The Economic Impact of the University of Tennessee, Knoxville, Athletic Department on the State of Tennessee: Academic Year 2011-2012 January 2013 716 Stokely Management Center Knoxville, TN 37996-0570 Phone: (865) 974-5441 Fax: (865) 974-3100 http://cber.bus.utk.edu
Introduction Background The University of Tennessee Athletics Department (UTAD) provides entertainment to hundreds of thousands of fans in Tennessee and beyond every year. Saturdays in the fall provide Knoxville with a chance to showcase itself to all those who travel from around the country to support the Volunteers or the opposing teams. The surrounding community s support of the Volunteers is evident at nearly every sporting event. The UTAD has recently undergone significant organizational changes. In 2011, both men s and women s athletics unified to become a single athletics department, with Vice Chancellor/Director of Athletics Dave Hart taking the helm in September of 2011. Many of the Volunteers athletic teams have flourished recently. The Lady Volunteer basketball team made the Elite Eight in the 2012 NCAA basketball tournament, while the softball team qualified for the NCAA Women s College World Series. The men s tennis team has had a recent streak of success, including a second round appearance at the 2012 NCAA tennis tournament, and the men s basketball team finished second in the Southeastern Conference regular season standings. These are just a few examples of the successful teams that the UTAD has fielded. In London at the 2012 Olympics, members from current or past Volunteer athletic squads earned 10 medals, including 5 gold. This count is a school record and was good for second among all SEC programs. Perhaps most importantly, University of Tennessee student-athletes have had great success off the field and in the classroom. In July 2012, one hundred and three student-athletes were named to the SEC Spring Academic Honor Roll with nine different athletic teams being represented on the list. Thirty-five Volunteers were named to the 2011-2012 SEC Winter Academic Honor Roll. Ten student-athletes were named Capital One Academic All-Americans, and one Chanelle Price was the Capital One Academic All-American of the Year in women s track and field. Summary of Results While the entertainment value of UTAD sports does not go unnoticed, many overlook the large economic benefits brought to the state by UTAD sports. This study examines the economic impact of the UTAD on the state through the perspective of total spending, income generated from that spending, employment generated from that spending, and tax revenues generated from that spending. These measures are not additive; rather, they are distinct ways of measuring the same impact. We rely on detailed revenue and expenditure data provided to us by UTAD administrators. 1 Results are provided both for direct effects and indirect/multiplier effects. 1 We are grateful to Bill Myers, Senior Associate Athletics Director for Business Operations/CFO, for his help in collecting the necessary data. CENTER FOR BUSINESS AND ECONOMIC RESEARCH 1
Table 1 summarizes all economic benefits of the UTAD to the state of Tennessee. We estimate that the total economic impact of the UTAD on the state is equivalent to $151 million in income, or over 2,900 jobs. Additionally, the UTAD generates over $28 million in state and local tax revenues. Note that these figures do not include the significant economic impacts beyond our state s borders. Table 1: Summary of Economic Benefits of the UTAD to the State of Tennessee, FY12 Income Generated $150,906,988 Tax Revenue Generated $28,256,008 Employment Generated 2,929 The next section of this report presents a detailed discussion of the direct effects generated from the UTAD. Next, we explore the indirect effects associated with the UTAD. Finally, we discuss the UTAD s impact on state and local tax revenues. Direct Effects The direct effects of the UTAD are based exclusively on UTAD-related expenditures. Included in this total are salaries, fringe benefits, non-payroll spending, and fan spending. Summing all four of these categories, the UTAD was responsible for close to $160 million in expenditures in fiscal year 2012. The 319 employees of the UTAD received over $37 million in salaries and fringe benefits (such as insurance and retirement). Table 2: UTAD-Related In-State Expenditures, FY12 Salaries $30,635,706 Fringe Benefits $6,723,605 Non-Payroll Spending $47,454,952 Fan Spending $75,023,063 Total FY12 In-State Expenditures $159,837,326 Additionally, the