Wednesday, 26 October 2016

Funding the fight ... low blow or a knockout?

The proposal for Government funding to be poured into Joseph Parker's world title fight has become very popular - so popular, in fact, that even I've been asked to contribute to this discussion!

There have been plenty of views from both sides of the fence - Steve Kilgallon's piece on why taxpayers should stump up to help stage the fight, Patrick Gower's views are more strongly against, while Barry Soper writes a more questioning piece.

Eric Crampton (as per usual) makes several excellent points - his whole post is worth a read! As economists, Eric and I see very much eye to eye on this issue.

I can only really add to this discussion with a few points of my own:

  • A matter of a week or so ago, Auckland was widely considered the host. Now we are told that there is only a 20-30 percent chance of the fight being staged in Auckland. What is the situation that has caused this uncertainty? This, to me, is the key question. Why is the government funding needed? Could it be that promoters in the US are proposing to spend more on attracting the fight than Duco, and are therefore being considered as a safer (read: more lucrative to the WBO) bet than hosting a title fight here? Government funding has been used the world over to try to trump others in hosting events ... with questionable returns.
  • Indeed, there is little to no evidence from the independent research looking at the realised economic impacts of mega sporting events that said events will generate tangible economic impacts. The winners from such arrangements tend to be the governing sporting bodies, followed by the event organisers - with taxpayers a distant last.
  • What are the benefits that New Zealanders will enjoy from hosting the fight? Benefits will accrue largely to those who watch the fight - and you can bet that it will not be anywhere in the plan for such an event to be broadcast live free-to-air. Part of what makes the fight commercially lucrative is the ability of broadcasters to charge for people to watch it. If government funding was contingent on it being broadcast free-to-air, it would undermine the commercial viability of hosting it here. So it should be a given that people will have to pay to watch the fight with or without government funding. These prices will be much more expensive than any previous fight given its title status, so one would reasonably expect the promoters to capture a much greater share of the event's benefits in the form of ticket sales and pay-per-view sales from Sky. 
  • The economic benefits are (unfortunately) synonymous with economic impacts - which doesn't help the case for the fight to be publicly funded. If you look at past events funded by the Major Events Development Fund (MEDF), they've tended to be events with longer than a single day's duration - which means that their ability to attract visitors and spending is much greater than a one-day event. Any economic impacts from the event are also highly likely to be concentrated in Auckland - hence there may well be a stronger case for Auckland Council (via ATEED, one assumes) to be a major backer of the event. I understand that ATEED is already involved, but it doesn't appear to be enough to get the deal over the line. 
  • There is also a matter of consistency and transparency regarding the treatment of the application for the MEDF - any (perceived or otherwise) favouritism will not go down well with people who have missed out in the application stage. One assumes that the application will include an estimate of economic impacts attributable to the event? To support these impacts, it is useful to consider what would happen in Auckland (and New Zealand) if the event did not take place. In most cases, projections of economic impact assume that the counterfactual is that there would be no spending at all in the absence of the event - an assumption that overstates the likely economic impact.
  • One must also factor in the opportunity cost of public funding into such an equation. Scarce government funds could be spent elsewhere - and no doubt there are plenty of alternative uses for an as-yet unknown amount of public money that may generate greater longer-term impacts than funding a one-off event like this.
  • From what we have heard (at least via the media) the good people at Duco are pointing to the feel-good factor as being an important reason why we should consider funding the fight. If so, ask yourself this - will you feel any worse than you already do if the fight was to go offshore? And if so, what is this "feel-bad" worth to you? In several studies from overseas that have attempted to quantify (among other things) the feel-good effect, intangible benefits are almost always smaller than the economic impacts and are certainly not large enough on their own or in tandem with tangible benefits to justify subsidies given to sports events, facilities or franchises. 
  • And what about the precedent a favourable fast-tracked decision would set? 
I'm just finishing off research into the impacts of hosting major sporting events on travel service exports in New Zealand - and preliminary results are interesting. The larger the event, the greater the likelihood of a statistically significant bump in tourism spending - but not all of them have generated positive changes to tourism spending.

I'm a boxing fan from a long way back - I remember growing up watching great fights like "Marvelous" Marvin Hagler vs Thomas "Hitman" Hearns, as well as watching heavyweight greats like Spinks, Tyson, Holyfield, Bowe, Lewis and the Klitschko brothers (among others). I'd love nothing more than to see Joseph Parker added to the list of world champion heavyweight boxers. But as for government funding of this title fight - well, let's just say that the economics of hosting the fight just don't seem to be strong enough to score a win on the cards from this judge. 


  1. "The larger the event, the greater the likelihood of a statistically significant bump in tourism spending"

    But even for those events that give a "bump in tourism spending" is there a way that the "bump in tourism spending" could be achieved at a lower cost? Eg just a normal advertising campaign.

    And even if there is a pay-off to the economy in general from an increase in tourism spending, could a bigger bump to the economy be achieved by using resources in a non-tourism related way?

    And is it surprising that the larger the event the greater the likelihood of a "bump"? I mean a single day event, eg boxing match, seems unlikely to have the same economic impact as a several weeks event, eg Rugby World Cup. Or am I missing something?

    1. There's no question that funding an event is potentially much more costly than investing money into an advertising campaign, to use your example. Indeed, one can definitely make the case that we forgo much greater opportunities when money is poured into sports events like this than if we sought to achieve the same tourism-related outcomes via other means. If the intention is for a increase in domestic economic activity, there's an argument that can be presented that the multiplier effects from tourism might be lower than the multiplier effects of domestic spending - thus enabling people to keep tax dollars in their back pockets could be more beneficial than targeting events.

      The duration of the event is likely to impact upon the associated economic impact - a tournament like the RWC is likely to have much greater impact than a single All Blacks test match. The larger event (more visitors/spending, and increased by its duration) is more likely to result in a bump - but also more likely to be more volatile (either positive or negative). I plan to explore this in the paper I am presently finishing up.