The business case for hosting events like the Rugby World Cup has been debunked by the NZIER in a new report that concludes the associated economic benefits are often seriously overstated.
It's a given that putting on major events is expensive, with the justification being that there's an extra draw for overseas visitors.
However, senior economist Chris Schilling says the Rugby World Cup was an example of the 'displacement' effect at work, where the net number of visitors an event generates is much lower than the number of visitors to the event. Events tend to ‘suck in’ visitors from before and after the event, when people coincide the timing of visits with the event.
The NZIER estimated there was little overall boost to visitor arrivals because there were fewer visitors before and after the 133,000 international visitors that came to New Zealand for the tournament.
Large international events, like the Rugby World Cup and the Olympics, leave the host region with better facilities, and sometimes upgraded transport links. But infrastructure is expensive, and the costs are largely borne by local residents once tourism displacement is considered and the costs of major events typically blow out.
Event analysis needs to consider who pays for the infrastructure, and any likely cost overruns, Schilling said. For the large costs to stack up economically, the infrastructure needs to deliver lasting dividends long after the major event is finished.
And while a major event might have net benefits for a region, it could be welfare-reducing for the country as a whole.
He said while most event analyses use multipliers to capture second rounds of spending from the profits and wages captured by local events, they also need to consider the reduction in spending that cannot now occur elsewhere in the economy.
"Simply put, major domestic events do not make New Zealanders any
wealthier. Increased spending at the major event is mostly offset by
reduced spending elsewhere. This might be reductions in other holidays,
spending on takeaways and eating out, or spending on household items
such as TVs."
Regional events are more likely to only reallocate spending across regions, he said, and generate little additional income at a national level.