (Ihaka, et al., 2011; Snedden, 2011) rested on four studies that were conducted and released prior to or during the tournament. The first study was commissioned by Rugby New Zealand 2011 (RNZ 2011), the second by the International Rugby Board (IRB), the third by tournament sponsor Mastercard, while the fourth was an analytical note written by the Reserve Bank of New Zealand (RBNZ). Each of the aforementioned studies forecasted substantial economic impacts for the New Zealand economy from the tournament. Less consideration was given to the projected impacts of cities outside of , with some cities commissioning their own research into the expected impacts of the tournament on their local economies. This paper seeks to examine whether the host cities throughout the country actually experienced net economic impacts as a result of the tournament, and whether these impacts matched up to the projections in the four major studies.

2. LITERATURE REVIEW

The 2011 Rugby World Cup (RWC) was the seventh edition of the quadrennial tournament. The inaugural tournament was jointly hosted by New Zealand (as the tournament host) and Australia (as the sub‐host) in 1987 (Davies, 2003). New Zealand was also to jointly host the 2003 tournament with Australia before issues surrounding stadia resulted in the tournament hosting rights being awarded to Australia as sole host. An ex‐post study of the economic impacts of the tournament on the Australian economy was commissioned by the Department of Industry, Tourism and Resources. Conducted by consultants URS, the tournament was estimated to contribute A$289 million in additional GDP (URS Finance and Economics, 2004). Of particular interest in the report was the section on longer term impacts, which were downplayed due to Australia’s geographical isolation and the associated travel costs (URS Finance and Economics, 2004).

The 2007 RWC tournament was hosted in France, although four matches were played in , Wales and two were played in , . An ex‐post study of the economic impacts of the tournament on the French economy was commissioned by the French Ministry of Youth, Sport and the Voluntary Sector. Undertaken by the Centre for the Law and Economics of Sport of the University of Limoges, the study found that although economic impact was €589.9 million, the social benefits (the sum of use and non‐use values placed on the tournament) exceeded the social costs of hosting the tournament, for a social net gain of €113 million (Centre for the Law and Economics of Sport, undated).

In 2008, the International Rugby Board (IRB)’s RWC arm, Rugby World Cup Limited (RWCL) commissioned consultants Deloitte & Touche LLP to analyse potential economic impacts from the hosting of the RWC. The study suggested that potential direct expenditures from visitors into host economies would range from £200 million to £800 million, with a potential impact ranging from £610

3 million to £2.1 billion (Deloitte, 2008). The projected gross value added for the New Zealand economy from future RWCs was £260 million.

The Deloitte (2008) study made extensive use of the pre‐2011 tournament commissioned economic impact study by Horwath Asia Pacific and Market Economics that was updated in 2006. This report estimated that NZ$476 million of direct additional expenditure would flow into the New Zealand economy, and that an increase of GDP of NZ$507 million would result. These estimates were based upon an estimate of 71,000 international visitors to the country for the event (Horwath Asia Pacific Limited & Market Economics, 2006).

In August 2011, an analytical note was released by the RBNZ outlining the anticipated macroeconomic impacts of the tournament. The note estimated that a total of 95,000 international visitors were forecast to spend NZ$700 million (Richardson, 2011). The report pointed out that there were a number of factors that must also be taken into account when calculating the expected increase in the nation’s GDP. As such, an estimate of this effect was not produced.

Shortly after the tournament began, tournament sponsor Mastercard released a commissioned report on the expected economic impact of the 2011 RWC to New Zealand. This report, prepared by academics from the Centre for the International Business of Sport at Coventry University, estimated that the rugby‐ related spend from overseas visitors would total NZ$782.5 million, for a direct economic impact of NZ$411 million (Chadwick, Semens, and Arthur, 2011). It also estimated a longer term economic impact from the tournament of NZ$1.44 billion. This figure is said to incorporate a legacy through increased tourism, civic sponsorship and business development resulting from the event (Chadwick, et al., 2011).

Although the abovementioned studies all projected substantial economic impacts accruing to the New Zealand economy, caution is required when extrapolating these projections to obtain a measure of realised economic impact. No study highlights this caution more explicitly than Robert Baade and Victor Matheson’s independent 2004 study of the impact of the 1994 FIFA Football World Cup on host cities in the United States (US). Event boosters projected an economic impact of US$4 billion on the US economy. Baade and Matheson found that the actual economic impact on host cities totalled a loss amounting to in excess of US$9 billion. They demonstrated that the likelihood of a positive realised economic impact (that is, an impact greater than zero) was associated with a probability of a mere 6.4 percent (Baade and Matheson, 2004). Other studies of major events have also found that estimates of benefits tend to be overstated (Kasimati, 2003) and that caution is therefore required when interpreting the values generated by commissioned studies such as those identified above.