UTAD has significant non-payroll expenditures. These non-payroll expenditures make up roughly 30 percent of total in-state expenditures (Figure 1). Over half of the non-payroll expenditures are associated with construction of new athletic facilities. The most significant construction expenditure in FY12 was the football training center, on which the UTAD spent over $25 million. Additionally, over $500,000 was spent on Neyland Stadium improvements and another $259,000 was spent on Thompson-Boling Arena improvements. The other components of non-payroll spending were for such things as travel for teams and administrators who travel throughout Tennessee, department supplies, and utilities. CENTER FOR BUSINESS AND ECONOMIC RESEARCH 2
Figure 1: UTAD-Related In-State Expenditures, FY12 Fan Spending 47% Salaries 19% Fringe Benefits 4% Non-Payroll Spending 30% Fans from all around the country travel to Knoxville to see the Volunteers play sporting events. These fans eat at local restaurants, stay in local hotels, and shop at local markets. Attendance figures for football games have been on a decline recently (Figure 2). Comparing the last two seven-home-game seasons (2008-09 and 2010-11), attendance dropped by nearly 12,000 (roughly 1,660 per game). A drop of almost 37,000 in attendance occurred in the last two eight-home-game seasons (2009-10 and 2011-12). This drop is equivalent to a reduction in attendance of just over 4,500 per game. Despite this decrease in attendance, however, Tennessee is near the top in attendance relative to the rest of the SEC and NCAA. In FY12, nearly 760,000 fans attended college football games at Neyland Stadium, good for second highest in the SEC and sixth nationally, according to the NCAA. This speaks to the remarkable resilience of the Volunteer fan base relative to our competitors. CENTER FOR BUSINESS AND ECONOMIC RESEARCH 3
Number of fans Number of fans Figure 2: Per Game Attendance by Year, Football 105,000 100,000 95,000 90,000 85,000 80,000 2008-09 2009-10 2010-11 2011-12 Year The consistent success of the men s basketball program has kept its attendance high for the past four years. Like football, men s basketball attendance figures stack up favorably to the rest of the NCAA, coming in at seventh overall in the NCAA (Figure 3). Figure 3: Per Game Attendance by Year, Men s Basketball 21,000 20,000 19,000 18,000 17,000 16,000 15,000 14,000 2008-09 2009-10 2010-11 2011-12 Year CENTER FOR BUSINESS AND ECONOMIC RESEARCH 4
Number of fans The Lady Volunteers basketball team has enjoyed incredible fan interest relative to other women s basketball programs. In 2012, the Lady Volunteers averaged nearly 4,000 more fans per game than the second highest attended women s basketball program. Indeed, the Lady Volunteers nationalbest per-game attendance in 2011-2012 exceeded all but two of the SEC men s basketball teams (Kentucky and Tennessee) and would have ranked 17 th among all men s programs nation-wide. Figure 4: Per Game Attendance by Year, Women s Basketball 15,000 14,500 14,000 13,500 13,000 12,500 12,000 2008-09 2009-10 2010-11 2011-12 Year The economic effect of the expenditures associated with all these fans coming to UTAD sporting events is significant. Fans coming to Knoxville to see the Volunteers spent an estimated $75 million on food, lodging, and transportation in FY12 2. This spending accounts for 47 percent of total instate expenditures (Figure 1). Combining the Indirect Effects Estimated Income Impacts The economic impact of the UTAD expands beyond the direct expenditures associated with UTK athletics. When expenditures associated with the UTAD occur, this indirectly creates more jobs and income for owners and employees of the vendors. Even more jobs and income are generated when employees created directly or indirectly through the UTAD spend their income. This impact is 2 We distinguish between three types of fans for this analysis: (1) in-area fans, (2) day-trippers, and (3) overnighters. We estimate that in-area fans spend $35.70 per trip at football games and $17.85 at basketball games. Day-tripper fans spend $67.29 at both football and basketball games. Over-nighter fans spend $193.63. These are the same values used in the 2007 study, adjusted for inflation. CENTER FOR BUSINESS AND ECONOMIC RESEARCH 5
