The economic effects of the Cambuur stadium- Bob van Limburg. Introduction.

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1 The economic effects of the Cambuur stadium- Bob van Limburg. Introduction. In this research note the economic effects of the Cambuur stadium will be estimated. Cambuur is a football club in the Jupiler division in the Netherlands. The Jupiler division is a second grade division in football, in which about 20 clubs are present. Cambuur is the pride of the city of Leeuwarden the capital of the province of Friesland, situated in the North of the Netherlands. It is a rather rural region with a strong regional culture and an own official language, Fries. There are 645,000 inhabitants (2008) in Friesland, in Leeuwarden 93,000. Figure 1. Situation of Friesland in the Netherlands. Economic effects of investment consist of two parts: - The income effects - The capacity effects. The income effects usually occur during the production of the investment goods. In Keynesian terms they represent the multiplier effects and generate direct income for people working the manufacturing industry that produces the investment goods. The capacity effect shows the long-term production capacity the investment good represent. This means potential production and potential employment effects, but of course actual employment and income depend on effective demand, so on consumer expenditure. Sporting is important in the Netherlands; active sporting increased from 651% in 2003 to 65% in 2007, a higher than 1

2 expected increase. Swimming, bicycling and fitness are the top 3 sports. Less people are member of a sporting organization; in % of sporting people and 34% of total population was member of a sporting club; in 2003 these figures were 49% respectively 35%. Central government expenditure went up from 72 million Euros in 2003 to 118 million in 2006, overall government expenditure amounted over 1 billion euro in Consumer expenditure decreased from 3.7 billion in 2003 to 3.5 billion in Government investment in sports and an active life style yields; being too passive and being too immobile induces at least 677 million euros of extra health cost. Visiting sporting events becomes more and more popular. In 2006 total employment in sporting organizations amounted to fte s (2003: fte s) of which 11,600 was working in fitness centres. Over 1.5 million people volunteer in sport, in 85% of sporting clubs people volunteer, amounting to over volunteering fte s. All sporting organizations taken (including professional football clubs) together yielded 2.9 billion Euro of turnover in 2006 (2003: 2.3 billion). The market share of fitness clubs is remarkably high: 630 million in In 2006 government subsidies amounted to 11% of sporting clubs turnover; without this clubs would have run a deficit of 80 million euros. According to Zimbalist (2002) public subsidies for stadiums and sports arenas are often considered as a means to improve the local economy. According to him, first round leakages are substantial; as an illustration, 93% of average employees live in the area where they work, only 29% of NBA players do the same. This would lead to an exaggeration of the simulative effect of more than 4.00%. Research In the city of Leeuwarden, new stadium will be built and in doing so, an investment of 35 million is foreseen. The actual stadium is too small ( seats). It has been inaugurated 12 th of September 1936, with renovations in 1995 and It consists of a business club, a restaurant, the players home, the Cambuur Hall, the management centre, the comfort gallery and the bar. It shows that this is more than a stadium, it is also for hire for special events, dinner etc. The Cambuur hall can be used for playing indoor football, volleyball, badminton and more sports, and of course the new stadium should improve these options. First the income effect has to be estimated. Income effects have been assessed using an input output table for the Netherlands. Total employment effects of this investment have been estimated at 420 direct fte s and 47 indirect, so total employment effects are 467 fte s. 2

3 The second step is to assess the stadiums production capacity. Production capacity is computer by diving the capital goods by the capital coefficient, also known as capital/output ratio. This concept tells how much capital is needed to produce one unit of production, so κ = K / Y In 1992, gross capital stock in the Netherlands amounted to 2833 billion, while national income amounted 266 billion. This means that κ = K / Y = 2833 / 266 = about 10. Now we can computer the production capacity of the new Cambuur stadium; name Y* the production capacity, we define the concept as Y* = K / κ This yields Y* = 35 / 10 = 3.5 million annually production capacity. This production capacity induces potential employment effects, defined as L, and is obtained by dividing Y * by the labour productivity, α L* = Y* / α Average labour productivity (α ) will be estimated at 50,000 annually, which makes a potential employment of L * = 3,500,000/ 50,000 = 70 fte s. Of course, aggregate demand decides whether this potential employment becomes effective; a further step will deal with this issue. Average price per seat per match is estimated at 15. Cambuur is in the Jupiler league with in total 20 football teams. In total 34 matches will be played in this league, and half of those (17) are home matches. Then there will be an estimated 3 other matches played, adding up to 20 in total. Potential capacity of the new stadium is 15,000. When we assume that each match 12,000 people are present, in total 10,000 * 20 = 240,000 people will attend a match. Some people have a seasons card, average 3

4 cost 150 annually. When we assume that 50% of attendees have a season s card, and 50 % pay for each of the normal matches, we obtain: - Average fee per match season cards: 150 / 17= 9 euro (rounded up) - Average fee per other attendees 13 per match. - So average fee per match is = 11 per match per seat - So yield for normal matches is 12,000 attendees * 11 * 17 matches = 2,244,000 - The 3 other matches are special matches and will yield 13 average. These are expected to be sold out (15,000 attendees), as they are special matches. The yield will be 3 * 15,000 * 13 = 585, Adding up, total yield is estimated at 2,244, ,000 = 2,829, This means, with these 20 matches ( 2,829,000 / 3,500,000) * 100% = 81% of capacity can be covered. - Estimated employment effect will be ( 2,829,000 / 50,000 = 56 fte s. - This means a slight 20% of capacity needs to be covered with other activities, like the restaurant, indoor sport, etc. - Total operations cost are estimated at intrestcost (5% from 3,500,000 = 175,000), depreciation (estimated depreciation period is 50 years, ( 70,000) and wages (an estimated 50 fte s equals 2,500,000) and some other cost ( estimated at 100,000) makes total cost 2,775,000), so 80% of capacity needs to be covered, assuming no subsidies etc are gathered from the government and or intensive use of volunteers, which is realistic. In that case wage cost can fall some more. But 80% of occupancy rate is realistic. - At that occupancy rate turnover is close to the above mentioned 2,829,000. This means income is 2,829,000-2,775,000 = 54, As there are more SBU s for the stadium (restaurant, indoor sports, etc.) this means the stadium has a commercial basis. Conclusion. In this research note is has been shown how economic impacts of a small football stadium can be assessed. Economic impacts resuming can be divided into: - The income effects - The capacity effects - The turnover at a certain occupancy rate - The income at that occupancy rate. 4

5 This paper also shows that normal and quite common concepts from general economics can be fruitfully applied to the case of a stadium or any other investment in tourism or leisure. This article has shown a certain paradigm may exist concerning assessing economic impacts of large tourism projects. 5

6 Literature Andrew Zimbalist (2002) A Note on the Local Economic Impact of Sports Expenditures Journal of Sports Economics, Vol. 3, No. 4, (2002) Sociaall cultureel planbureau (2008). Rapportage sport. SCP uitgeverij. CBS (Dutch Central Statistics bureau:. Several statistics ( 6