3. METHODOLOGY

In order to examine the realised economic impacts of a major event such as the Rugby World Cup on a host economy, one can use several methods, including methods utilised in the commissioned studies identified above. The method typically utilised in commissioned studies is economic impact analysis, which is based upon the input‐output (I‐O) technique pioneered by Leontief. The I‐O method essentially examines the impact of any increase in final demand expenditure on the level of output in each sector of the economy (Campbell and Brown, 2003). The measured impacts are the size and direction of the

4 effect in each industry of the increase in final demand. As Burgan and Mules (1992) explained, firms hire workers, purchase intermediate inputs, and produce output, which are decisions influenced by the demand for the output. This demand expenditure, in turn, creates incomes, which provides the basis for a multiplier effect to take place (Burgan and Mules, 1992).

Economic impact studies are used to measure the economic return of an event or investment to a community, often as a measure of benefit alongside supplementary financial cost data provided to local councils (Crompton, Lee, and Shuster, 2001). These studies can be undertaken at a city, regional and national level. The economic impact study is typically conducted by measuring three areas of impact: the direct, indirect, and induced impact. The direct impact is the initial, or first round, effect of visitor spending. The indirect impact is the “ripple effect” of the first round spending through the local economy. The induced impact is the impact of spending by those who have increased incomes as a result of the increased spending then generating further ripple effects (Crompton, 1995).

Multipliers are used within the I‐O framework to estimate short‐term economic impacts. These impacts play an important role in informing public decision‐making (Burgan and Mules, 2001; Schumacher and Spoonley, 2008). There are several issues that should be recognised with the technique. The presence (or absence) of supply constraints has important implications for the use of multiplier analysis. The input coefficients measuring inter‐industry flows between sectors are assumed constant in I‐O models. This assumption is not an assumption of constant technology but an assumption regarding the steadiness of the purchasing patterns between sectors (West, 1992). If excess productive capacity exists in an economy, then this may be a reasonable assumption. If the initial impact is small relative to the size of the industry or the wider economy, then the assumption would not be that restrictive (West, 1992). In the case of full employment, however, the multiplier effect of an investment would be ineffective, with factor prices being pushed up as a direct result (Cowen, 1999). As a result, some have argued that ignoring resource limitations renders economic impact analysis incomplete (Dwyer, Forsyth, and Spurr, 2004). Long‐term adjustments will influence the value of the multiplier over time (Coughlin and Mandelbaum, 1991). West (1992) pointed out that the main use of the I‐O analysis is in short run applications and, as such, the dynamic long‐run aspects of activities would be of less significance. Indeed, the transitory and localised nature of many events meant that there was unlikely to be substantial impacts on input costs (Burgan and Mules, 1992). Whether or not to take the multiplier effects into account is, according to Campbell and Brown (2003), dependent upon whether or not similar effects take place without the project in question. Indeed, some have cautioned against using multipliers altogether in the analysis of sporting events (Gratton, Shibli, and Coleman, 2006).

There is also a growing school of thought that considers economic impact studies as serving the purpose of legitimising the positions of those commissioning the studies rather than providing accurate evaluations of economic impact (Crompton, 2006; Delaney and Eckstein, 2003; Mondello and Rishe, 2004; Noll and Zimbalist, 1997). The impact of assumptions made by economic impact studies when measuring the economic impact of events and sports franchises has been examined in two studies. Crompton (1995) identified 11 separate sources of error when examining 20 economic impact study methodologies, some of which resulted from misunderstanding, while others reflected seemingly intentional fabrication. Meta‐analysis has also been used to empirically examine the nature of 13

5 economic impact studies performed on professional sports teams by Hudson (2001). It was found that all of the studies in the analysis contained some of the same errors suggested by Crompton (1995) that had the effect of inflating the economic impact of the franchise being studied (Hudson, 2001).

Given the concerns inherent within economic impact analysis, much of the independent empirical literature has adopted econometric techniques to determine the ex‐post impact of events. One such technique is to utilise cross section and time series data to estimate pooled or panel regression models of local area real GDP, employment and/or wages (Baade, 1996; Baade and Dye, 1990; Coates and Humphreys, 1999, 2001, 2003; Hotchkiss, Moore, and Zobay, 2003; Hudson, 1999; Lertwachara and Cochran, 2007; Santo, 2005). Within these models, the effect of the event in question is typically measured using a dummy variable during the period in which the event occurs. An alternative approach is to use city‐level time series data to predict city‐level GDP or employment or wages in the absence of the event (Baade and Matheson, 2004). The difference between the predicted measure and the actual measure can thus be attributed to the presence of the event. Econometric approaches use a variety of controls in order to isolate the impact of the event in question, and are less susceptible to subjective errors in measurement. Because such studies are conducted ex‐post, they are useful as measures of evaluation.

