How to buy happiness

STEVE KILGALLON
Last updated 05:00 16/06/2013
parade
Lawrence Smith/Fairfax NZ

Winners are grinners: Tens of thousands turned out to applaud our 2011 Rugby World Cup victory at an event we paid $185 million to host.

Fashion
Phil Doyle/FairfaxNZ
Best dressed: Events such as Fashion Week have helped Auckland top $30 million in its tourism earnings and 220,000 visitor nights.

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When a major event rolls into town, it tends to be accompanied by a big number: the dollars of "economic benefit" it promises to provide.

However, that number rarely correlates to reality. Worthless, says an academic. Often dodgy, says an economist. Inflated, fudged, say event specialists.

Yet that figure is often good enough to persuade local councils, whether through megalomania, delusions of grandeur or whirling dollar signs, to buy into the dream.

Sometimes, the results are good, but sometimes they are disastrous. Remember the David Beckham football match in Auckland or the millions of dollars Hamilton squandered on the V8 Supercars?

Elected officials playing event organisers badly is a worldwide issue: Montreal was still paying off its debts from the 1976 Olympic Games well past its millennium celebrations. Eight years after the Athens Games, stadiums lie abandoned, swimming pools are brown and fields are covered in weeds, and many Greeks blame the event for their fiscal collapse.

However, an event done well can bring happiness to citizens, attract new, highly skilled migrants, pack hotels and pubs with tourists, advertise your city to the world, help broker business deals and even, sometimes, return cash.

For its size, New Zealand is one of the most enthusiastic promoters in the world. The industry bible, the Bid Book, last month rated Auckland "the most ambitious city" in the Pacific for hosting 17 major events inside five years, overtaking Melbourne.

Auckland Council pours $22 million a year into these showpieces. A good way to spend your rates?

'Anyone who whinges about it is a misery-guts misanthrope who doesn't want to live in a vibrant, exciting society . . . and may as well be dead," declares promoter David Higgins of those who would question their "small" rates contribution to major events in Auckland.

Higgins, planning an NRL Nines event for Auckland, adds: "Imagine what a dull little backwater New Zealand would be if we didn't have exciting major events."

Because events aren't really about events. They are about making people feel happy, and happy about living in their town.

When Auckland Council surveys residents, about 90 per cent agree the city's events make them proud to live in Auckland.

Auckland's role model is Melbourne. Melbournians believe their city's rebirth was entirely triggered by a focus on major events, in particular the huge infrastructure investments required to host the 2006 Commonwealth Games. Now, Melbourne is cool, a magnet for creative, highly skilled people drawn by the lifestyle conjured by these big events.

Melbourne's Deputy Lord Mayor, Susan Riley, says: "It was a slow town. Sydney was the place to be and that's not the case now.

"Melbourne has a remarkable story . . . and a unique culture, and I don't think at the time we understood the goldmine we had. [Now] we embrace all our events. The city has changed a lot from 10 to 15 years ago. A cultural change has occurred."

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Melbourne City Council has a $34m events budget and the state government's Victorian Major Events Commission also invests heavily. Riley says: "We have a wonderful formula, and let it never break."

So Auckland Council poached one of Melbourne's events team, former international pole vaulter Rachael Carroll, who arrived after the shambles of the Beckham football game in 2008 and just before the super-city merger.

Auckland now claims a new approach to the events game, having devolved event-spending to Auckland Tourism Events and Economic Development (ATEED). Higgins says it avoids inexperienced councillors with agendas making decisions in a "viper's nest". Certainly, the common denominator of failures such as Beckham and the V8s seemed to be councillors and officials making decisions they didn't really understand.

Good events, argues Higgins, are underwritten, not by the public purse, but by private backers: "They have a strong incentive: their necks are on the line . . . [When councils run events], nobody will lose their house if it doesn't work out".

University of Otago academic Rob Hamlin, who studies the events industry, explains: "You have to be quite hard-headed about it, and one problem is the politicians love this kind of thing. If you don't do it, you are the person who stopped this wonderful tidal wave of economic benefits from coming into the country."

Carroll, now ATEED's No 2, says it would be "far too simplistic" to say the trigger was the Beckham fiasco, but it helped the city realise it had to improve before the Rugby World Cup.

