7th November 2013 Input-Output Expert Users Group Paper 2
Economic Impact Assessment Methodology for the Commonwealth Games 2014
An Input-Output based analysis was employed to estimate the economic impacts associated with the capital spend program in the run up to the Games. The next economic impact of the Games will arise as a result of the economic activity associated with the delivery and hosting of the Games. This will include any expenditure by organising authorities and visitors to the event, i.e. spectators, participants, supporting officials and visiting media. It has been proposed this aspect of the overall economic assessment also be estimated using the latest Scottish Government Input-Output Model.
Along with a brief summary of all the work behind the broader evaluation of the Games, this paper discusses the data that will be available and detailed methodology for an Input-Output based economic estimate of their delivery and hosting.
The paper is intended to inform a discussion by the Group on the methodology employed for this economic assessment.
Background to the broader Scottish Government evaluation of The Games
Glasgow will host the 2014 Commonwealth Games from 23 July to 3 August 2014. Scotland, and the City of Glasgow, are expecting many thousands of visitors and spectators. The Glasgow 2014 Games are a major event for Scotland.
The Games budget
The cost to Glasgow 2014 Ltd from putting on the Games is expected to be £524 million. The Scottish Government is to provide up to £344 million, Glasgow City Council around £80 million, and Glasgow 2014 Ltd meeting the balance through income from sponsorship, ticket sales, merchandising and broadcasting rights.1
The [estimated] £500 million spending on construction and refurbishment of Games venues and the Athletes Village over the six years leading to 2014 was estimated separately using Scottish Government Input-Output Model. This capital spending was estimated to support an average of around 1,000 jobs and contribute £60 million to Scotland’s GVA for each of the six years of the construction phase.2
The Scottish Government has also committed funds to deliver for Games security.3
The Scottish Government are leading an evaluation of the Commonwealth Games 2014 Legacy, with the support of the Games Legacy Evaluation Working Group (GLEWG). GLEWG was established in January 2012 to design and deliver an evaluation of legacy. The Group is convened by the SG and comprises Glasgow City Council, key national partners and academics. GLEWG reports to the Games Legacy Executive Board (GLEB).
GLEWG have designed a programme of research and analysis which will take place between now and 2019 and which will comprise of 5 key components:4.
Tracking outcome indicators across 4 national themes (see the Assessing Legacy 2014 website);
A new Longitudinal Community Study in Glasgow’s East End (a new study area in the GoWell programme);
Monitoring & Evaluation of legacy programmes (see the Assessing Legacy 2014 website); and,
The broader economic assessment
The Scottish Government (SG) and Glasgow City Council (GCC) have established a Games Legacy Economic Evaluation (GLEE) group to lead a programme of activities to deliver the economic assessment component of the Games Legacy Evaluation. The remit of this group is to deliver a high quality, robust evaluation of the economic legacies from the Commonwealth Games and legacy activities in Scotland, Glasgow and the GoWell East End study area.
GLEE has agreed a programme of work, including the development of five topic papers over the course of the evaluation, to develop the evidence base for the flourishing theme of the legacy evaluation.
Headline topic paper – Event impact analysis of the Games
Impact of the Games
Subject topic papers – Legacy impact analysis of the Games
IO based economic assessment of the delivery and hosting of The Games
The impact of the Games assessment will use the Scottish Government Input-Output Model to estimate the direct and indirect supply-side effects on the Scottish economy of spending on the delivery and hosting of the Games.
One possible drawback of using the IO Tables for this type of assessment is that they represent a static model of the economy. We have to assume there is spare capacity within the Scottish economy to meet the various demands the Games will put upon it.
The spending associated with delivery and hosting splits into two broad categories:
Estimates of overall spending will change as accounts and survey data are processed. Once the modelling methodology is decided upon, the economic assessment can be re-estimated as the overall spending estimates are firmed up.
The diagram below shows how funds feed into these two categories of spending:
How to treat Organising Committee spending
Estimates of the amount of money spent by the Organising Committee will be within their accounts – the Scottish Government and Glasgow City Council will be looking to the Organising Committee to provide data necessary to undertake the economic impact analysis and have signed a Memorandum of Understanding to underpins this working partnership. However, there are several approaches on how to treat this spending within the Input-Output framework.
Simple change in final demand for sports and recreation
The Organising Committee is essentially a temporary Non-Departmental Public Body. Since public spending within the Input-Output framework is recorded within final demand, one very simple approach would be to apply this spending, adjusted for imports and basic prices, to the published Leontief based final demand multipliers. The most appropriate would seem to be IOC100 Sports and recreation services.5
This approach would assume the Organising Committee spends the money in a similar pattern as the industry average.
Simple change in final demand using ‘business portal’ information
Glasgow City Council have established procurement portal called the Glasgow Business Portal through which the Organising Committee is obliged to tender all its procurement opportunities. This (and the Organising Committee procurement and other records) should contain details of all the Organising Committee expenditures. Potentially these sources of information could be used to populate a spending vector based upon the Standard Industrial Classification of the companies involved. It may also be possible to use this information to distinguish (i.e. ignore) imported contracts.