3.1. The Model

This paper seeks to evaluate the extent to which estimates of economic impact are actually realised in those cities that hosted matches in Rugby World Cup 2011. Ex‐ante data for host cities in New Zealand is required to estimate an econometric model that predicts a city’s real GDP. If one assumes that the best use of local and central government funds in a city has always occurred leading into an event, predictions of future GDP based on past observations can be interpreted as estimates of a city’s optimal growth path (Baade and Matheson, 2004). Information on a city’s optimal growth path prior to the occurrence of an event can be used to produce estimates of what might have been expected in the absence of the event. The difference between the predicted growth path and the observed growth path is therefore attributable to the presence of the event.

Borrowing from the work done by Baade and Matheson (2004), the model used in this analysis is presented below in equation (1):

(1)

where is growth in real GDP for city i in time period t; is a one period lag of growth in real GDP; , is New Zealand’s real GDP growth in period t; is the growth in the agriculture and fisheries sector’s share of GDP; is the growth in the manufacturing sector’s share of GDP; is the growth in the combined trade and transport sector’s share of GDP; is the growth in the service sector’s share of GDP; is the city’s net migration; is a linear time trend; are quarterly dummies for quarters 1, 2 and 3; and is the error term.

6

A lagged growth measure is included to capture other factors that are not explicitly controlled for within the model. A lagged dependent variable acts as a control for omitted variables (Coates and Humphreys, 1999, 2003). New Zealand’s growth rate is also included as a determinant, as similar studies have included a variable that captures the average growth rate of all cities in the sample (Baade and Matheson, 2004). The model includes the shares of GDP of major sectors as determinants of growth to control for the possible unique features of host cities (some of which are regional rural centres, others of which are highly urbanised). Net migration is included to capture the impact of changes in population in the host city. A linear time trend is also included, along with quarterly dummies.

Each variable within each city model was tested for non‐stationarity using Augmented Dickey‐Fuller unit root tests. Because all variables (with the exception of the trend and dummy variables) are expressed as rates of change (either growth rates or difference), the likelihood of non‐stationarity is low. Indeed, all variables were found to reject the null hypothesis of non‐stationarity and as such are appropriate for use in parameter estimation.

Equation (1) was estimated for each of the 12 host cities. Because the models are intended to predict rather than explain growth in real GDP, variables that did not improve the standard error of the regression were systematically dropped from each city’s estimated equation, leaving only the statistically significant and influential coefficients as part of the model. Each model was tested for autocorrelation and heteroskedasticity. Eleven of the thirteen models featured an absence of autocorrelation, while heteroskedasticity was absent from all models. All models were estimated as ordinary least squares (OLS) regressions, while the two models in which evidence of autocorrelation was identified were re‐estimated using the Cochrane‐Orcutt technique. Model estimation was conducted with quarterly data from the Infometrics regional database from 2000:1 to 2011:2. The models were then used to predict each city’s growth in GDP during the 2011:3 (July‐September) and the 2011:4 (October‐December) quarters. The results of these models are presented in Table 1.

7

Table 1: Parameter estimates for equation (1)

City , Diagnostics Whangarei ‐0.144 ‐ 0.405 ‐ 0.227 ‐ ‐0.409 ‐ ‐ ‐ ‐ 2.346 Adj. R2 = 0.912 (0.654) (0.010) (0.000) (0.011) (0.000) SEE. = 1.499 North Shore3 ‐3.795 ‐ 1.356 ‐ ‐ ‐ 0.316 ‐ ‐ 4.163 7.385 2.747 Adj. R2 = 0.887 (0.004) (0.000) (0.015) (0.058) (0.000) (0.011) SEE. = 1.120 Auckland ‐4.590 ‐ 1.121 ‐ ‐ 0.393 0.721 <0.001 ‐ 5.707 7.412 3.565 Adj. R2 = 0.941 (0.000) (0.000) (0.000) (0.000) (0.089) (0.000) (0.000) (0.000) SEE. = 0.583 Hamilton ‐5.152 ‐ 1.106 ‐ ‐0.294 ‐ ‐0.603 ‐0.004 ‐ 8.926 8.203 4.206 Adj. R2 = 0.750 (0.005) (0.000) (0.004) (0.001) (0.001) (0.004) (0.000) (0.005) SEE. = 1.455 ‐0.783 ‐ 0.584 0.229 0.195 0.162 ‐ ‐ ‐ ‐ ‐ 2.002 Adj. R2 = 0.939 (0.001) (0.000) (0.007) (0.023) 0.046) (0.000) SEE. = 1.103 Napier ‐1.213 ‐ 0.911 ‐ ‐ ‐0.282 ‐ ‐ ‐ ‐ 1.321 3.304 Adj. R2 = 0.789 (0.001) (0.000) (0.001) (0.032) (0.000) SEE. = 1.577 New 0.304 ‐0.115 0.501 ‐0.030 ‐0.290 ‐ ‐0.612 ‐ ‐ ‐ ‐ 2.169 Adj. R2 = 0.892 Plymouth (0.443) (0.003) (0.003) (0.066) (0.000) (0.000) (0.016) SEE. = 1.684 Palmerston ‐2.667 0.302 1.058 ‐ ‐0.110 ‐ 0.326 ‐ 0.012 ‐ 5.230 2.560 Adj. R2 = 0.926 North* (0.000) (0.000) (0.000) (0.000) (0.006) (0.063) (0.000) (0.001) SEE. = 0.746 1.568 ‐ 0.714 ‐ 0.122 ‐ 1.954 ‐ ‐ ‐4.075 ‐1.997 ‐ Adj. R2 = 0.917 (0.007) (0.000) (0.037) (0.000) (0.001) (0.010) SEE. = 1.133 Nelson* ‐2.690 ‐ 1.327 0.075 ‐ ‐ ‐ ‐ ‐ 3.374 4.860 ‐ Adj. R2 = 0.839 (0.000) (0.000) (0.000) (0.003) (0.000) SEE. = 1.341 ‐4.432 ‐0.210 1.301 0.043 0.128 ‐ 0.340 ‐ ‐ 5.686 6.275 3.771 Adj. R2 = 0.947 (0.000) (0.033) (0.000) (0.006) (0.001) (0.023) (0.002) (0.000) (0.001) SEE. = 0.786 0.486 ‐0.084 0.748 ‐ 0.390 ‐0.258 ‐0.210 ‐ ‐ ‐ ‐ ‐ Adj. R2 = 0.972 (0.098) (0.016) (0.000) (0.000) (0.001) (0.042) SEE. = 1.649 Note: p‐values are reported in parentheses below the coefficient estimates. * denotes model estimated using Cochrane‐Orcutt technique.