Before this new commercial approach, says ATEED chief executive Brett O'Riley, Auckland's annual tourism GDP was $14m, and visitor nights 55,000. Now, the city exceeds its target of $30m GDP and 220,000 visitor nights. A big event five years ago was a community festival such as Pasifika. They've since hosted the V8s, Volvo Ocean Race, Fashion Week and the world triathlon championships. On the horizon is 2017's $33m World Masters Games.

Carroll last week attended the worldwide Sport Accord conference, where sporting bodies deluged her with meeting requests. Two years ago she was "desperately" trying to talk to them.

ATEED's bold declarations of a new direction underline the events industry's bad reputation, gained by what O'Riley freely admits were often "fudged, inflated" numbers pushed by promoters.

Shane Vuletich, who conducts event economic analysis for consultancy Covec, says some studies have "been a bit dodgy, in my opinion, and still are, in a lot of cases."

Hamlin suggests many are used as a marketing tool by businessmen trying to loosen the public purse-strings. "And the reason why it's only used to target government organisations is business simply wouldn't use them," he says. "Even if applied correctly, economic impact analysis is very questionable. They are PR devices. It's like selling a company on the basis of a set of accounts, which includes all the revenues and none of the costs."

Hamlin objects to some of the more extraordinary techniques used in some of these reports.

First is the "economic multiplier", a system in which $1 of a tourist's money can magically become $5. How it works is the theory that if the visitor spends $5 on a coffee, then the cafe owner spends that $5 on buying the coffee grounds, which is spent by the coffee company on their own bills and so on.

Hamlin says he has asked researchers to tell him how they calculate these multipliers, but has been rebuffed.

Then there's displacement - the lost income of all those tourists who decide not to come because the event is on, like the Asian holidaymakers who avoided New Zealand during the Rugby World Cup. Next is opportunity cost, where people spend their money on an event and cut down on other things to pay for it. Both are often forgotten, says Hamlin.

Here's what else they get wrong, says Vuletich. There's usually an assumption all visitors are here for that event, rather than stumbling upon it as part of a holiday; an assumption visitors then hang around for much longer than they actually do, and an overvaluation of the money they spend on hotels.

"The numbers can get out of hand quickly," says Vuletich. "They tend to err towards optimism. The errors will always be overstatements, in my opinion. I'm not sure I've ever seen an evaluation that underestimated the impact of an event, but I have seen many that have grossly overestimated the benefits."

One study of the 2006 Commonwealth Games in Melbourne suggested it generated $250m of economic benefits and said tourism was a huge driver. Vuletich studied visitor arrival numbers at Melbourne airport and saw no major change - those who came for the Games displaced those who would have come otherwise.

Vuletich says too often promoters had too much at stake not to produce something which promised the world, and there was little punishment if it didn't deliver. "The game was to make your event look as good as possible pre-event, so you could secure the funding, and that's the whole game."

Now ATEED tells promoters they will be paid only if the results match the promises.

Carroll says that proved a "shock to the system" at first, but has attracted international interest. "Now they don't come with inflated figures. They come with real numbers we can agree on."

It slashed the value placed on New Zealand Fashion Week by four-fifths, but the new number was, at least, real.

The Government's Major Events Fund says it has also changed its event measurement to "avoid inflating expectations" .

So the best way to work out if an event is going to be good, says Vuletich, is to imagine a big bucket of money. If the bucket is filled with overseas dollars - from blue-chip sponsors and visiting spectators - that's great. If the bucket is emptied locally - spent by the organiser on local suppliers, even better. You've just generated millions of dollars for your city.

The bucket sum doesn't work well for a big overseas show like Mary Poppins, where Auckland draws visitors from Christchurch and Wellington, but pays out fees to an Australian-based production company. Even the estimated $15m boost Wellington receives from the Rugby Sevens would be mainly domestic travellers.

And it doesn't work for events with big hosting rights fees, such as the Rugby World Cup's $185m. Locals pay the fee and it goes offshore. Then, says Vuletich, you are "importing an experience".

As one report into the Melbourne Commonwealth Games noted, when cities haven't seen a positive return, "justification . . . had often relied on the assumption of intangible gains, perhaps an enhanced reputation or social benefits".

