Economic Impact of the Proposed Cycling Centre of Excellence

Transcription

1 Final Report 7 September 2011 Economic Impact of the Proposed Cycling Centre of Excellence Prepared for Waikato Regional Council

2 Authorship This document was written by Fraser Colegrave: Phone: (09) Mobile: (021) We help organisations to solve problems and make decisions using economics, forecasting, research and public policy. Covec Ltd, All rights reserved. Disclaimer Although every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, Covec Ltd accepts no liability for any actions taken on the basis of its contents

3 Contents Executive Summary Introduction Context Scope of this Report Structure of this Report Methodology Approach to the Analysis Multipliers used in this Report Measures of Economic Impact Scope of Impacts Assessed Offsetting Effects Construction Impacts Modified Financial Model Timeframe Assumptions Construction Impacts Approach Regional Expenditures and Industry Mapping Gross Impacts Offsetting Effects Net Impacts Operating Impacts Approach Direct Effects of Operations Flow-On Effects of Operations Gross Economic Impacts Offsetting Effects Net Impacts Impact of Carded Athletes Overview Approach Current Carded Athletes and Regional Gain... 13

4 5.4 Flow-On Effects Overall Impact Impact of BikeNZ Overview Direct Impacts Flow-on Effects Overall Impact Impact of Event Visitors Overview Approach Length of Stay Origin of Event Visitors Daily Expenditures Event Expenditures Impacts on Value Added Adjustment for Casuals and Time-Switchers Annualised Impacts Total Impacts Appendix: Multipliers Capex Multipliers Opex Multipliers... 22

5 Executive Summary Context In 2010, Sport and Recreation New Zealand (SPARC) announced a plan to build a world-class cycling facility, with Waikato eventually selected as the preferred location. This report estimates the potential regional economic impacts of the facility and associated activities. Methodology This report uses traditional input-output analysis to estimate economic impacts. It recognises that the various sectors of the regional economy are inter-linked, so that an increase in the output of one sector has flow-on effects that increase the outputs of other sectors. Impacts are measured in terms of regional value-added (GDP). Scope of the Analysis Economic impact assessments often vary in scope. Some are broad, generating significant effects, and others narrow, generating conservative effects. To determine the appropriate scope for the analysis, we reviewed three independent economic impact assessments completed for three potential velodrome locations: Waikato (prepared by APR), Taupo, and Palmerston North. The following table identifies the sources of ongoing impacts included in each report. Table 1: Sources of Ongoing Impact Types of Impact Waikato (APR) Taupo Manawatu Facility Operation BikeNZ Events Carded Athletes University Based on discussions with stakeholders, and to facilitate direct comparisons, we have aligned the scope of this report to match the Waikato report by APR. Gross versus Net Impacts The economic impacts calculated by input-output analysis are measured in gross terms. That is to say, they do not include any offsetting effects. However, offsetting effects are common. For instance, regional funds devoted to facility construction would probably otherwise be spent in the regional economy, and those alternative uses would also generate economic impacts. To estimate net impacts, these offsetting effects must be taken into account. In this report, we calculate offsetting effects for events, facility construction and facility operation, and subtract them from the corresponding gross effects to yield net impacts. The relocation of BikeNZ and carded athletes is not expected to have any major offsetting effects, so no adjustments are made. Economic Impact of the Proposed Cycling Centre of Excellence 1

6 Results The following chart compares the ongoing impacts estimated in this report with those in the three other assessments. The value attached to this report is the impact in year 5. $12,000,000 Figure 1: Comparison of Ongoing Impacts $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 Waikato (APR) Taupo Manawatu This Report Carded Athletes $6,000,000 $0 $0 $1,180,000 University $0 $0 $603,000 $0 Events $1,140,000 $175,000 $334,000 $944,000 BikeNZ $3,970,000 $488,000 $575,000 $1,842,000 Facility Operation $440,000 $381,000 $0 $900,000 Overall, this report estimates annual economic impacts of $4.9 million, while the APR figure is $11.5 million (or 2.3 times higher). Explanation of Differences Differences in the results of this report and the APR report appear to stem from the fact that: APR apply a uniform multiplier of two to calculate flow-on effects, whereas this report uses actual multipliers, which are often lower. APR appear to ignore income tax, GST, and other leakages from the regional economy when calculating flow-on effects. We explicitly model them. APR s estimates of event impacts include spending by regional visitors, which we exclude. APR assume that all carded athletes earn $60,000, when the majority receive much less. APR appear to express most of their results in terms of gross impacts. We focus on net effects. Economic Impact of the Proposed Cycling Centre of Excellence 2