3 Data for net migration was not available for North Shore City, so it was not included in the estimated equation.

8

4. RESULTS

The models for each city in Table 1 are used to predict the city’s growth in real GDP for the 2011:3 and 2011:4 quarters. The differences between the predicted growth rate and the observed growth rate from the quarter are reported in Tables 2 and 3. Each table reports the previous quarterly income for each city, the predicted growth, the actual growth, the residual, the standardised residual4, and the dollar value of the residual for each city. This dollar value is the measure of the realised impact on local real GDP of the hosting of the Rugby World Cup.

In the July to September quarter of 2011, as seen in Table 2, gains in two cities stand out. Rotorua experienced a realised impact of NZ$12.75 million (with a standardised residual of 2.73) and Wellington experienced a realised impact of NZ$67.57 million (with a standardised residual of 1.82). Also of note is the fact that eight of the thirteen host cities were associated with negative realised impacts. Of these, only Invercargill, with ‐NZ$7.63 million, was associated with a standardised residual of ‐1.13. No other city’s standardised residual exceeded a value of 1.0. The average realised impact for host cities in this quarter was a gain of NZ$4.74 million, for a combined estimated realised impact to all host cities of NZ$56.92 million.

In the October to December quarter of 2011, as can be seen in Table 3, two cities were associated with what appear to be sizeable realised economic impacts – Auckland, with a realised impact of NZ$32.71 million, and Wellington, with a realised impact of NZ$15.95 million. Both standardised residuals, however, were well below 1.0 (<0.85). No standardised residuals in Table 3 exceeded 1.0. While all cities hosted matches in the 2011:3 quarter, only six of these hosted matches in the 2011:4 quarter. All six of these cities experienced realised gains during this quarter, which is an interesting contrast to the results from the 2011:3 quarter. The average realised impact in the 2011:4 quarter for host cities was a gain of NZ$5.45 million, for an overall combined realised impact across host cities of NZ$65.35 million.

On aggregate, the realised impact of the Rugby World Cup for host cities, assuming that the tournament’s effects were felt across the entirety of the two quarters, was NZ$122.26 million. It is entirely possible that there may have been effects outside of the host cities, in which case the reported estimates from host cities as a measure of the impact on the New Zealand economy may be understated. Nevertheless, the net impact of the tournament in the second half of 2011 for host cities from these results is summarised in Table 4.

4 See Baade and Matheson (2004) for details on the calculation of the standardised residual.

9

Table 2: Realised economic impact of the Rugby World Cup 2011 on host cities ‐ 2011:3

