When it comes to organising international events to attract tourists and tourism dollars, bigger is usually better. But who are the real winners from big events – and how can we accurately calculate the benefits? 
 
Story Tony Malkovic Photography Getty Images  
 
International events that attract hundreds of thousands of people aren’t actually called ‘big events’ any more. They’re being called ‘mega events’. 
 
And just as a swag of event-related industries have sprung up in recent years, so have teams of economists, academics and accounting firms devoted to accurately determine the economic benefits of such events. 
 
They bring with them a whole new terminology to help understand and calculate the effects of events – terms such as ‘psychic income’, ‘induced tourism’ and ‘direct in-scope expenditure’. 
 
But the main questions that governments and sponsors still ask are pretty simple: Is it worth spending many millions of dollars to attract and run such events? How do we quantify the real effects of mega events? And who are the winners? 
 
Leo Jago recalls when he first realised that big events were having big impacts and were worth watching closely. 
 
“The reason I got into events, is that at one of my motels the manager rang me and said: ‘We’ve picked up a booking for 20 rooms for four months’,” he recalls. 
 
“So I went down to find out why, and it was the volunteers who were being accommodated at our motel for the first international air show at Avalon, near Geelong. As a small business owner, I saw – in my hip pocket – the benefit of an event. That was in 1992, I was an economist and I was then asked to do an evaluation of that event, and that’s how I got into events.” 
 
Professor Jago is now the director of the Centre for Tourism and Services Research at Victoria University, and has carried out research on major festivals and events around Australia 
 
He’s currently carrying out an evaluation for the Federal Government on the economic benefits of the Pope’s recent visit to Sydney for World Youth Day. According to organisers, it was the largest youth event ever hosted in Australia. And depending on which figures you use, the papal visit is estimated to have attracted some 223,000 pilgrims – including 110,000 from 170 countries – more visitors than the 2000 Sydney Olympics. The emphasis might have been on things spiritual, but many eyes were on the fiscal side of things. 
 
Already it’s estimated that NSW picked up between $8-10 million in state revenue from GST and other taxes, and the Sydney Chamber of Commerce reckons the economic benefit of Pope Benedict’s visit to be about $231 million. 
 
“The trick with these evaluations is that you have to pick up the number of people who specifically come for the event, how long did they stay, how much did they spend,” Jago says. 
 
“And then there’s how much did the organisers spend using money that was generated from outside the region and spent in the region – you can’t count other expenditure.” 
 
But that’s just part of the story. “My concern, however, is that’s only picking up the economic dimension,” says Jago. “And events have benefits far beyond that and we haven’t been very effective in taking that into account.” Those intangibles include social benefits such as a raising of self-esteem and national pride. 
 
“Absolutely, there’s a term called ‘psychic income’ which is that sense of pride, that sense of pleasure that people have from being at the centre of attention and hosting other people,” says Jago. 
 
“A classic example of that was when Australia won the right to defend the America’s Cup, there was a state of euphoria then. People like me who knew nothing about boat races really got a charge out of that and got behind the defence held in Fremantle.” 
 
He says you really need two types of studies to take account of the economic and emotional benefits of mega events. “You have the economic assessment that works out the new income, what we call that the direct in-scope expenditure – the money that comes to the area that wouldn’t have come otherwise if the event wasn’t on and the impact of this expenditure as it flows through the economy” explains Jago. 
 
“And then you have a separate study of the local residents. We have a questionnaire, for instance, that goes out about two weeks after the event to a random sample of the local population to find out what effect that event had on their personal quality of life and the quality of life of the community.” 
 
A Big Risk 
According to Brendan Rynne, a partner and chief economist with KPMG and the head of its Economics, Infrastructure and Policy unit, determining the winners in relation to big events is a big ask. 
 
The main issues are exactly how do you measure the costs, and how do you decide what to include in your calculations? Rynne says in the economic sense, an assessment at least should include how an event adds economic value to a local community or country, how it affects gross state product and maybe gross domestic product and how it adds to the incomes of individuals and people employed as a result of the event. 
 
And then it all depends on whether you’re looking at the period before, during an after the event. 
 
“The winners (prior to the event) are often the developers or companies that get to undertake the work,” he says. During an actual event, others also do well. 
 
“A rule of thumb would be that the more international visitors or interstate visitors, the more new money actually flows into that economy,” he says. 
 
“The real winners in that sense are the locals who are able to get more money pumped into that economy than otherwise would be the case.” 
 
In recent years, Rynne’s unit carried out economic impact studies on mega events such as the 2006 Commonwealth Games in Melbourne and the Rugby World Cup in NSW. 
 
