Funding the fight ... low blow or a knockout?

That question is asked by Sam Richardson at his Fair Play and Forward Passes blog. His view is much like that of Eric Crampton (see previous posting).

Sam writes

I can only really add to this discussion with a few points of my own:

• A matter of a week or so ago, Auckland was widely considered the host. Now we are told that there is only a 20-30 percent chance of the fight being staged in Auckland. What is the situation that has caused this uncertainty? This, to me, is the key question. Why is the government funding needed? Could it be that promoters in the US are proposing to spend more on attracting the fight than Duco, and are therefore being considered as a safer (read: more lucrative to the WBO) bet than hosting a title fight here? Government funding has been used the world over to try to trump others in hosting events ... with questionable returns.

• Indeed, there is little to no evidence from the independent research looking at the realised economic impacts of mega sporting events that said events will generate tangible economic impacts. The winners from such arrangements tend to be the governing sporting bodies, followed by the event organisers - with taxpayers a distant last.

• What are the benefits that New Zealanders will enjoy from hosting the fight? Benefits will accrue largely to those who watch the fight - and you can bet that it will not be anywhere in the plan for such an event to be broadcast live free-to-air. Part of what makes the fight commercially lucrative is the ability of broadcasters to charge for people to watch it. If government funding was contingent on it being broadcast free-to-air, it would undermine the commercial viability of hosting it here. So it should be a given that people will have to pay to watch the fight with or without government funding. These prices will be much more expensive than any previous fight given its title status, so one would reasonably expect the promoters to capture a much greater share of the event's benefits in the form of ticket sales and pay-per-view sales from Sky. 

• The economic benefits are (unfortunately) synonymous with economic impacts - which doesn't help the case for the fight to be publicly funded. If you look at past events funded by the Major Events Development Fund (MEDF), they've tended to be events with longer than a single day's duration - which means that their ability to attract visitors and spending is much greater than a one-day event. Any economic impacts from the event are also highly likely to be concentrated in Auckland - hence there may well be a stronger case for Auckland Council (via ATEED, one assumes) to be a major backer of the event. I understand that ATEED is already involved, but it doesn't appear to be enough to get the deal over the line. 

• There is also a matter of consistency and transparency regarding the treatment of the application for the MEDF - any (perceived or otherwise) favouritism will not go down well with people who have missed out in the application stage. One assumes that the application will include an estimate of economic impacts attributable to the event? To support these impacts, it is useful to consider what would happen in Auckland (and New Zealand) if the event did not take place. In most cases, projections of economic impact assume that the counterfactual is that there would be no spending at all in the absence of the event - an assumption that overstates the likely economic impact.

• One must also factor in the opportunity cost of public funding into such an equation. Scarce government funds could be spent elsewhere - and no doubt there are plenty of alternative uses for an as-yet unknown amount of public money that may generate greater longer-term impacts than funding a one-off event like this.

• From what we have heard (at least via the media) the good people at Duco are pointing to the feel-good factor as being an important reason why we should consider funding the fight. If so, ask yourself this - will you feel any worse than you already do if the fight was to go offshore? And if so, what is this "feel-bad" worth to you? In several studies from overseas that have attempted to quantify (among other things) the feel-good effect, intangible benefits are almost always smaller than the economic impacts and are certainly not large enough on their own or in tandem with tangible benefits to justify subsidies given to sports events, facilities or franchises. 

• And what about the precedent a favourable fast-tracked decision would set? 

The good news is that Sam is blogging again. There are many sports related questions that need good economic analysis.