7 1 Introduction 1.1 Context In 2010, Sport and Recreation New Zealand (SPARC) announced a plan to build a world-class cycling facility. Several bids were submitted from across the country, with the Waikato region eventually selected as the preferred location. Since winning the bid, the Waikato region has been evaluating the pros and cons of proceeding with its proposal. This report seeks to aid that decision by estimating the potential economic impacts of the facility on the regional economy. 1.2 Scope of this Report This report considers only potential economic impacts, and does not consider wider effects on the four wellbeings social, economic, cultural and environmental. 1.3 Structure of this Report The remainder of this report is structured as follows: Section two discusses the methodology used to estimate economic impacts. Section three estimates the impacts of constructing the facility. Section four estimates the impacts of operating the facility. Section five calculates the impacts of carded athletes relocating to the region. Section six calculates the impacts of BikeNZ relocating to the region. Section seven assess the potential impacts of event visitors, and Section eight presents overall estimates of ongoing impacts Economic Impact of the Proposed Cycling Centre of Excellence 3

8 2 Methodology This section discusses the methodology used to estimate economic impacts. 2.1 Approach to the Analysis This report uses traditional input-output analysis to estimate economic impacts. This approach recognises that the various sectors of the regional economy are inter-linked, so that an increase in the output of one sector increases the outputs of other sectors. Consider the following example. Suppose a tyre manufacturer receives a new export order. This will have direct impacts on tyre production. However, to increase tyre production, the tyre manufacturer will source additional materials from its suppliers. These suppliers, in turn, will require more materials from their suppliers, and so on. These inter-industry linkages mean that the overall economic impact is larger than the initial increase in tyre production alone. To be more specific, the economic impacts derived in this report comprise three parts: Direct Effects the construction and operation of the facility will have direct economic impacts by increasing the level of output in many sectors. For instance, construction will increase local construction activity, while operations will boost sport and recreation services. Indirect effects the construction and day-to-day today operation of the facility will also require inputs from a number of other industries. As noted in the example above, these suppliers will draw upon their own suppliers, and so on. The sum of all these inter-industry effects is known as the indirect effect. Induced effects the direct and indirect effects will result in increased employment, and hence increased household income. A proportion of this new income will be spent in the regional economy, and give rise to further economic stimulus. This is known as the induced effect. The overall economic impact is the sum of the direct, indirect and induced effects. 2.2 Multipliers used in this Report Indirect and induced effects are derived using multipliers. A type I multiplier is used to calculate indirect effects, and a type II multiplier is used to calculate induced effects. The regional multipliers used in this report were supplied by Butcher Partners Limited, and are based on a Waikato regional model from This is understood to be the latest available. Please see the appendix for the actual multipliers used. 2.3 Measures of Economic Impact In this report, consistent with other assessments, economic impacts are measured in terms of regional value added (GDP). Economic Impact of the Proposed Cycling Centre of Excellence 4

9 2.4 Scope of Impacts Assessed Economic impact assessments often vary in scope. Some are broad, generating significant effects, and others narrow, generating conservative effects. The potential sources of ongoing impact associated with this initiative are listed below: Day-to-day use and operation of the facility, Relocation of BikeNZ, Regional cycling events, and Relocation of carded athletes To determine the appropriate scope for the analysis, we reviewed three independent economic impact assessments completed for three potential velodrome locations: Waikato (prepared by APR), Taupo, and Palmerston North. The following table identifies the sources of ongoing impacts included in each report. Table 2: Scope of Ongoing Impacts Types of Impact Waikato (APR) Taupo Manawatu Facility Operation BikeNZ Events Carded Athletes The Waikato report by APR includes all the sources of impact identified above, while the Taupo report excludes carded athletes. Manawatu, on the other hand, excludes carded athletes and facility operations, but includes the impacts of potential increases in University staff and student numbers. Setting the scope of the analysis is essentially a matter of determining where to draw the line. While some effects will be clearly related, others may be more tenuous. For this assessment, University effects have been ignored because there was no robust information on which to build the analysis. 1 It was also considered desirable to align the scope of this report with APR s to facilitate direct comparisons. The scope of this report is therefore restricted to the four sources of impact identified above. 2.5 Offsetting Effects The economic impacts calculated by input-output analysis are measured in gross terms. That is to say, they do not include any offsetting effects. However, offsetting effects are relatively common. For instance, regional funds devoted to facility construction would probably otherwise be spent in the regional economy, and those alternative uses would also generate economic impacts. To estimate net impacts, these offsetting effects must be taken into account. In this report, we calculate offsetting effects for events, facility construction and facility operation, and subtract them from corresponding gross effects to yield net impacts. 1 The University of Waikato produced high-level estimates of economic impacts related to the proposal, but the report appeared to lack any factual basis and was therefore disregarded. Economic Impact of the Proposed Cycling Centre of Excellence 5