And such mega events can have mega impacts. The Commonwealth Games, for instance, added an estimated $1.6 billion to Victoria’s gross state product, and provided 13,000 jobs for the equivalent of a year. Rynne says the benefits tourists bring have often been worked out to the cent and quotes figures from Tourism Research Australia (formerly the Bureau of Tourism Research). 
 
“International visitors typically spend 20 cents in the dollar on restaurants, hotels and cafes,” he says. “They spend 25 cents on air transport and about 15 cents on visitor attractions. 
 
“Domestic visitors spend 25 cents in restaurants so they spend a little bit more in that area but they spend a little bit less on air transport – about 15 cents in every dollar. “Because they have access to their cars they spend 15 cents on petrol. And they only spend 5 cents on visitor attractions.” 
 
After a mega event, the prized international visitors might fly back to their various countries, but the aim is then to lure – or induce – a new batch of tourists who might have only seen the event on television and been inspired to visit. 
 
“The thing to recognise is that the induced tourism effects that flow through are certainly there, but they’re generally not long-lived and generally have a life span of one to two years after the event,” Rynne says. 
 
But working those bottom line benefits can be tricky. 
 
“The main thing with completing our economic impact studies is making sure from a modelling context you get your input analysis done correctly,” Rynne explains. 
 
“That you try, as much as possible, to avoid any double counting of expenditure. “For example, with the Commonwealth Games, we didn’t count any expenditure from Melbourne residents for example, because that’s effectively a transfer effect. 
 
“Those residents who might have bought tickets to the Commonwealth Games events would have otherwise spent that money on goods and services in the Melbourne economy. So you don’t count that twice.” 
 
Substantial Benefits  
Scott Lennon a partner in the PwC Economic Group who leads its Sydney team says there are two main ways of determining the economic benefits of a mega event. “Input-output economic modelling is the one that generates the more substantial benefits and arguably the more exciting results but it has some credibility problems,” he says. 
 
“Very crudely, you come up with a multiplier result for an event, based on thesectors of the economy containing the event expenditure and often the weighted average multiplier is 1.5 and 2.0.” 
 
In effect, he says a multiplier of two means if $100 million dollars is spent to stage an event, there could be up to $200 million of indirect flow-on benefits created. At least, that’s the theory. 
 
“The mathematics are fairly simple, but the reliability of these sorts of figures in a low employment environment is rightly being questioned by economic analysts and policy commentators,” says Lennon. 
 
“Input-output analysis is a relatively basic technique. But its use is very common to support the business cases for small to large events around the world, as it provides the bigger dollar flow-on economic impacts which promoters are looking for to try to garner government support. Some more experienced economists have justification for calling the input-output technique ‘marketing economics’.” 
 
Lennon says there is a better way. “The second approach is more sophisticated. It’s called computable generated equilibrium modelling, or CGE modelling,” he says. 
 
“Some of the major universities run these models. PwC has an alliance with Monash University to help us run CGE results for our clients. CGE modelling is more realistic in assessing the impacts because it has constraints built in that recognise that if you create a thousand jobs, chances are some of these people would already be gainfully employed elsewhere in the economy. 
 
“So CGE nets off the bulk of the transfers and substitution effects. CGE modelling has traditionally not been used for smaller to medium sized events, as impacts were reported at a gross state or gross national product level, so the proportional benefits were often small. 
 
“But since early 2007, the better CGE models can now provide an estimate of impacts down to regional or local area level.” Lennon says state treasuries usually prefer to deal with CGE figures, but because so many events report only input-output results, clients often ask to provide both CGE and input-output results. That way, they can better compare their event to others that use input-output modelling, but still get the more accurate CGE results. 
 
But no matter the method used to determine the economic impacts of major events, it’s the overseas visitors, particularly high-end and longer stay tourists, that provide the best boost to the bottom line. “It’s the international visitors that genuinely bring in the fresh dollars to the Australian economy,” Lennon says. 
 
“Events that are domestically focused such as an AFL Grand Final create economic activity. But the consensus among economists is that most people attending those will adjust their consumption over a year, in order for them to afford such an event – so that the net uplift to an economy over a full year is lower.” 
 
He says the governments often see some upside from the extra GST and corporate taxes gathered during mega events, particularly from overseas tourists. But the required government subsidies, especially if new stadiums or facilities are required, can be substantial. 
 
The 2007 Melbourne Grand Prix, for instance, lost $34 million with the Victorian Government footing the bill. Although governments might have to dig deep into their pockets, the cash registers are still ringing up profits elsewhere. 
 
