...the benefits might outweigh the costs of hosting the America's Cup, but that relies on the costs being kept under control and the number of challenger syndicates increasing by nearly half over the previous Cup. As with most of these events, you could argue that the spending is good value for a big party, but arguing that it has an overall economic gain for the country (or for Auckland) is probably too strong a claim.Sam Warburton's calculations show that even my conclusion was overly generous, as the costs most likely outweigh the benefits even before you consider any cost over-runs.
Most economic impact studies are junk, but some at least make you think. [*] To illustrate, let's consider an alternative - bringing Lebron James to play for the New Zealand Breakers. Superstar players can probably generate economic impacts, in the same way that high-profile events can generate economic impacts.
In fact back in May, Daniel Shoag (Harvard Kennedy School) and Stan Veuger (American Enterprise Institute) released a working paper on the economic impact of Lebron James. Shoag and Veuger looked at data on the number of restaurants (and eating and drinking establishments more generally) close to stadiums in Cleveland (where Lebron played from 2003 to 2010, and again since 2014) and Miami (where Lebron played from 2010-2014). The areas in Cleveland did better with Lebron James than without, and so did the areas in Miami. Specifically, Shoag and Veuger found that:
Within 1 mile, Mr. James’ presence raises the number of workers employed by eating and drinking establishments by 23.5%, but the effect disappears once again beyond the 7 mile radius.Lebron's salary is this NBA season is about US$33.3 million, or about NZ$47 million. A one-mile radius around Spark Arena (where the New Zealand Breakers play their home games) includes almost all of downtown Auckland. In the 2013 Census, there was about 4500 people working in the "Accommodation and Food Services" industry in the Waitemata Local Board area (which includes downtown Auckland). Let's assume about all of those workers are employed in eating and drinking establishments in the area within one mile of Spark Arena (a generous assumption, but the Shoag and Veuger study shows some impacts beyond one mile, albeit smaller, so while there are not as many as 4500 of these workers within one mile of Spark Arena, there are many within seven miles).
If we got Lebron James to come play for the Breakers, based on the Shoag and Veuger study that would increase employment in Auckland by around 1050 workers (23.5% of 4500). At the median wage of around $46,000, that equates to about $48 million in additional wages being paid as a result of signing Lebron James to play for the Breakers. Clearly, the benefits ($48 million) outweigh the costs ($47 million).
Forget the America's Cup, we should be bringing Lebron James to Auckland instead!
[HT for the Shoag and Veuger study]: Marginal Revolution, back in June
[*] The economic impact analysis reported here is junk. But, it's not much worse than about 99% of economic impact analyses that are prepared for local authorities in New Zealand, and for which economic and other consultants are paid thousands or tens of thousands of dollars. For comparison, this analysis took me around half an hour, and I'm providing it to you for free. You're welcome!