10 The relocation of BikeNZ and carded athletes is not expected to have any offsetting effects, so no adjustments are made. In terms of the other assessments mentioned above, only the Taupo report applies a catch-all adjustment to convert gross impacts to net impacts. Specifically, it assumes that 20% of new activity will be transferred from elsewhere in the regional economy. The Waikato (APR) report makes a 50% adjustment to its assessment of carded athlete impacts, reducing the overall annual impact from $17.5 million to $11.5 million, but leaves the rest of the analysis in gross terms. The Palmerston North report makes no mention of this process. 2.6 Construction Impacts The comparisons above related only to ongoing operations. However, facility construction may also generate significant impacts. Consistent with the APR report for Waikato, this report includes the economic impacts of construction Modified Financial Model As part of its bid, the house of cycling trust (HOCT) prepared a financial model to estimate the effects of constructing and operating the facility. A recent review by Sapere resulted in some refinements, which have been included in this review. The key modifications were to: Ensure that GST was treated consistently throughout the model, and Adjust interest rates to be compatible with the overall treatment of inflation. 2.8 Timeframe The annual economic impacts presented in this report were estimated over a 12-year period to align with the horizon of the financial model: this includes two years for construction, and 10 years for operations. 2.9 Assumptions This analysis relies on the following assumptions that underlie input-output analysis. These are considered reasonable given the size of the project, and the current state of the economy. There are no supply constraints land, labour, capital and raw materials are available in unlimited supply. Relative prices are fixed for both inputs and outputs. Each firm faces constant returns to scale so that, for example, a 10% increase in output requires a 10% increase in inputs. The input mix for each industry is fixed so that, for example, there can be no substitution between capital and labour. 2 The other reports excluded construction impacts, but did not explain why. One reason is that construction impacts are one-off, and provide no ongoing benefit. And another is that construction impacts benefit only limited sectors of the economy. Economic Impact of the Proposed Cycling Centre of Excellence 6

11 3 Construction Impacts This section estimates the regional economic impact of constructing the facility. 3.1 Approach Following are the steps to estimate regional construction impacts: 1. Identify the nature, size and timing of capital expenditures 2. Estimate the share of each expenditure that will be spent in the region 3. Map each expenditure to an industry within the region 4. Obtain the multipliers associated with each industry 5. Overlay expenditures with their multipliers to calculate gross impacts 6. Calculate offsetting effects 7. Subtract offsetting effects from gross impacts to yield net impacts 3.2 Regional Expenditures and Industry Mapping The following table lists the capital expenditures included in the latest version of the financial model. We have assumed that all will occur in the region, except the track which is being sourced from Germany. The rightmost column shows the regional industry to which each expenditure has been mapped. This identifies the industry multipliers used to calculate the flow-on (indirect and induced) effects. The associated multipliers are shown in the appendix. Table 3: Components of Capital Expenditure ($m) and their Industry Mappings Component Estimated Cost $m Regional Share Industry Mapping Track $3.72 0% n/a Civil $ % Ancillary Services to Construction Building $ % Non residential building construction Lighting $ % Other manufacturing Plant $ % Other manufacturing Equipment $ % Electronic equipment and appliance manufacturing Electrical $ % Electronic equipment and appliance manufacturing Professional Fees $ % Other business services Total $ Gross Impacts Overlaying the regional capital expenditures above with the corresponding multipliers (in the appendix) yields the following estimated gross impacts of construction. These are assumed to be spread evenly over two years. Table 4: Estimated Gross Impacts of Construction over Two Years $m Component Value Added (GDP) Direct $5.3 Indirect $8.4 Induced $3.3 Total $17.0 Economic Impact of the Proposed Cycling Centre of Excellence 7