This ‘bespoke’ vector could be treated as a change in final demand and run using the standard Leontief matrices.
Although technically a public body and therefore theoretically sound to treat the Organising Committee spending as final demand, it may be more appropriate to treat this as new intermediate consumption within the IO model. This would entail constructing a new industry based on the Organising Committee spending information.
The methodology is the same as ‘hypothetical extraction’ that is usually employed to estimate the economic effects of large industry closures, only its inserting a new industry rather than extracting an existing industry. A new model of the Scottish economy including its associated Leontief matrices are generated and subtracted from the current published model to estimate the direct and indirect effects of the new activity.
The first approach is very simple and quick to do and only requires estimates of the total Organising Committee spending. The second two approaches rely on the quality of the Glasgow Business Portal / Organising Committee data. It would also take much longer as each contract/expenditure must be assigned a Standard Industry Classification in order to construct the vector. The final approach also adds the complexity of constructing the Hypothetical ‘Insertion’ model.
How to treat Visitor Spending
Since visitor spending is always going to be final demand, applying this spend to the Input-Output framework is fairly straight forward. Estimates of the actual value of additional visitor spending that can be associated with the Games will change as the survey data become available.
The available sources of visitor spending estimates will be:
ONS International Passenger Survey
Quarterly overseas visitor estimates. Additional questions relating to the Games have been added to identify games related visits. Data will be available in January 2015.
Quarterly estimates of domestic (GB) overnight and day visits. Again questions are to be added to identify Games related visits. Data available October 2014.
Game-time (Visitor) Survey
The Games Legacy Economic Evaluation (GLEE) group has recommended the commissioning a Games-time (visitor) survey to provide estimates of visitor impacts.
Applying visitor expenditure estimates to the Input-Output Tables
Any expenditure on tickets will be removed from visitor spending estimates since this is already included within the Organising Committee spending.
It is hoped that the GLEE commissioned data will provide enough spending pattern information to allow the construction of a bespoke ‘Games Visitor’ spending vector for the IO model. An alternative approach would simply apportion the estimate of total spending using the non-resident household expenditure column from the published IO Tables.
Outputs from analysis
The following outputs are to be sought from the Input-Output analysis:
Output 1 – Economic Impact of Games Preparations (Pre-Games Report)
A first assessment of the economic impacts from the preparations by the Organising Committee (up to an agreed pre-specified date) for the Games to be presented in Scottish Government and Glasgow City Council pre-Games publications in the spring of 2014. This would be presented alongside the estimated economic impacts associated with the capital spend program in the run up to the Games.
Output 2 – Economic Impact of the Games Event (Post-Games Report)
A final estimate of the economic impact of delivery and hosting the Games. That is, the impact of spend associated with the Organising Committee and visitors to the Games. This work will be supported by a Games-time survey commissioned in partnership between the Scottish Government, Glasgow City Council and other Games partners.
There is an aspiration from Games partners to have comparable impact estimates for Glasgow from the Games capital programme and Organising Committee spend. However, it is recognised that this is only likely to be feasible for direct impacts at sub-regional levels.
However, for the visitor impact analysis at the Glasgow level, the Scottish Government and Glasgow City Council are keen for a more detailed analysis of economic impacts. This analytical work is not expected to arise out of the IO approaches proposed in this methods paper. Nevertheless, there is a commitment from Games partners to ensure that any sub-regional tourism impact analysis is presented – as far as possible – on a comparable basis.
Using information for the Commonwealth Games Organising Committee spending data and Games Visitor Spending survey data, the IO Tables will be employed to estimate the economic impact of the delivery and hosting of The Games.
Members of the Group are asked to discuss the methodological options outlined in this paper:
Is the application of an IO model appropriate
Is their merit in producing a Business Portal based ‘bespoke’ final demand vector rather than using the published ‘Sports and recreation’ IO category
If the Business Portal data are detailed and reliable enough is it worth employing the ‘hypothetical extraction’ methodology
1 Audit Scotland - Progress report 2: planning for the delivery of the XXth Commonwealth Games 2014, report that the main organisers (Commonwealth Games Scotland, the Scottish Government, Glasgow City Council and Glasgow 2014 Ltd) are committed to delivering the Games to the required standard within the approved £524 million budget (2007 prices).
2 See Box 2.3. Scottish Government Input-Output Model Economic Impact Estimates, An Evaluation of the Commonwealth Games 2014 Legacy for Scotland Report 1: Questions, Methods and Baseline.
3 The Minister for Commonwealth Games and Sport (Shona Robison), Commonwealth Games 2014, Meeting of the Scottish Parliament 18 December 2012
4 See An Evaluation of the Commonwealth Games 2014 Legacy for Scotland Report 1: Questions, Methods and Baseline.
5 Companies House records show Glasgow 2014 Limited to be registered as a Private, limited by guarantee, no share capital company in SIC93199 - Other sports activities.