City 2011:2 GDP Predicted growth Actual growth (%) Residual Standardised Real GDP gains or (NZ$ millions) (%) residual losses (NZ$ million) Whangarei 470.4 3.43 3.42 ‐0.01 0.00 ‐0.03 North Shore 1696.5 0.58 ‐0.01 ‐0.59 ‐0.52 ‐9.98 Auckland 6572.6 0.35 0.26 ‐0.09 ‐0.15 ‐5.78 Hamilton 1096.6 1.63 1.49 ‐0.14 ‐0.10 ‐1.57 Rotorua 423.9 2.18 5.19 3.01 2.73 12.75 Napier 362.3 2.91 1.35 ‐1.55 ‐0.98 ‐5.63 890.5 4.88 4.39 ‐0.49 ‐0.29 ‐4.40 Palmerston North 594.3 0.95 2.14 1.19 1.60 7.08 Wellington 3271.4 ‐0.95 1.12 2.07 1.82 67.57 Nelson 312.8 1.01 1.15 0.14 0.11 0.45 Dunedin 698.2 1.29 1.88 0.58 0.74 4.08 Invercargill 410.5 13.06 11.21 ‐1.86 ‐1.13 ‐7.63 Average 2.61 2.80 0.19 0.32 4.74

Table 3: Realised economic impact of the Rugby World Cup 2011 on host cities ‐ 2011:4

City 2011:3 GDP Predicted growth Actual growth (%) Residual Standardised Real GDP gains or (NZ$ millions) (%) residual losses (NZ$ million) Whangarei 486.5 5.08 3.76 ‐1.32 ‐0.88 ‐6.42 North Shore 1696.3 0.03 0.04 0.00 0.00 0.05 Auckland* 6589.8 2.30 2.80 0.50 0.85 32.71 Hamilton* 1112.9 1.70 1.75 0.05 0.03 0.57 Rotorua 445.9 6.98 7.31 0.34 0.30 1.50 Napier 367.2 2.38 2.94 0.56 0.35 2.05 New Plymouth 929.6 0.49 1.25 0.76 0.45 7.04 Palmerston North* 607.0 3.91 3.95 0.04 0.05 0.25 Wellington* 3307.9 5.25 5.73 0.48 0.43 15.95 Nelson* 316.4 3.78 4.52 0.74 0.55 2.35 Dunedin* 711.3 3.09 3.56 0.47 0.60 3.35 Invercargill 456.5 ‐1.57 ‐0.26 1.30 0.79 5.96 Average 2.70 3.11 0.33 0.30 5.45 * denotes matches hosted in the quarter.

10

Table 4: Net impacts for host cities (June‐December, 2011)

City Net realised impact (NZ$ millions) Whangarei ‐6.45 North Shore ‐9.93 Auckland 26.93 Hamilton ‐1.00 Rotorua 14.24 Napier ‐3.57 New Plymouth 2.64 Palmerston North 7.33 Wellington 83.51 Nelson 2.79 Timaru ‐2.10 Dunedin 7.43 Invercargill ‐1.67 Total 122.26

Seven of the thirteen host cities in Table 4 were associated with positive net realised impacts during the period encompassing the Rugby World Cup, while six were associated with negative net realised impacts. The big winner appears to be Wellington, with an estimated realised impact of NZ$83.51 million. Auckland experienced an estimated NZ$26.93 million realised impact, in which the 2011:4 quarter result outweighed a negative result for the previous quarter. Rotorua (NZ$14.24 milion), Dunedin (NZ$7.43 million) and Palmerston North (NZ$7.33 million) were associated with modest gains in comparison, while the worst affected area was the upper North Island, with the two largest negative realised impacts associated with North Shore City (‐NZ$9.93 million) and Whangarei (‐NZ$6.45 million).

Lower than expected results in many areas during the event might be attributed due to the bulk of investment associated with the tournament being spent well before the tournament was held. Substantial infrastructural investment took place prior to the tournament in many cities (with the Eden Park redevelopment in Auckland a prominent example). Stadium upgrades and event‐related infrastructure would be more likely to benefit host regions in the future as much as (if not more than) during the tournament itself. Crowding out caused by the presence of the tournament may also have impacted on several cities, which would have the effect of lowering the realised impact.

Overall, when the results of this analysis are considered within the context of what was reported post‐ tournament, the results are certainly not implausible. The country’s GDP grew by 0.3% in the fourth quarter of 2011, below what was expected (nzherald.co.nz, 2012). The impact of the tournament looked to be keenly felt in some provincial cities, while the news from Auckland was noticeably muted. A survey of 500 businesses was conducted before the tournament in October 2010 in which 83% of respondents believed that the tournament would be beneficial to their business. Only 8.9% of respondents post‐ event thought that the event actually benefitted their business (, 2011). Auckland

11

Tourism Events and Economic Development (ATEED) reported that the tournament injected NZ$512 million into the city between 2006 and 2012, and as a result grew by NZ$728 million during this period (Auckland Tourism Events and Economic Development Ltd, 2012). The choice of the extended period of analysis rather than during the tournament itself is likely to reflect the nature of the infrastructural development that occurred in Auckland prior to the tournament.

While this paper finds that Hamilton was associated with a small loss of ‐NZ$1 million, research commissioned by the Hamilton City Council found that the Waikato region experienced an NZ$8 million impact (Akoorie, 2012). Research commissioned by Venture Taranaki found that the Taranaki region received a NZ$16.2 million impact from the tournament (Maetzig, 2011), whereas this paper finds that the city of New Plymouth was associated with a much lower realised impact of NZ$2.64 million.