12 3.4 Offsetting Effects Of the $28.5 million required for construction, only half is likely to be new money from a regional perspective. In other words, around $14 million of construction funds is likely to come from regional sources or would have been spent in the regional economy anyway. To calculate offsetting effects, we have assumed that these funds would otherwise be spent on other sports and recreation services in the region. To estimate the corresponding economic impacts, we overlaid this expenditure with the regional multipliers for Other Sport and Recreation Services. Following are the estimated impacts. Table 5: Estimated Offsetting Effects over Two Years $m Component Value Added (GDP) Direct $5.3 Indirect $3.5 Induced $1.7 Total $ Net Impacts The table below calculates the net impacts of construction, which are assumed to be spread evenly over two years. Table 6: Net Impacts of Construction over Two Years $m Component Gross Impacts Offsetting Effects Net Impacts Direct $5.3 $5.3 $0.0 Indirect $8.4 $3.5 $4.9 Induced $3.3 $1.7 $1.6 Total $17.0 $10.5 $6.5 Economic Impact of the Proposed Cycling Centre of Excellence 8

13 Value Added ($m) 4 Operating Impacts This section estimates the regional economic impact of operating the facility. 4.1 Approach Following are the steps to estimate regional operating impacts: 1. Use the financial model to calculate direct effects on value added. 2. Calculate flow-on effects as follows: a. Identify the nature, size and timing of operating expenditures b. Estimate the share of each expenditure spent in the region c. Map each expenditure to a regional industry d. Obtain the multipliers associated with each industry e. Overlay expenditures with multipliers to calculate impacts 3. Combine direct and flow-on effects to obtain the overall economic impact. 4. Calculate offsetting effects 5. Subtract offsetting effects from gross impacts to yield net impacts 4.2 Direct Effects of Operations Direct value-added impacts are found by summing their component parts. For this exercise, it is useful to note that value-added simply represents returns to factors of production land, labour, capital and entrepreneurship. Hence, value-added equals: Rents paid for land and buildings, Wages and salaries paid for labour, Interest paid for capital plus depreciation relating to its consumption, and Profits paid to entrepreneurship. The following chart summarises direct value added for the first 10 years of operations $1.4 Figure 2: Gross Direct Value Added $m $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $0.0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Economic Impact of the Proposed Cycling Centre of Excellence 9

14 4.3 Flow-On Effects of Operations The following table lists the operating expenditures in the modified version of the financial model. Most are assumed to occur in the region. The rightmost column shows the regional industry to which expenditures have been mapped for the purpose of calculating flow-on effects. The multipliers are shown in the appendix. Table 7: Mapping of Regional Expenditures Expenses 10-Year Cost Regional Share Industry Mapping Administration Communications (phone, data) $54, % Communication services Office Consumables $50, % Wholesale trade Legal $50, % Legal services Accountancy/Audit $200, % Accounting services Consultancy $50, % Other business services Employee Expenses CEO $950,000 64% Typical bundle of consumer goods/services 3 Coach $500,000 64% Typical bundle of consumer goods/services Assistant Facility Manager $550,000 64% Typical bundle of consumer goods/services Administration $400,000 64% Typical bundle of consumer goods/services Travel $50, % Air transport, services to transport and ACC $48,000 0% storage n/a Superannuation (KiwiSaver) $96,000 0% n/a Insurance Building $285, % Insurance Other $100, % Insurance Maintenance & Facility Rates $338, % Local government administration services Electricity $859,486 0% n/a Maintenance $805, % Ancillary. Services to Construction Cleaning $615, % Pest control and cleaning services Marketing / Communications Advertising $200, % Advertising and marketing services Sundry Expenses Governance $100, % Business administrative/management services Consumables (tea, coffee ) $15, % retail trade Minor Equipment $50, % retail trade Overlaying the regional expenditures above with the corresponding multipliers in the appendix yields the following series of operating flow-on effects. These are quite small relative to the direct effects because the centre does not inject much money back into the regional economy. Instead, around two-thirds of its annual revenue is put aside to fund future renewal, and thus effectively removed from circulation. 3 While most of the industry mappings should be self-explanatory, the treatment of staff wages requires further explanation. Staff wages create flow-on effects because a significant proportion is spent locally. To calculate flow-on effects, we have assumed that 80% of tax-paid wages is spent in the region on a typical bundle of household goods and services. Economic Impact of the Proposed Cycling Centre of Excellence 10

