Economic Impacts
The ‘economic impact’ of a major event refers to the total amount of additional money injected into a defined area, as a consequence of staging the event. Economic Impact studies seek to establish the net change in a host economy – in other words, money inflows and outflows within a defined geographical area measured to establish the resulting net outcome.
1. Measuring Economic Impact
Covering the period of an event, direct economic impact is made up of additional visitor expenditure in the local area (in particular on accommodation) from event-related visitors, such as spectators and participants, and the net additional spending in the local area (which excludes any money invested from within the host economy) by event organisers in preparation for the event.
Robust calculations of economic impact can only be calculated by assessing the ‘additionality’ of the expenditure resulting from the event. This is done by subtracting factors such as ‘deadweight’, ‘displacement’ and ‘leakages’ from the gross new expenditure. In order to make comparisons between events easier, the International Association of Event Hosts endorses the methodology for measuring Direct Economic Impact provided by the ‘eventIMPACTS’ website, including clear step by step guidance to ensure consistency of reporting. Whilst this methodology is consistent for comparing between events, Direct Economic Impact should not be compared directly with the public money invested in staging the event to produce a ‘return on investment’ ratio. This is because not all of the new money directly injected in the host economy ultimately benefits host communities.
Due to the danger of overstating economic impact the eventIMPACTS methodology discounts all expenditure by local residents as ‘deadweight’. Very detailed economic impact analysis could identify some retained expenditure or transferred expenditure by local residents as additional economic impact, however this is difficult to accurately attribute to the event and would only be a small proportion of ‘deadweight’.
There can also be an economic impact from charity fundraising during an event, for example from participants in mass participation events, although the figures may not be directly relatable to economic impact calculations depending on the origins of the charities and the boundary of the host economy.
In addition to measuring Direct Economic Impact, the additional money retained in a host economy can also be expressed as Gross Value Added (GVA), an economic indicator used across different industry sectors. The ratio between GVA and Direct Economic Impact is specific to each local economy and can be estimated by using relevant input-output tables.
Wider knock-on impacts within a host economy, referred to as Indirect and Induced expenditure, can also be estimated by using input-output tables or multipliers. However input-output tables and multipliers are unique to different host economies therefore GVA estimates cannot be used for comparison between events held in different locations. Also, as multipliers are not specific to major events, estimates can have a large margin of error and economists do not regard all of these impacts as benefits for the purposes of investment decisions.
To avoid economic impact forecasts being seen as misleading to stakeholders, some organisations prefer to use other more simplified indicators to assess the impact of an event on the local economy, such as room-nights.
2. Possible Outcomes
a. Tourism & Trade – The primary economic effect from an event is the impact on tourism measured by direct economic impact. In addition to the direct impact relating to the event, host organisations can use events to stimulate tourism beyond the boundaries of the event, such as extended tourism trips within the city or country.
Host organisations can also use events as a platform for strengthening their economy from cross-boundary trade. For example by using the enhanced skills and capabilities of the host economy to secure new inward investment or trade deals alongside, or after, the event.
Example KPIs
• Level of awareness of tourism or trade campaigns amongst target markets
• Ticket sales in target markets
b. Infrastructure – For large events, there may be a long term economic impact resulting from expenditure on new, or brought-forward, infrastructure such as new venues or transport improvements.
Example KPIs
• Sustainable post-event business plans in place for permanent event venues
• Long-term anchor tenants contracted for permanent event venues
c. Image – Other longer term economic and social impacts after the event can also result from the enhanced reputation and image of an event host, however establishing the effect the event has made on any long-term performance indicators is difficult.
Example KPIs – see separate page to follow, including
• Brand awareness
• Brand sentiment
3. Glossary of Terms
Additionality
New money attributable to the event, for example visitor expenditure from tourists whose primary motivation for travelling was to attend the event, and excluding expenditure from casual visitors attending for other reasons.
Advertising Value Equivalent
The value of media time or space for a distinguishable image or name (e.g. brand logo or venue) expressed in monetary value based on the equivalent cost of buying that time or space on each media channel (e.g. TV or online).
Charity fundraising
Money raised for charities from event-related fundraising activity, e.g. participants in mass participation events.
Deadweight
Economic activity that would have occurred regardless of an event being held in the host economy, for example, expenditure by residents of the host economy with local suppliers linked to the event.
Direct Economic Impact
The amount of additional expenditure generated in the host economy by way of the spending by event-specific visitors and organisers that is directly attributable to the staging of the event, net of money generated from within the host economy. See guidance notes at www.eventimpacts.com/calculator.
Displacement
The volume of normal activity displaced by an event, for example, normal tourists to an area may be crowded- out by event related visitors. This is more relevant for mega events and / or in the case of popular tourist destinations.
GVA (Gross Value Added)
A measure of economic added value comparable to Gross Domestic Product (‘GDP’) which takes into account leakage relating to inputs sourced from outside the host economy. It is comprised of compensation of employees, operating profit, and attributable taxes less subsidies.
Host Economy
The geographical area under consideration for economic impact assessment. The criteria used to define the host economy will usually vary based on the scale of the event and the agency responsible for commissioning the research.
Indirect Expenditure
Net increased expenditure by businesses and workers within an area (referred to as ‘secondary impact’) as a result of new money coming into the area once ‘leakages’ have been taken into account.
Induced Expenditure
Increased consumer spending within an area (referred to as ‘tertiary impact’) as a result of the new money coming into the area.
Input-Output Tables
A means of presenting a detailed numerical analysis of the process of production and the use of goods and services (products) and the income generated in that production. Tables are specific to industry sectors and hosts economies and usually provided by national statistical agencies.
Leakages
Event-related activity that results in money being expatriated from the defined host economy, for example, expenditure by visitors made with non-local vendors working at an event.
Local Resident
Someone who is normally resident within the confines of the defined host economy.
Multipliers
Numeric factors used to assess the knock-on impacts of the first round of visitor and organisational spending (Direct Economic Impact) in the host economy. An ‘output multiplier’ is used to measure the impact of the initial visitor and organiser spend on the total business turnover in the host economy (Indirect Expenditure). An ‘income multiplier’ is used to measure the overall increase in household income of local residents (Induced Expenditure). The application of the multiplier, once determined, is a straightforward process, but the data and analysis required to calculate an accurate multiplier can be extremely difficult and require the study of complex economic interrelations within a defined geographical area.
Retained Expenditure
Event-related expenditure by local residents which is not new to the area but might have otherwise been spent outside the local area had it not been for the event.
Room-nights
Number of rooms in commercial accommodation (such as hotels) used by event-related guests (such as spectators or attendees) aggregated across the period of the event. Bed-nights is a similar indicator for which an allowance of the number of beds per room would need to be made to translate room-nights to bed-nights.
Transferred Expenditure
Expenditure by local residents transferred from normal spending habits, which may have an effect on local businesses.
Visitor
Someone who is normally resident outside the defined host economy.