“Aside from these events bringing joy to the spectators, often I think the other main winners from major events are a range of service and hospitality companies that do the catering and logistics for these events. That includes food, beverage, accommodation, cleaners, security, transportation, temporary seating, and equipment hire and storage – those companies tend to do quite well,” points out Lennon. 
 
Although mega events create the headlines, often smaller events can deliver the goods. Lennon says events that have superior economic benefits are often those where the capital investment to host them is minimal or more modest, yet the spending by overseas spectators is significant. 
 
“I think there’s a series of small to midsized events that can produce fantastic economic benefits, such as conferences and conventions for different global professions like surgeons or something of that ilk,” Lennon points out. 
 
“Where you get a couple of thousand foreign professional, high net wealth individuals and their families visiting for a week or two, staying at better accommodation – those sort of events can have a great economic impact. 
 
“Likewise, visiting military can create sizeable economic benefits. For instance, when an aircraft carrier and two or three escort ships visit from the US, they can bring more than 6000 personnel for a week of shore leave.” 
 
Bread and Circuses  
Jack Carlsen, chair of tourism at Curtin Business School, points out that mega events have been with us for centuries. For instance, the Ancient Olympics date back to the 8th century BC and in Roman times, the colosseum and chariot races were the stuff of ‘bread and circuses’ to distract the population from unsavoury realities using these hedonistic pursuits. 
 
And for probably just as long, rulers and politicians have sought to manipulate them for their own political advantage, with Hitler’s staging of the 1936 Berlin Olympics probably the most glaring modern example. “Mega events are quite often used as a public distraction for governments not travelling too well in other areas,” says Professor Carlsen. 
 
Mega events can also have mega effects in transforming or modernising the host city, with governments using them to push policy objectives such as urban renewal, social cohesion and infrastructure projects. Carlsen says that was very much the case with Manchester and its staging of the Commonwealth Games and many other cities. 
 
“For instance, Darling Harbour before the Sydney Olympics was basically a rundown part of the city that you would never go to,” he recalls. 
 
“But being awarded the Olympics in 1994 gave incredible impetus to that Darling Harbour precinct redevelopment. Now you’ve got a world-class tourism precinct, partly because there was this imperative to develop it for the Olympics.” 
 
Carlsen has been lecturing in events management for 10 years and says the main issue can be summed up in one question he always asks students: Are we happy as taxpayers to have our tax dollars crosssubsidise the tourism and hospitality sector through funding of mega events? “Effectively mega events fill hotel rooms, aircraft seats and restaurants, and the retail sector probably does very well for a short period of time as well – all based on a large injection of funds from the public purse. 
 
“So are we comfortable with that investment, if you like, secure in the knowledge that in the short term the tourism industry wins and, certainly, politicians can bask in the afterglow, while in the longer term we’re all winners in terms of our standing and our capacity to do these things?” 
 
Carlsen says developing the tools and techniques to analyse the full effects of mega events is an ongoing area of research. But Australian researchers and economists are doing a good job in helping fill the gaps. 
 
“Australia leads the world in this area in terms of developing expertise and understanding mega events,” he says. “If they gave out medals for event evaluation, Australian researchers would be going for gold. 
 
“We’ll never get consensus on the best way to do these things but the more we put the issues on the table and the more candid we are with the real problems in identifying and attributing costs and benefits, and even identifying them, the more likely we are to arrive at sensible answers.” 
 
Determining the real winners of mega events might not always be straightforward. But it’s easy to spot the losers – simply by scanning the headlines they create. 
 
“Things can backfire, and if things go wrong, that negative image can stay with the destination for a long time,” he warns. “With the 1996 Atlanta Olympic Games, for instance, I’ll always remember the images of traffic jams and athletes abandoning their buses to run to venues to e in time for their events. 
 
“There are real downsides and risks associated with something like the Olympics for instance – quite apart from the financial risks and security risks. “There are overall risks to the city’s reputation – and the country’s reputation if you don’t get it right.” 
 
Which is something that’s probably been on the minds of China’s Olympic officials quite a lot. 
 
Whereas they would have preferred positive publicity in the lead-up to the Beijing Olympics, the reality was a public relations nightmare. 
 
Images beamed around the world showed protests over Tibet, the Olympic torch fiasco involving hordes of security guards and the rubble of unsafe buildings that collapsed in the recent earthquake. And on the eve of the Games, there was more embarrassment with international outrage over tight security restrictions, internet access and, perhaps most memorable of all, those images of Beijing shrouded in pollution. 
 
Thankfully for officials, the stunning opening ceremony went smoothly. But it remains to be seen exactly which images of China lodge in people’s memories in the years to come – and who th