15 Value Added $m Table 8: Flow-On Value-Added Effects of Centre Operations Measure Direct indirect Induced Total Year 1 $194,000 $72,000 $56,000 $322,000 Year 2 $197,000 $73,000 $57,000 $327,000 Year 3 $200,000 $74,000 $58,000 $332,000 Year 4 $205,000 $77,000 $60,000 $342,000 Year 5 $211,000 $80,000 $63,000 $354,000 Year 6 $216,000 $83,000 $65,000 $364,000 Year 7 $221,000 $86,000 $67,000 $374,000 Year 8 $227,000 $89,000 $69,000 $385,000 Year 9 $232,000 $92,000 $71,000 $395,000 Year 10 $238,000 $95,000 $74,000 $407, Gross Economic Impacts The following chart combines the direct economic impacts with the flow-on effects above to show the overall economic impact of operations on regional value added. $1.8 Figure 3: Gross Value Added Impacts $m $1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $0.0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Direct Flow-on 4.5 Offsetting Effects Just as a significant chunk of capital expenditures will be funded from regional sources, a major share of operational revenues will also be generated within the region. The following table identifies the share of each operating revenue item that is believed to come from regional sources. Note that operating deficits are assumed to be underwritten by local authorities to ensure that the facility is renewed in perpetuity. Economic Impact of the Proposed Cycling Centre of Excellence 11

16 Table 9: Assumed Regional Shares of Operational Revenues $m Operating Revenues 10-Year Value Regional Share Membership $ % Grants $ % Sponsorship $ % Naming Rights $ % Event / Functions $ % Interest $0.63 0% Rental from BikeNZ Office Space $1.00 0% Rental from Other Sources $ % Deficit Funding $ % For simplicity, we assume that these funds would otherwise be spent on other sports and recreation services, allowing offsetting impacts to be calculated the same as for capital expenditures. Following are the results. Table 10: Estimated Offsetting Effects $m Year Value Added $m Year 1 $0.55 Year 2 $0.72 Year 3 $0.70 Year 4 $0.69 Year 5 $0.68 Year 6 $0.67 Year 7 $0.67 Year 8 $0.67 Year 9 $0.67 Year 10 $ Net Impacts The table below presents the estimated net impacts of operations. Table 11: Estimated Net Impacts on Value Added $m Year Gross Impacts Offsetting Effects Net Impacts Year 1 $1.42 $0.55 $0.87 Year 2 $1.39 $0.72 $0.67 Year 3 $1.46 $0.70 $0.76 Year 4 $1.53 $0.69 $0.84 Year 5 $1.58 $0.68 $0.90 Year 6 $1.64 $0.67 $0.97 Year 7 $1.65 $0.67 $0.98 Year 8 $1.67 $0.67 $1.00 Year 9 $1.68 $0.67 $1.01 Year 10 $1.69 $0.67 $1.02 Economic Impact of the Proposed Cycling Centre of Excellence 12

17 5 Impact of Carded Athletes This section estimates the potential economic impacts of carded athletes. 5.1 Overview Some elite athletes receive financial support from SPARC via its carding programme, and all carded bike athletes will be required to move to the region if the plan proceeds. This section calculates the associated impacts. 5.2 Approach Following are the steps to estimate the impacts of athletes moving to the region: 1. Identify the number of carded athletes, their current locations and their current card/funding levels. 2. Calculate the regional funding gain, and treat as the direct impact. 3. Calculate the flow-on effects associated with the direct impact. 4. Combine direct and flow-on effects to calculate the overall economic impact. 5.3 Current Carded Athletes and Regional Gain The following table summarises carded bike athletes as at 19 August Average payments were derived from information on the SPARC website, and calibrated to the total payment in 2011 (which was $1.025 million). Card Levels Table 12: Current Carded Bike Athletes Number of Riders Average Payment Total Payments Already In-Region Net Gain to Region 1 (Podium 2012 & PEG) 13 $50,000 $650,000 $200,000 $450,000 1 (Podium 2012) 6 $10,000 $60,000 $0 $60,000 2 (2016 Potential Podium) 1 $10,000 $10,000 $0 $10,000 2 (Podium 2016) 10 $10,000 $100,000 $10,000 $90,000 2 (Pro Rider) 2 $10,000 $20,000 $0 $20,000 3 (Podium Talent) 2 $5,000 $10,000 $0 $10,000 3 (Pro Rider) 11 $5,000 $55,000 $5,000 $50,000 3 (Talent Development) 22 $5,000 $110,000 $10,000 $100,000 Total 67 $1,015,000 $225,000 $790,000 Of the 67 current carded bike athletes, eight already live in the region. When the remaining 59 move, the region will gain $790,000. This is outlined above. In addition to SPARC payments, carded athletes are also eligible for Prime Minister s scholarships. The total amount paid to bike athletes in 2011 was $216,000. Assuming that 20% already accrues to the region (as per SPARC payments), the relocation of bike athletes will attract another $172,000 (i.e. the remaining 80%). Assuming that all payments attract resident withholding tax at 20%, the direct economic impact of relocating athletes is the tax-paid increase in carded payments and PM scholarships, which total around $770,000 per annum (i.e. $962,000 less 20%). Economic Impact of the Proposed Cycling Centre of Excellence 13

