Quantifying the Economic Impact of Community Events

Steven R. Miller: Director Center for Economic Analysis

Presented at:

MSU Extension Conference 2007

October 9 - 11, 2007Michigan State University Kellogg Center

East Lansing, MI

What Community Events Give Rise to Community Economic Impacts?

Conferences Trade/Specialty Shows

Arts Fairs Carnivals and Festivals

Concerts Home and Garden Shows

County Fairs Sporting Events

Runs Charity Events

Any non-continuous event that may draw in outside visitors to the community, or entice local residents to remain in the area that would otherwise visit other communities.

Public Budget Concerns

• Program evaluations are more commonly found today

• Increasing pressure to justify public investment

• Sound evaluation can be instrumental in getting public buy-in

• Is it worth the effort?

Economic Impacts of Community Events

• Can be used to estimate benefit/cost of public investment

• Can be instrumental in gaining public support

• Can be used to gain corporate sponsorship of events

• Can be combined with other studies to measure the economic impact of tourist activities within the community

Project Appraisal vs. Evaluation

• Project appraisals: What is expected to happen– used in the process of deciding if resources

should be applied to the project

• Project Evaluations: What did happen– used in the process of reviewing the

performance of a project

Measuring the Economic Impact of Community Events

• Three components make up an economic impact– Direct Impact– Indirect Impact– Induced Impact

Direct Impacts of Events

• Purchases directly linked to the event itself– Local purchases for event– Patrons’ purchases while at event or within

the event’s host community – Vendors’ purchases while at event or within

the event’s host community• All purchases must be directly attributable to the

event and remain within the region• Purchases that would have taken place in the

absence of the event should be excluded

Indirect Impacts

• Secondary effects that are derived from the direct impacts

• Direct expenditures lead local suppliers to purchase more inputs. Some of these purchases are local.

• These secondary purchases by local businesses represent the indirect impacts

Indirect Impacts, Cont’d

• Rodeo event buys $100 worth of feed grain from a local wholesaler

• Local wholesaler buys $75 of feed from local farms

• Local farms buy $50 of seed and fertilizer from local supplier

• Local supplier buys $15 of packaging material from local producer

• Total impact = 100 + 75 + 50 + 15 = $240

Induced Impacts

• Secondary effects that are derived from the direct and indirect impacts

• Local business owners, suppliers, and employees spend the additional income that they earn. Some of these purchases are local.

• The secondary purchases from additional revenues represent the induced impacts

Induced Impacts, Cont’d

• From Rodeo example,– Feed supply wholesaler is able to pay workers

to work more hours as well increases profits– Both wholesale business owners and workers

have more money to spend. Some is spent locally

– Beneficiaries of additions purchases also have more to spend; a portion is also spent locally

Total Impact

• Is simply the sum of the three component impacts

• In practice, the total impact is calculated as a multiple of the direct impact

Total Impact

= Direct Impact

+ Indirect Impact

+ Induced Impact

ImpactDirect

ImpactTotalmultiplier

Impact

Directmultiplier

Impact

Total

Economic Multipliers

• The larger the local economy, the larger the multiplier

• Some industries have larger multipliers than others

• Generally generated by computer models– RIMS II: Bureau of Economic Analysis– IMPLAN Pro: Minnesota IMPLAN Group– MITEIM: Daniel J. Stynes, MSU– Expert Judgment: Any expert near you

Estimating the Direct Impacts of a Community Event

• Direct impacts• Must be directly attributable to the event• Would not have occurred without the event

• An accurate measure of the direct impact is vital– facilities preparation– patron spending – vendor and exhibitor spending

Direct Impact of Facilities Preparation

• In many cases, event hosts will purchase, rent, or hire for site preparation– Such purchases meet our criterion

• Directly linked to the event,• Would not occur without the event

– They should be purchases to local providers

Direct Impacts of Patron Expenditures

• Patrons will likely spend money both at the event and in the surrounding community– Spending by local residents should not be

counted unless they stayed in town because of the event

– Spending by visitors from outside the community should be counted

Direct Impacts of Vendors and/or Exhibitors

• Vendors are also likely to spend money both at the event and in the surrounding community– Expenditures of local vendors should be excluded

while those of outside vendors should be included.

• Vendors also make sales– Sales of local vendors should be included in in the

direct effect, but sales of outside vendors should be excluded. Don’t double count patron expenditures and vendor sales.