Hamlin argues that "feel-good factor" is just a big cop-out. "That argument is never used before the event. It's always that this event will make gazillions."

Vuletich describes the social outcomes of hosting the World Cup as "priceless", but admits pure economic benefits were "probably relatively slim", given some estimates suggested it generated between $200m and $250m in tourism revenue, caused huge displacement, and cost the Government about $200m.

The World Cup hasn't dulled New Zealand's appetite for the really big event. Auckland recently explored a Commonwealth Games hosting bid, while there have been whispers of a bid to stage the Winter Olympics in the South Island. The next big cab off the rank is the 2015 Cricket World Cup, leading to moves to invest in a new stadium in Christchurch's Hagley Park.

But enough cynicism: there are, of course, events which work really well. Some are straightforward wins. The Lions rugby tour in 2005 was in midwinter when there are few tourists and brought 20,000 affluent English. Auckland's world triathlon championships attract big competitor numbers.

Some are less obvious. You may think the Volvo Ocean Race is merely for the rich playboy, but those in the industry say it prompted a flood of orders for new multimillion-dollar yachts, guaranteeing ongoing work for carpenters, electricians and engineers. ATEED reckons the event injected about $30m into the city economy.

Volvo paid a fee and brought 1000 staff. Lots of Chinese enthusiasts came, saw and liked New Zealand. Carroll says ATEED makes such events work for its own ends. It pursued the world table tennis championships because it was a cheap way to get on Chinese TV screens.

The Government, which spends $10m annually on major events ($61.7m in 130 events since 2005) through the Major Events Development Fund, says good events boost our world reputation, tourism and social cohesion. The Ministry of Business and Innovation is compiling a study into its major event investment, but says it has already found "substantial benefits" from its investment.

Some in the industry are privately critical of central government's events funding strategy, saying: "Talk to anyone in tourism or major events and they would shake their head about them and call them a bunch of boffins; that would probably be too nice, as it implies a level of intellectual capability they don't have."

Auckland, however, are bullish. ATEED's O'Riley says: ""We're the only city with a major events strategy, and the only city in New Zealand growing its visitor numbers disproportionately to the rest of the country.

"So one might think there could be a link between those two facts."

Vuletich says the media focuses too narrowly on pure economics and forgets the social impacts.

"Events are just a means to an end. It's about making people's lives better."

If an event makes money, draws tourists and makes your people "rejoice in being alive", well, he says: "It almost seems like cheating."

THE DISASTERS

■ The Auckland Regional Council admitted hosting a 2010 football match between David Beckham's LA Galaxy and an Oceania All Stars side was a disaster, losing $1.88 million. An auditor-general's report concluded the game was "in essence the wrong event, at the wrong time, for the wrong price". Only 14,409 tickets were sold, when the original break-even was 25,000. As costs escalated, the loss mounted. The report said the council cast itself as "principal promoter, organiser and underwriter", but lacked the expertise to deliver the event, negotiated poorly and communicated badly. It criticised poor governance, little direct control by the council and a lack of independent expertise.

■ The World Rowing Championships at Lake Karapiro in 2010 lost $2.2m after predicting a $500,000 profit. Heavily funded by the Government in various forms – New Zealand Major Events, Sport and Recreation New Zealand, and the Hamilton and Waipa district councils – the event was criticised in consultant Brendon O'Connor's post-event report for "poor cost management, inadequate analysis and reporting, a lack of risk management" and the organisers' "flawed" predictions based on the success of the 1978 event at Karapiro. Organisers had used market research to suggest they would sell 81,000 tickets, but sold only 23,476, but O'Connor found even with the right sales, they would have still lost $1m. Major Events was also criticised for not keeping close tabs on its $2.5m investment.

■ The Hamilton City Council spent $37m hosting the V8 Supercars between 2007 and 2012, including nearly $3m in unpaid dividends from the promoter and an $11m blowout in track costs. A report by Peter Davies, of Audit NZ, gave 26 recommendations, finding too much secrecy and poorly informed councillors, and hinted at a chaotic management approach when he suggested a future tack should involve real business cases, project management, reviews and a "no surprises" approach.

- Sunday Star Times

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