The Supply Constraint Problem in Economic Impact Analysis : An Arts/Sports Disparity

The most fundamental analytical errors that lead to overstated projected regional economic impacts (ex ante) are demand based: (1) failure to subtract local sources of spending and non-local uses of spending from the budgets of subject organizations or events; (2) erroneous attribution of all ancillary spending as causally related to the existence of the subject organization or event; and (3) failure to adapt multipliers to specific regions, including the failure to recognize the relationship between the likely size of the initial net spending injections and the speed with which those injections "leak" from the target region. But those ex post verification studies in sports that have generally found very small realized economic impacts resulting from even mega-events like Super Bowls have tended to emphasize supply-side infrastructure capacity constraints in local economies that generate significant crowding-out effects. This issue is reviewed with a focus on the differential treatment of crowding-out effects in the sports versus the arts (cultural sector) literatures, and evaluates whether there are legitimate reasons why ex ante arts economic impact studies have generally ignored supply constraints. Interestingly, the only real ex post verification study done in the arts (Skinner, 2006) found remarkable similarity between the empirical impact results and what would likely have been predicted by an ex ante impact study (for the case of blockbuster museum exhibits in Jackson, Mississippi), in contrast to the usual sports event finding