In Palmerston North, Paymark figures showed a 52% increase in international card spending in September 2011 from twelve months before, while domestic card spending was relatively subdued with a 2.3% increase (Rankin, 2011). Despite this positive impact, a report produced by the Palmerston North City Council’s economic policy analyst in May 2012 found that the local economy actually slowed during the RWC period, causing the local newspaper to label the tournament as an “economic disaster” (Rankin, 2012). Reasons for the worse‐than‐expected performance were given as over‐projected benefits that failed to materialise, and the crowding out of regular activity in the city as a result of the event (Rankin, 2012). Estimates from this paper suggest that it wasn’t a disaster – the city was associated with a realised impact of NZ$7.33 million above what was predicted in the absence of the tournament. Much of the impact was a $7.08 million impact in the 2011:3 quarter, while the impact for the 2011:4 quarter was a mere $0.25 million.

Research commissioned by the Wellington City Council found that the hosting of matches in the city generated an economic impact of ‘at least’ NZ$94 million (Nichols, 2012). This paper finds that the city experienced a slightly lower realised impact of NZ$83.51 million.

A commissioned study found that Nelson experienced an economic impact of NZ$9.2 million, which led the Nelson City Council to declare their investment in the event as “paid off big” (Nelson Mail, 2012). Results from this paper suggest a smaller realised impact of NZ$2.79 million.

Initial reaction from the Otago and Southland regions was that the tournament had been good for their economies (Greenhill, 2011). Results from this research indicated that while Dunedin was associated with a realised impact of NZ$7.43 million, Invercargill experienced a realised impact of NZ‐$1.67 million.

There are several practical reasons why ex‐ante economic impact projections may not materialise after the event. One major factor is the crowding out of regular tourism that occurs during the hosting of a major event. Szymanski (2009) cited the case of tourism during the 2004 Athens Olympic Games, which fell by 12% compared to each of the three years prior to the Games. Australian tourism declined for four years after hosting the 2000 Olympic Games in Sydney, while New Zealand enjoyed a 30% increase in visitor numbers during the same period (Szymanski, 2009, p.168). Another factor is the displacement effect that occurs within the country with the hosting of events. Domestic tourists may defer travel around the country during an event, and thus reduce spending that they may otherwise have spent at

12 this time. Another important factor is the substitution effect associated with the presence of a major event. Locals (and visitors) may choose to direct spending towards the event itself to the possible detriment of other sectors of the local economy. Examples are likely to include other forms of entertainment (movie theatres, for instance), and recreational alternatives, among others. Spending on the event is thus diverted from other sectors, reducing the likely net impact on the host economy. Leakages also play an important role, particularly if the organising body has obligations to provide returns to the international governing body. In the case of the Rugby World Cup in 2011, the International Rugby Board received not only a hosting fee from the host country but also revenues from the sale of broadcast rights, sponsorship and memorabilia/apparel sales among others, of £90 million (International Rugby Board, 2012). This expenditure leaks out of or completely bypasses the local economy, further reducing the potential economic impact of the event.

The resulting NZ$122.26 million realised impact is the aggregated impact of the tournament on host cities. As an estimate of the tournament’s impact on New Zealand, it will be an underestimate if the impact on non‐host cities during the tournament was positive, and an overestimate if the impact on non‐host cities was negative. The findings of this paper show that realised post‐event impacts were substantially lower than pre‐event estimates. The realised aggregated impact from this paper is 24.1% of the Horwath (2006) estimate, and 29.7% of the CIBS (Chadwick, et al., 2011) estimate. Caution is therefore advised when extrapolating the results of economic impact studies to realised impacts on host economies.

5. CONCLUSIONS

The 2011 Rugby World Cup was hosted in New Zealand with much fanfare, promises and high expectations of a windfall for the New Zealand economy. The tournament was projected to make an operational loss of NZ$39.3 million, with the confirmed post‐event figure NZ$8 million lower at NZ$31.3 million. Despite this, numbers of overseas visitors that came to New Zealand for the tournament were significantly greater than pre‐event projections. The realised economic impact of the tournament on the New Zealand economy, as measured by the impact on host cities, was found to be $122.26 million. These impacts were substantially lower than expected, in the order of 24 to 29 percent of pre‐ tournament estimates. The impacts were also unevenly spread, with seven of the twelve host cities experiencing gains during the period in which the tournament was hosted, while the remaining five host cities experienced losses. Mega‐events the world over are often not the economic engines that they are purported to be prior to the events. Results from this paper suggest that New Zealand’s experience of the 2011 Rugby World Cup is no different in this respect.