18 5.4 Flow-On Effects We have assumed that 80% of the tax-paid increase in funds will be spent in the region. To determine flow-on effects, the typical bundle of goods/services consumed by regional households was mapped to regional industries, and the associated multipliers overlaid. Following are the results. Table 13: Flow-On Expenditure Effects Component Value Direct $262,000 Indirect $102,000 Induced $ 54,000 Total $418, Overall Impact The overall economic impact of carded athletes relocating is $1.18 million. This equals the immediate increase in local income ($770,000) plus flow on effects ($418,000). Economic Impact of the Proposed Cycling Centre of Excellence 14

19 6 Impact of BikeNZ This section estimates the potential effects of BikeNZ staff relocating to the region. 6.1 Overview Discussions with BikeNZ reveal that the entire organisation, bar a few regional reps, will relocate to the region if the plan proceeds. To estimate economic impacts, we calculated the increase in regional wages that would result, and added flow-on effects from corresponding increases in household expenditure. 6.2 Direct Impacts The following table shows the number of staff by position, the proportion of the year that each will be based in the region, and the assumed average salary 4. Income tax of 20% is assumed to apply. Table 14: Direct BikeNZ Impact on Regional Wages/Salaries Staff Function Number Salary % in Region Regional Salary Income Tax Net Income Support 12 $45, % $540,000 $108,000 $432,000 High Performance 19 $45,000 60% $513,000 $102,600 $410,400 Talent Development 10 $45,000 93% $420,000 $84,000 $336,000 Regional reps 5 $45,000 8% $18,750 $3,750 $15,000 Total 46 $1,491,750 $298,350 $1,193,400 The direct impact of relocation is an estimated $1.19 million increase in net wages, and hence a $1.19 million increase in regional value-added. 6.3 Flow-on Effects We have assumed that 80% of tax-paid regional wages and salaries will be spent in the region. To determine flow-on effects, the typical bundle of goods/services consumed by regional households was mapped to regional industries, and the associated multipliers overlaid. Following are the results. Table 15: Flow-On Expenditure Effects Component Value Direct $407,000 Indirect $158,000 Induced $84,000 Total $649, Overall Impact The overall economic impact of BikeNZ relocating is $1.84 million. This equals the immediate increase in local income ($1.19 million) plus flow on effects ($0.65 million). 4 The average salary was based on the current payroll of ($2.05million) being spread across 46 staff. Economic Impact of the Proposed Cycling Centre of Excellence 15

20 7 Impact of Event Visitors This section estimates the impacts of out-of-region event visitors. 7.1 Overview The request for proposal issued by SPARC identified a range of events to be held at the venue. These are listed below, along with a quarterly carnival added by the HOCT. Table 16: Events to be Held at the Facility Event Days Riders Support Spectators Frequency Elite Champs ,500 Every 2 nd year Junior, Masters & Para Cycling Champs Every 2 nd year Madison National Champs Every 2 nd year NI Secondary School Champs Annually NZ Secondary School Champs Every 2 nd year Oceania Champs ,000 Every 4 th year World Champs ,000 Every 10 th year World Cup ,500 Every 2 nd year Carnival events ,500 Quarterly This section estimates the economic impacts of out-of-region visitors to these events. However, the impacts of hosting events have been excluded because: Most events incur quite small direct expenditures and, for those with larger expenditures, most fall out-of-region for international obligations. In any case, event costs and revenues should already be covered in the analysis of facility operations (in section 4), so including them here would lead to double-counting, and Figures provided by HOCT showed that they would probably only break even on events anyway. Finally, we note that regional visitors have been excluded as their expenditure is assumed to be diverted from elsewhere in the regional economy. This is standard practice for evaluating the regional economic impacts of events. 7.2 Approach Following are the steps to estimate out-of-region visitor impacts for each event: 1. Calculate the number of domestic and international out-of-region riders, support crew, and spectators that will attend each event. 2. Estimate the likely length of stay. 3. Estimate daily expenditure by visitor origin and expenditure category. 4. Multiply the number of visitors (step 1) by the length of stay (step 2) and average daily expenditure (step 3) to estimate total visitor spend by category. 5. Map the expenditures in step 4 to regional industries and obtain multipliers. 6. Overlay expenditures with multipliers to calculate event impacts. 7. Adjust raw estimates to account for casuals and time-switchers 8. Scale revised impacts by event frequency to yield annualised effects. Economic Impact of the Proposed Cycling Centre of Excellence 16

