Economic impact studies are typically discussed in the context of multi-hundred million dollar stadiums or mega-events like the Super Bowl. Economists have generally concluded that most studies grossly overstate the potential benefits and understate the actual costs of an event/arena, thereby ensuring an unreasonably high net economic benefit for the local economy. Economists have been poking holes (big, "you sunk my battleship" holes) in the sides of these studies for years. However, the inertia of the "economic impact study" seems to trump what economists have to say.

While the big studies understandably attract the attention of economists, I am growing a bit more sensitive to the smaller claims, which, although less dramatic, might actually do more damage. The local claims of $X million being generated by the local watermelon-spitting tournament are much more numerous (by definition) than the studies of a local Super Bowl. Perhaps economists should focus some attention to these more numerous smaller claims because they seem to add to a mythology.

Case in point, the Red Diamond Vulcan Cup soccer tournament in Birmingham, Alabama. Local tourism officials estimate the "soccer tournament will have an economic impact of more than $4 million."

Perhaps, but I doubt it. The article points out that the tournament is expected to bring 6,000 people to Birmingham. The tournament entails 232 teams (from all over), which would require only 26 people from out of town for each team. Let's say that ten percent of the teams are from Birmingham (I don't know for sure, but this is how it worked when I played club soccer), then if all 6,000 people were to come from out of town (thereby avoiding substitute spending issues), each team would only need to bring 29 people. This number is reasonable and therefore the claim of 6,000 visitors may not too be far from the truth.

What is less likely is that the 6,000 people would, in two days, create $4 million in economic impact. Let's take the easy approach first. Without any so-called multiplier effect, 6,000 people spending $4m in two days would require $333 in per-capita per-diem spending. This level of spending is unrealistic, especially when you consider that some of the visitors are little brothers and sisters who do not require such expenditures. [Aside: I claim it would be difficult to spend this amount of money per day in Birmingham if you wanted to - but I am originally from Chattanooga, so I can make fun of Birmingham (he he).]

I have written elsewhere that evidence suggests per-capita per-diem tourist spending is closer to $100-$125. Thus, the 6,000 visitors might generate closer to $1.2m - $1.5m over the two days. I haven't seen the study the Birmingham folks used, but I am sure they used some form of "multiplier effect" to determine the total impact of the soccer tournament.

The easily abused multiplier effect is a simple scaling of the direct spending assuming no leakages from the local economy. Blame Keynes (?). The standard approach is to take the direct spending $D, "select" an "appropriate" multiplier, m, and calculate the total economic impact as $D(1+m). Obviously, the total impact is very sensitive to the multiplier chosen.

In our example at hand, if the direct spending is $1.2m-$1.5m and the total impact is $4m, this implies a multiplier of 2.33 - 1.66. Both are probably a bit high, but not as high as I have seen in some studies (many times multipliers are "chosen" as high as 4 or 5!!).

Econometric estimates of multipliers, accounting for leakages, substitution, etc., suggest a multiplier closer to .7, which in the case of the B'ham tournament would lead to total economic impacts in the range of $2.04m-$2.55m (all based on the assumption of 6,000 out-of-town visitors spending between $100-$125 per day for two days).

Standard and Poor's estimated the Birmingham economy in 1998 was approximately $27.968 BILLION. Therefore, while I personally (and probably a lot of people) would love to have a slice of a $4m pie (or even a $2.5m pie), in the grand scheme of Birmingham qua economy, even the most optimistic number represents approximately 0.014% (assuming no growth since 1998).

Granted, the overall economy is ultimately comprised of any number of .014% contributions (about 7,142 of them ;-), but the local McDonald franchises likely have a bigger economic impact than a soccer tournament but don't get the credit they deserve. This must be because there isn't a local Fast Food Bureau.

My peeve is not with tourism and convention bureaus, per se. Rather the manner in which they justify their existence. Instead of being satisfied (or thinking the public would be satisfied) with securing conventions, tournaments, and so forth for their own sake, local tourism folks feel obligated (perhaps it is CYA, perhaps SOP) to point to some mystical economic benefits that a) probably aren't measured correctly, or b) are so minuscule that it almost belittles the event when put in context.