known as the multiplier effect. An example of this is when employees of the UTAD buy necessities at a grocery store, creating income and jobs at that grocery store. As mentioned earlier, the UTAD spends over $37 million on payroll spending and fringe benefits. The indirect effect of payroll spending, fringe benefits, and non-payroll spending on income is over $68 million, or almost twice the amount of direct expenditures on payroll spending and fringe benefits. Moreover, fan expenditures in the Tennessee economy account for over $45 million in income (Table 3). Table 3: UTAD Income Benefit by Source, FY12 Direct Effects Payroll Spending & Fringe Benefits $ 37,359,312 Indirect/Multiplier Effects Payroll Spending, Fringe Benefits, & Non-Payroll Spending $ 68,518,834 Fan Spending $ 45,028,842 Total FY12 Income Benefit $ 150,906,988 Figure 5 illustrates the relative portion of each income impact. The direct effect accounts for only 25 percent, while 75 percent of the income impact arises from indirect effects. Non-payroll spending accounts for a fifth of the income impact, while fan spending is responsible for 30 percent of the total income impact. Figure 5: UTAD Income Benefit by Source, FY12 Direct Payroll Spending & Fringe Benefits 25% Indirect Effects 75% Payroll Spending & Fringe Benefits 25% Non-Payroll Spending 20% Fan Spending 30% CENTER FOR BUSINESS AND ECONOMIC RESEARCH 6
Estimated Employment Impacts When the UTAD spends money in the Tennessee economy, these expenditures create jobs in addition to their own 319 direct employees. In fact, the direct employment associated with the UTAD is only a very small portion of the total employment impact. We estimate that the indirect employment impact from UTAD spending on salaries and fringe benefits amounts to an additional 412 jobs, while UTAD non-payroll spending amounts to another 890 jobs. Another 1,308 jobs are created by fan spending within the state. These numbers add up to a total employment impact of the UTAD on Tennessee of 2,929 jobs (Table 4). Table 4: UTAD Employment Benefit by Source, FY12 Direct Effects UTAD Employees 319 Indirect/Multiplier Effects Payroll Spending & Fringe Benefits 412 Non-Payroll Spending 890 Fan Spending 1,308 Total FY12 Employment Benefit 2,929 As mentioned earlier, only a very small part of the total employment impact associated with the UTAD involves direct employment of UTAD workers. Only 11 percent of the total impact is from direct hiring. Fan spending accounts for 45 percent of the total employment impact, while nonpayroll spending accounts for 30 percent of the impact. Lastly, the indirect effect of payroll spending and fringe benefits accounts for 14 percent of the total employment impact (Figure 6). Figure 6: UTAD Employment Benefit by Source, FY12 Payroll Spending & Fringe Benefits 14% UTAD Employees 11% Indirect Effects 89% Non-Payroll Spending 30% Fan Spending 45% CENTER FOR BUSINESS AND ECONOMIC RESEARCH 7
Tax Effects Activities associated with the UTAD create significant tax revenues for state and local governments in Tennessee. In total, the UTAD generates a little over $28 million in state and local revenues. The bulk of this total more than $20 million comes in the form of state and local sales taxes. Amusement taxes account for another $1.6 million of the total, while all other taxes make up the remaining roughly $6.3 million. Sales taxes are generated in a few ways. First, when UTAD employees earn an income, they spend part of it on sales-taxable items. This process creates about $1.5 million. Second, when fans travel to the state to see the Volunteers play sporting events, they spend money on food, lodging, souvenirs, etc., all of which are sales-taxable. This process creates about $13.5 million. Lastly, a portion of the indirect income spent in the Tennessee economy is on sales-taxable items as well, which accounts for another $5.5 million (Table 5). Table 5: State & Local Tax Revenue Generated by the UTAD, FY12 Sales Tax Revenue Payroll Salaries $1,487,746 Indirect Income Effects $5,514,159 Fan Spending $13,447,986 Other Tax Revenue Payroll Salaries $1,328,662 Indirect Income Effects $4,924,533 Amusement Tax Revenue From Ticket Sales $1,552,922 Total FY12 State & Local Tax Revenue Generated $28,256,008 Other tax revenue, which includes all other state and local taxes except for sales and amusement taxes, accounts for about $6.3 million of the $28 million total. This includes such things as gasoline taxes and business taxes paid by companies that benefit from UTAD activities. Approximately $1.3 million of this revenue is driven by payroll salaries, while the other $5 million is driven by indirect income effects. Lastly, the amusement tax on ticket sales amounted to $1.5 million in FY12. CENTER FOR BUSINESS AND ECONOMIC RESEARCH 8