21 7.3 Length of Stay We have assumed that spectators stay in the region for the full duration of each event, but that riders and support crew stay twice as long. This captures both pre-event training, plus the additional time that most athletes spend in a region immediately before and after an event. 5 The following table summaries assumed lengths of stay. Table 17: Assumed Length of Stay Event Riders/Support Spectators Elite Champs 8 4 Junior, Masters & Paracycling Champs 10 5 Madison National Champs 2 1 NI Secondary School Champs 4 2 NZ Secondary School Champs 6 3 Oceania Champs 8 4 World Champs 10 5 World Cup 6 3 Carnival events Origin of Event Visitors The following chart shows the assumed origins of riders and support crews. HOCT estimated the proportion that would come from out of the region, and we disaggregated this into domestic and international market segments based on our understanding of each event. The distinction is important because domestic and international visitors typically have different spending profiles. 100% Figure 4: Assumed Origins of Riders and Support Crew 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Elite Champs Junior, Masters & Paracycle Champs Madison National Champs NI NZ Secondary Secondary School School Champs Champs Oceania Champs World Champs World Cup Carnival events (4 per 3 days) International 0% 0% 0% 0% 0% 25% 80% 80% 0% Rest of NZ 25% 50% 25% 50% 75% 25% 10% 10% 25% Waikato 75% 50% 75% 50% 25% 50% 10% 10% 75% Waikato Rest of NZ International 5 For instance, the average length of stay for teams at the rowing world championships was 19 days, but the event itself ran for only nine. Economic Impact of the Proposed Cycling Centre of Excellence 17

22 The following chart shows the assumed origins of event spectators. Again, these have been derived from information provided by HOCT. 100% Figure 5: Assumed Origins of Spectators 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Elite Champs Junior, Masters & Paracycle Champs Madison National Champs NI NZ Secondary Secondary School School Champs Champs Oceania Champs World Champs World Cup Carnival events (4 per 3 days) International 0% 0% 0% 0% 0% 5% 12.5% 12.5% 0% Rest of NZ 25% 25% 25% 25% 25% 20% 12.5% 12.5% 25% Waikato 75% 75% 75% 75% 75% 75% 75% 75% 75% Waikato Rest of NZ International 7.5 Daily Expenditures Expenditures by riders, support crew and spectators before, during and after events form the basis of event-related economic impacts. However, estimates of spend at these events in previous years were not available, so a work-around was required. To this end, HOCT supplied a detailed economic impact report for the 2009 Lake Taupo Cycle challenge, which was based on a post-event survey of over 2,800 visitors. 6 This is considered to provide a reasonable proxy for events at the velodrome since it was also a cycling event. Following are the estimated daily expenditures from the Lake Taupo report, which we have used directly in this report. Table 18: Average Spend per Person per Day Category Domestic International Accommodation $36.6 $53.7 Local Transport $0.6 $16.3 Petrol and Repairs $7.4 $7.8 Restaurant/Café/bars $17.4 $28.0 Retail/Supermarket $19.5 $29.9 Event Merchandise $6.7 $10.8 Tours/Charters $0.2 $1.9 Other $4.5 $14.5 Total $92.8 $ Lake Taupo Cycle Challenge Economic Impact Study, the New Zealand Tourism Research Institute at the Auckland University of Technology, January Economic Impact of the Proposed Cycling Centre of Excellence 18

