Chapter 12
Economic Impact Analysis
Go to the Chapter 12 folder in the Additional Instructor Resources & Solutions folder to find
the Excel spread sheets that accompany the material in this chapter.
Chapter Overview
I. Introduction
II. Setting the parameters
a. Geographic area of impact
i. Displaced spending
b. Spending
i. Casual visitors
ii. Time-switchers
iii. Incremental visitors
III. Methodologies for measuring event economic benefits
a. Spending methodologies
IV. Measuring event costs
V. Economic impact of a local team
a. Capture rate
VI. Economic impact of a sport facility
a. Operations impact
b. Construction impact
Key Concepts
When reading this chapter, students should focus on the following key concepts:
1. An economic impact analysis is a form of cost-benefit analysis in which the true costs
and benefits are measured to assess the net effect or impact.
Quiz Questions
Multiple Choice
1. This type of individual comes to a community for one event while also attending a
basketball game. If a university is performing an economic impact study of its basketball
team, this individual would be classified as what kind of visitor?
a. Casual visitor
b. Time-switcher
2. This type of individual changes the time he or she is coming to a community to coincide
with an event being held in that community (i.e., University of South Carolina basketball
game). If the university is performing an economic impact study of its basketball team,
this individual would be classified as which of the following types of visitors?
d. Incremental visitor
e. None of the above
3. Financial returns measured by an economic impact study include which of the
following?
a. New jobs
b. New earnings or income
4. When selecting the geographic area of impact for a concert at the Colonial Life Arena in
Columbia, South Carolina, which area should the researcher choose to get the largest
economic impact?
d. The Columbia, South Carolina, metropolitan statistical area
e. The State of South Carolina
5. Of the following statements regarding economic impact, which is true?
a. All spending of casual visitors and time-switchers should be counted in an
economic impact analysis.
b. All spending of casual visitors and the incremental spending of time-switchers
should be counted in an economic impact analysis.
6. When constructing a survey to measure direct spending at an event, the following
question is designed to determine the type of visitor. Survey Question: “Does this visit
to Houston replace any other past/future visit to this area?”
d. Reverse time-switcher
e. Relevant visitor
7. Which of the following occur in the area of impact representing the circulation of initial
visitor expenditures?
a. Direct economic impacts
8. Impacts on earnings and employment are which of the following?
d. Indirect economic impacts
e. Induced economic impacts
9. What does the multiplier effect measure?
a. Direct economic impacts
b. Indirect economic impacts
10. Overestimations of economic impact occur because most analyses do not account for
__________, those local residents who leave town during the event period because of
the event.
d. Reverse time-switchers
e. Relevant visitors
True/False
1. T or F Time-switchers leave a community when it hosts an event.
4. T or F The employment multiplier measures the indirect and induced effects of an
extra unit of spending on the level of household income in the local economy.
7. T or F Psychic impact is the emotional impact on a community that results when the
community hosts prestigious events or major sports teams.
8. T or F Academic research conducted by economists to measure the economic impact of
sport facilities often shows that these facilities have little or no impact on the
community.
Answers to Quiz Questions
Numbers in parentheses represent where, in the text, you’ll find this discussed.
Multiple Choice
1. a (p. 313)
2. b (p. 313)
True/False
1. F (p. 332)
2. T (pp. 323–324)
Responses
1. What is the difference between induced and indirect economic impact?
See pages 318–319. While these terms are sometimes comingled in practice, indirect
impact is the re-spending of the initial direct spending. It is usually measured by
reference to some sort of multiplier that measures how money gets re-spent in a local
2. Can a person be both a casual visitor and a time-switcher for the same event?
See pages 313–314. Imagine a scenario in which Amanda planned to travel to San Diego
to see a Padres game in May but instead chose to go to San Diego to visit her Uncle Nick
in June. While visiting him, Amanda attends a Padres game. This appears to be a case in
which Amanda is a casual visitor (primarily in San Diego to see her uncle), but she also
3. Under what conditions should spending by local residents be counted in a calculation of
economic impact?
See Sidebar 12.C, page 329. As with all economic impact, the key question is what
would have happened otherwise. If some residents would have left town had the event
not been held in town (either not held at all or held elsewhere), then that event caused
them to stay in town and not spend their money elsewhere. An interesting and subtle
to traveling to an event in another town. Regardless of the reason, if some local
residents stay because of an event, then the amount that they would have spent out of
4. In measuring the economic impact of a sport team, is it correct to count both the
spending by fans inside the stadium and the spending by the team (in running its
operations) in the community?
See pages 332, 334. In general, the answer is no. This could lead to double-counting, as
explained in the text. You might wonder why money spent by a visitor in a hotel that is
then re-spent by the hotel and its employees in the community gets counted as indirect
spending. Doesn’t that feel like double-counting? Some critics think so. It is much more
palatable to simply count the direct spending from an event and not worry about the
indirect spending. One argument is that every other event that might be compared to
5. All else being equal, does increasing the size of the geographic area of impact raise,
lower, or have no effect on the capture rate?
See pages 313, 325. Generally, increasing the geographic area of impact will raise the
capture rate, because initial direct spending will have a harder time leaking out if the
geographic area is large. Imagine measuring the economic impact of a St. Louis Cardinals
outside the City of St. Louis, for instance. Therefore, a smaller geographic area will likely
have a higher capture rate but a lower number of “visitors,” causing a tradeoff between
the two in terms of whether the total economic impact will be higher or lower.
6. How would one determine the extent to which visitors for a particular event are reverse
time-switchers?
See page 332. Reverse time-switchers are local residents who leave because of an
event, thus taking their money away from the event and locality and thereby lowering
economic impact. Most economic impact studies conduct surveys during the event, but
these people will not actually be at the event. It also won’t be known how many people
left town and became reverse time-switchers.
(a) A month is a long time if the event lasts only a few days, and usually the
geographic area in which the sales taxes are collected and then measured is
also quite large compared to the event. This is akin to saying that no people
live on Earth because, from my satellite in space, I don’t see any.
7. What are some causes of overestimating the economic impact of sport event? Of
underestimating?
See pages 327–334. Some causes for underestimating include
• Not capturing all of the corporate spending related to an event.
• Not capturing all visitors (such as those who come for the event but don’t
actually attend it) if surveys are conducted only inside the event.
Some causes for overestimating include:
• Not accounting for reverse time-switchers.
• Not properly capturing all costs (not just benefits), including opportunity
costs.
Responses to Questions
This case involves using a spreadsheet to calculate a series of questions. After completing all
the questions, students will have an estimate of economic impact on the city of Cincinnati
for hosting the MLB All-Star Game.