Direct impacts of Patron Expenditures

• Event patron expenditures are generally measured in common units– Party-visits may be the best unit of measure– Party expenditures are generally easier to manage

than person expenditures

Visitper

SpendingAverage

Visitsof

Number

Effect

Direct

Estimating the Number of Visits

• Gated Events

• Non-Gated Events

• Single-Venue Events

• Multi-Venue Events

Estimating the Number of Visits, Cont’d

Estimating the Number of Visits, Cont’d

• Augment counts with– Vehicle counts

• If you find that there are 20 people per car, something’s amiss

– Vending sales• If you find that vending sales per person is $100,

one must wonder…

• Local businesses can be queried as well for indication of patron activity

Using Surveys to Estimate Patron Spending

• Surveys are a flexible means toward understanding – visitor spending

– characteristics

– experience

– perceptions

Using Surveys to Estimate Patron Spending, Cont’d

• Two vital questions must be addressed for patron surveys– Where do you live?– How much did/will you spend on X while in the

community?

• Three vital questions must be addressed for vendor surveys– Where do you live/do business?– How much did/will you spend on X while in the

community?– How much did you sell?

Using Surveys to Estimate Patron Spending , Cont’d

• We need to separate local patrons from tourist-patrons

1.Tally attendees

2. Include this as a question on survey

• Requires a representative sample of attendees

– All attendees have an equal chance of being surveyed

Selecting Sample Size

2

161

Range

eExpenditur

variance

estimated 2100$200$161625

variance

estimated

2

4

tolerance

variancen

First estimate the variance of spending by visit, if one is not already known.

Then estimate the total number of samples needed to be within a range or tolerance.

210$

625$425

n

Since we are only using tourist spending to form direct impacts we need 25 completed tourist surveys. If we expect 1 out of ever 4 visits to be tourists, will need 100 completed surveys to get 25 completed tourist surveys.

25./25100

Selecting the Method of Survey

• If contact information is available for all attendees, a phone interview or mail survey may be best.

• If not, on-site contact is required.– Conduct on-site surveys– Collect representative sample of contact

information

Selecting the Method of Survey, Cont’d

• Off-site– Mail Surveys– Phone Interviews

• On-site– Self-Administered Surveys

• Completed at event or mailed upon return

– Interviews

• Combined On- and Off-site

Writing Surveys• There exists several resources for writing surveys

– Julie Leones, A Guide To Designing and Conducting Visitor Surveys

• http://www.ag.arizona.edu/pubs/marketing/az1056/

– Daniel J. Stynes, Guidelines for Measuring Visitor Spending• http://www.msu.edu/course/prr/840/econimpact/pdf/ecimpvol3.pdf

– Mike Woods and Suzette Barta, Estimating Impacts of Tourism Events: Methodology and a Case Study

• http://www.ag.iastate.edu/centers/rdev/net2002/handouts/woods.pdf

– Steven Miller, Quantifying the Economic Impact of Community Events

• http://www.cea.msu.edu/

Writing Surveys, Cont’d

• Michigan Tourism Spending and Economic Impact Model (MITEIM) has the following spending categories

•Motel, hotel cabin or B&B •Camping fees •Restaurants & bars •Groceries, take-out food/drinks •Gas & oil •Other vehicle expenses

•Local transportation •Admissions & fees •Clothing •Sporting goods •Gambling•Souvenirs and other expenses

Direct Impacts

• Extract direct impacts per visit from surveys and per vendor as the average total expenditures by spending category– Each spending category has a direct Impact

calculated as

VisitsTourist

ofNumber

VisitTouristper

eExpenditurAverage

Impact

Direct

• Collect the event preparation impacts and assign them to spending categories

Using Direct Impacts

• Direct Impacts must be adjusted to reflect the regional area capture rate of spending category.

• Capture rate represents the proportion of local expenditures that will have a direct impact on the local community.– The MITIEM model does this automatically. Hence,

the user need only add the direct impact as calculated above.

– IMPLAN has the option to apply its own capture rates or customized capture rates

– RIMS II requires users to estimate capture rates

Using Direct Impacts from Surveys, Cont’d

• Each spending category has a total impact calculated as

Impact

Directmultiplier

Impact

Total

• Were direct impacts are adjusted for the local capture rates

Total Community Economic Impact of Event

• Add up the total impacts of each spending category to get the total community impact of the event

For Further Information

• Daniel J. Stynes’ web site (MITEIM Model)– http://www.msu.edu/~stynes/

• The Center for Economic Analysis– www.cea.msu.edu/