As the momentum towards the finale of the Volvo Ocean Race builds around the city, it is worth considering how its economic impact for Galway and Ireland may be assessed. In 2009, the race stopover was deemed a major success. Deloitte’s ‘Economic Impact Report’ estimated its economic impact at €55.8 million based on the 650,000 visitors on that occasion.
The study of large events has become an important area of tourism economics since the 1980s. One of the first major studies in this area was the study of the impact of the 1985 Adelaide Grand Prix by Burns, Hatch & Mule (1986).
Estimating the economic impact of sporting events typically involves estimating the net change in a given economy resulting from the event. The economic activities include visitors’ spending, public expenditure, additional employment, and extra tax revenue.
It is not a straightforward job, however, to establish a profit and loss account for a specific event. In doing such economic impact studies, economists examine three avenues through which additional expenditure arises: direct, indirect and induced effects. Direct effects are simply the increased spending by visitors on goods and services. Indirect effects capture the spill-over or multiplier effects arising from the initial spending. Finally, induced effects measure the extra employment or household incomes resulting from the economic activity generated by the direct and indirect effects.
A recent survey article by Gratton, Shibli and Coleman (2006) analysed ten major sporting events, all world or European championships, hosted by various UK cities. The authors used the same survey methodology in each of the impact studies, thereby providing a consistent basis for analysis. This was not a simple process, as it involved a ten-stage process, which they summarized as follows:
- Calculate the proportion who live in the host city versus visitors;
- Group respondents by their role, e.g. spectators, competitors, media, officials;
- Determine the visitors’ basic characteristics, e.g. the number travelling in their party;
- Determine the relevant catchment area;
- Calculate the number of visitors staying in hotels or other accommodation;
- Quantify how many nights those using such accommodation will stay in the host city and what this accommodation costs per night;
- Quantify the daily spend in the host city on six standard expenditure categories for those staying overnight and day visitors;
- Estimate the amounts visitors have budgeted to spend in the host city;
- Establish how many people whose main reason for being in the host city is the event;
- Determine if any spectators are combining their visit to an event with a longer holiday in order to estimate any wider economic impacts.
As it happens, the most significant economic impacts found by Gratton et al were attributable to the 2002 World Snooker Championship and the 1997 World Badminton Championships. Like the Volvo Ocean Race finale in Galway, these events were over a week long, indicating that the extended period for the events did lead to a higher economic impact.
One other notable result was that number of spectators, rather than the number of competitors, was the principal determinant of absolute economic impact. On average, over 80 per cent of the economic impact was caused by visitors. Therefore, while the 2001World Half Marathon in Belfast had a lot of runners, the number of overnighting visitors was quite small, leading to a rather small economic impact.
So, while there are only a few elite yachts with small crew numbers in the Volvo Ocean Race, the estimated 700,000 to 800,000 visitors to the city over the coming ten days or so should equate to a major economic impact for the region. However, measuring that impact will require a fair amount of hard work for some economists in due course.
Cian Twomey is a Lecturer in Financial Economics at NUI Galway