23 7.6 Event Expenditures The following table shows estimated spend by out-of-region riders, support crew and spectators at each event. Table 19: Estimated Out-of-region Visitor Expenditure ($000s) Expenditure Domestic International Total Elite Champs $158 $0 $158 Junior, Masters & Para Cycling Champs $225 $0 $225 Madison National Champs $14 $0 $14 NI Secondary School Champs $79 $0 $79 NZ Secondary School Champs $303 $0 $303 Oceania Champs $98 $75 $173 World Champs $283 $1,124 $1,407 World Cup $105 $407 $512 Carnival events $127 $0 $127 Total for All Events $1,392 $1,605 $2,998 The estimated spend across all events is nearly $3 million, with 54% from international visitors and 46% from domestic. 7.7 Impacts on Value Added The visitor expenditures above were translated to regional value added using regional industry multipliers. Following are the results. Table 20: Estimated Impacts on Regional Value-Added ($000s) Expenditure Direct Indirect Induced Total Elite Champs $69 $29 $21 $120 Junior, Masters & Para Cycling Champs $99 $42 $30 $171 Madison National Champs $6 $3 $2 $11 NI Secondary School Champs $35 $15 $11 $60 NZ Secondary School Champs $133 $56 $41 $230 Oceania Champs $77 $32 $24 $132 World Champs $624 $264 $193 $1,081 World Cup $227 $96 $70 $393 Carnival events (4 per 3 days) $56 $24 $17 $96 Total for All Events $1,325 $560 $409 $2, Adjustment for Casuals and Time-Switchers Some event visitors may already be in the region for another purpose (casuals), while others may have altered the timing of a planned trip to coincide with the event (timeswitchers). Because these people would have visited the region anyway, their expenditures cannot be attributed to the event, so an adjustment is made. Based on the Lake Taupo Cycle challenge, which found that 11% of visitors were timeswitchers, and the Rowing World Championships which found that 12% of international visitors were casuals the figures in Table 20 were reduced by 10% to reflect casuals and time-switchers. Economic Impact of the Proposed Cycling Centre of Excellence 19

24 7.9 Annualised Impacts Finally, the following table converts impacts into annualised amounts according to the expected frequency of each event. The estimated annual impact is $944,000. Table 21: Estimated Annual Impacts of Events Expenditure Annual Impact Elite Champs $54,000 Junior, Masters & Para Cycling Champs $77,000 Madison National Champs $5,000 NI Secondary School Champs $54,000 NZ Secondary School Champs $104,000 Oceania Champs $30,000 World Champs $97,000 World Cup $177,000 Carnival events (4 per 3 days) $347,000 Total for All Events $944,000 Economic Impact of the Proposed Cycling Centre of Excellence 20

25 8 Total Impacts The following chart compares the ongoing impacts estimated in this report with those estimated in the three other assessments. The value attached to this report is the estimated impact in year 5. $12,000,000 Figure 6: Comparison of Ongoing Impacts $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 Waikato (APR) Taupo Manawatu This Report Carded Athletes $6,000,000 $0 $0 $1,180,000 University $0 $0 $603,000 $0 Events $1,140,000 $175,000 $334,000 $944,000 BikeNZ $3,970,000 $488,000 $575,000 $1,842,000 Facility Operation $440,000 $381,000 $0 $900,000 Overall, this report estimates annual economic impacts of $4.9 million, while the APR figure is $11.5 million (or 2.3 times higher). The key reasons for these differences are that: APR apply a uniform multiplier of two to calculate flow-on effects, whereas this report uses actual multipliers, which are often lower. APR appear to ignore income tax, GST, and other leakages from the regional economy when calculating flow-on effects. We explicitly model them. APR s estimates of event impacts include spending by regional visitors, which we exclude.. APR assume that all carded athletes earn $60,000, when the majority receive much less. APR appear to express most of their results in terms of gross impacts. We focus on net effects. Economic Impact of the Proposed Cycling Centre of Excellence 21

26 Appendix: Multipliers Capex Multipliers Following are the multipliers used to estimate construction impacts. Table 22: Multipliers Used to Calculate Construction Impacts Industry Direct Type 1 Type 2 Ancillary. Services to Construction Non residential building construction Other manufacturing Electronic equipment and appliance manufacturing Other business services Opex Multipliers Following are the multipliers used to estimate operating impacts. Table 23: Multipliers Used to Calculate Operating Impacts Industry Direct Type 1 Type 2 Communication services Wholesale trade Retail trade Legal services Accounting services Other business services Air transport, services to transport and storage Insurance Local government administration services and civil defence Anc. Services to Construction Pest control and cleaning services Advertising and marketing services Business administrative and management services Economic Impact of the Proposed Cycling Centre of Excellence 22