13

REFERENCES

3 News. (2012). Mixed results for tourism from RWC 2011. Retrieved July, 2012, from http://www.3news.co.nz/Mixed‐results‐for‐tourism‐from‐RWC‐ 2011/tabid/421/articleID/238329/Default.aspx

Akoorie, N. (2012). World Cup brings $8m to Waikato. Retrieved July, 2012, from http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10794663

Auckland Council. (2011). Rugby World Cup 2011: Evaluation Report. Retrieved July, 2012, from http://www.srgexpert.com/Rugby_World_Cup_2011_Evaluation_report1.pdf

Auckland Tourism Events and Economic Development Ltd. (2012). Rugby World Cup 2011 ‐ Auckland plays host. Retrieved July, 2012, from http://www.ateed.co.nz/pdfs/RWC‐booklet.pdf

Baade, R. A. (1996). Professional sports as catalysts for metropolitan economic development. Journal of Urban Affairs, 18(1), 1‐17.

Baade, R. A., and Dye, R. F. (1990). The impact of stadiums and professional sports on metropolitan area development. Growth & Change, 21(2), 1‐14.

Baade, R. A., and Matheson, V. A. (2004). The quest for the cup: Assessing the economic impact of the World Cup. Regional Studies, 38(4), 343‐354.

Burgan, B., and Mules, T. (1992). Economic impact of sporting events. Annals of Tourism Research, 19, 700‐710.

Burgan, B., and Mules, T. (2001). Reconciling cost‐benefit and economic impact assessment for event tourism. Tourism Economics, 7(4), 321‐330.

Campbell, H. F., and Brown, R. P. C. (2003). Benefit‐cost analysis : financial and economic appraisal using spreadsheets. Cambridge; Oakleigh, Vic.: Cambridge University Press.

Centre for the Law and Economics of Sport. (undated). The Economic Impact and Social Utility of the in France. Limoges.

Chadwick, S., Semens, A., and Arthur, D. (2011). Economic Impact Report on Global Rugby ‐ Part IV: Rugby World Cup 2011: Centre for the International Business of Sport, Coventry University.

Coates, D., and Humphreys, B. R. (1999). The growth effects of sport franchises, stadia, and arenas. Journal of Policy Analysis and Management, 18(4), 601‐624.

Coates, D., and Humphreys, B. R. (2001). The economic consequences of professional sports strikes and lockouts. Southern Economic Journal, 67(3), 737‐747.

14

Coates, D., and Humphreys, B. R. (2003). The effect of professional sports on earnings and employment in the services and retail sectors in US cities. Regional Science and Urban Economics, 33(2), 175‐ 198.

Coughlin, C. C., and Mandelbaum, T. M. (1991). A Consumer’s Guide to Regional Economic Multipliers. The Federal Reserve Bank of St Louis Review, 73(1), 19‐32.

Cowen, T. (1999). Should Governments Subsidise Stadiums and Events? Wellington: New Zealand Business Roundtable.

Crompton, J. L. (1995). Economic Impact Analysis of Sports Facilities and Events ‐ 11 Sources of Misapplication. Journal of Sport Management, 9(1), 14‐35.

Crompton, J. L. (2006). Economic impact studies: instruments for political shenanigans? Journal of Travel Research, 45(1), 67‐82.

Crompton, J. L., Lee, S., and Shuster, J. (2001). A Guide for Undertaking Economic Impact Studies: The Springfest Example. Journal of Travel Research, 40(1), 79‐87.

Davies, G. (2003). The History of the Rugby World Cup. Camberwell, Australia: Penguin Books Australia Limited.

Delaney, K., and Eckstein, R. (2003). The Devil is in the Details: Neutralizing Critical Studies of Publicly Subsidized Stadiums. Critical Sociology, 29(2), 189‐210.

Deloitte. (2008). Potential Economic Impact of the Rugby World Cup on a Host Nation.

Dwyer, L., Forsyth, P., and Spurr, R. (2004). Evaluating tourism's economic effects: new and old approaches. Tourism Management, 25(3), 307‐317.

Gratton, C., Shibli, S., and Coleman, R. (2006). The economic impact of major sports events: a review of ten events in the UK. The Sociological Review, 54, 41‐58.

Greenhill, M. (2011). Rugby World Cup fails to deliver cash. Retrieved July, 2012, from http://www.stuff.co.nz/the‐press/news/5739662/Rugby‐World‐Cup‐fails‐to‐deliver‐cash

Horwath Asia Pacific Limited & Market Economics. (2006). Estimated Economic Impact of the 2011 Rugby World Cup.

Hotchkiss, J. L., Moore, R. E., and Zobay, S. M. (2003). Impact of the 1996 Summer Olympic Games on employment and wages in Georgia. Southern Economic Journal, 69(3), 691‐704.

Hudson, I. (1999). Bright lights, big city: Do professional sports teams increase employment? Journal of Urban Affairs, 21(4), 397‐408.

15

Hudson, I. (2001). The use and misuse of economic impact analysis: the case of professional sports. Journal of Sport & Social Issues, 25(1), 20‐39.

Ihaka, J., Dickison, M., Jones, N., and Vass, B. (2011). $500m Rugby World Cup deficit. Retrieved July, 2012, from http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10721530

International Rugby Board. (2012). RWCL welcomes RNZ 2011 financial results. Retrieved July, 2012, from http://www.rwc2011.irb.com/mediazone/news/newsid=2062338.html#rwcl+welcomes+rnz+20 11+financial+results

Kasimati, E. (2003). Economic aspects and the Summer Olympics: a review of related research. International Journal of Tourism Research, 5(6), 433‐444.

Lertwachara, K., and Cochran, J. J. (2007). An Event Study of the Economic Impact of Professional Sport Franchises on Local U.S. Economies. Journal of Sports Economics, 8(3), 244‐254.

Maetzig, R. (2011). RWC visitors praise Taranaki. Retrieved July, 2012, from http://www.stuff.co.nz/taranaki‐daily‐news/sport/rugby/6182071/RWC‐visitors‐praise‐Taranaki

Ministry of Economic Development. (2010). Preliminary Forecasts of International Visitor Activity in New Zealand during Rugby World Cup 2011. Retrieved March, from http://www.med.govt.nz/sectors‐industries/tourism/pdf‐docs‐library/tourism‐research‐and‐ data/other‐research‐and‐reports/research‐projects‐and‐reports/research‐ reports/Tour.0068%20‐%20Rugby%20World%20Cup%202011%20Preliminary%20Forecasts.pdf

Ministry of Economic Development. (2012). Rugby World Cup visitors spent $390 million Retrieved July, 2012, from http://www.med.govt.nz/sectors‐industries/tourism/news/rugby‐world‐cup‐visitors‐ spent‐390‐million

Mondello, M. J., and Rishe, P. (2004). Comparative economic impact analyses: Differences across cities, events, and demographics. Economic Development Quarterly, 18(4), 331‐342.

Nelson Mail. (2012). Hosting cup gave region $9m lift. Retrieved July, 2012, from http://www.stuff.co.nz/nelson‐mail/news/6560229/Hosting‐cup‐gave‐region‐9m‐lift

Nichols, L. (2012). Wellington's Rugby World Cup windfall. Retrieved July, 2012, from http://www.stuff.co.nz/business/money/6419002/Wellingtons‐Rugby‐World‐Cup‐windfall

Noll, R. G., and Zimbalist, A. (1997). The Economic Impact of Sports Teams and Facilities. In R. G. Noll & A. Zimbalist (Eds.), Sports, jobs, and taxes: The economic impact of sports teams and stadiums (pp. 55‐91). Washington, D.C.: Brookings Institution Press. nzherald.co.nz. (2012). Editorial: World Cup a big success all round. Retrieved July, 2012, from http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10794560

16

Rankin, J. (2011). World Cup visitors boost city economy. Retrieved July, 2012, from http://www.stuff.co.nz/manawatu‐standard/news/5797646/World‐Cup‐visitors‐boost‐city

Rankin, J. (2012). Analyst: RWC was economic disaster. Retrieved July, 2012, from http://www.stuff.co.nz/manawatu‐standard/news/6964082/Analyst‐RWC‐was‐economic‐ disaster

Richardson, A. (2011). The macroeconomic impact of the Rugby World Cup. Reserve Bank of New Zealand Analytical Note Series No. 1.

Santo, C. A. (2005). The Economic Impact of Sports Stadiums: Recasting the Analysis in Context. Journal of Urban Affairs, 27(2), 177‐192.

Schumacher, C., and Spoonley, P. (2008). Estimating economic impacts in New Zealand: Technical issues. New Zealand Geographer, 64, 221‐227.

Snedden, M. (2011). Rugby World Cup figures well offside. Retrieved July, 2012, from http://www.stuff.co.nz/sport/rugby/our‐experts/4950101/Rugby‐World‐Cup‐figures‐well‐ offside

Snedden, M. (2012). A stadium of four million. Auckland, New Zealand: Hachette New Zealand Ltd.

Statistics New Zealand. (2011). Rugby World Cup attracts 133,200 overseas visitors. Retrieved July, 2012, from http://www.stats.govt.nz/browse_for_stats/population/Migration/IntTravelAndMigration_MRO ct11.aspx

Szymanski, S. (2009). Playbooks and Checkbooks ‐ An Introduction to the Economics of Modern Sports. Princeton, New Jersey: Princeton University Press.

URS Finance and Economics. (2004). Economic Impact of the Rugby World Cup 2003 on the Australian Economy ‐ Post Analysis. Sydney.

West, G. R. (1992). Input‐Output Analysis for Practitioners: User's Guide.

17