Commonwealth Games 2022 Birmingham West …...Draft Private and confidential Commonwealth Games 2022...

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Commonwealth Games 2022 Birmingham West Midlands Economic Impact Assessment

8 August 2017

Draft

Draft Private and confidential

Important Notice

This document has been prepared only for Origin Sports Group and solely for the purpose and on the terms agreed in our engagement letter dated 2nd June 2017 with Origin Sports Group to provide services relating to Birmingham City Council's (“BCC”) bid to host the Commonwealth Games in 2022 (the “Engagement”).

This is a draft prepared for discussion purposes only and should not be relied upon; the contents are subject to amendment or withdrawal and our final conclusions and findings will be set out in our final deliverable.


Table of Contents

1. Summary ............................................................................................................................... 3

1.1. Economic Impact on the West Midlands ................................................................................................... 3

1.2. Cost-Benefit Analysis .................................................................................................................................. 4

2. Methodology ......................................................................................................................... 5

2.1. Description .................................................................................................................................................. 5

2.2. Limitations .................................................................................................................................................. 5

2.3. Definition of the Host Economy ................................................................................................................ 5

3. Detailed Explanation of Assumptions ................................................................................... 7

3.1. Visitor Expenditure ..................................................................................................................................... 7

3.1.1. Spectator Expenditure ....................................................................................................................... 7

3.1.2. Volunteer Expenditure ..................................................................................................................... 9

3.1.3. Media Visitor Expenditure ............................................................................................................... 9

3.2. Games Organiser Net Expenditure .......................................................................................................... 10

3.2.1. Games Organiser Expenditure ....................................................................................................... 10

3.2.2. Games Organiser Commercial Revenues ....................................................................................... 11


Commonwealth Games 2022 Birmingham 8 August 2017

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1. Summary

Headline Findings

Hosting the 2022 Commonwealth Games in Birmingham is estimated to result in an incremental benefit to the GVA of the West Midlands of £526 million (in NPV terms)

We estimate that the Games will support the equivalent of 4,526 workers per year over the period 2018-2022

For the West Midlands, the estimated cost-benefit ratio is 3.2

1.1. Economic Impact on the West Midlands

The table below shows the estimated economic impact on the West Midlands of hosting the 2022 Commonwealth Games (“CWG”). Economic impact is presented in terms of Net Direct Gross Value Added (GVA) Impact (row E) and Net GVA Impact Including Indirect/Induced Effects (row J). These figures are described as ‘net’ because they exclude the effects of economic activity that would have occurred in the West Midlands anyway, even if the Games were not held. Figures are presented in real 2018 prices both with and without discounting to present value terms (“NPV”).

Rows A-G of this table reflect the presentation format used on the eventIMPACTS Economic Calculator.

Unit real 2018

prices

NPV 2018

Calculation

Net Direct Spending

A Total visitor expenditure in host economy (spectators + attendees) £m 90.4 75.9

B Games Organiser expenditure surplus/(deficit) in host economy £m 651.3 566.6

C TOTAL NET DIRECT SPENDING IN HOST ECONOMY £m 741.7 642.5 = A + B

Net Direct Gross Value Added (GVA) Impact

D Spending-to-GVA ratio for England excluding London (from eventIMPACTS) % 44.70% 44.70%

E ESTIMATED NET DIRECT GVA IMPACT £m 331.5 287.2 = C × D

F GVA per workforce job for England excluding London (from eventIMPACTS) £ 26,806 -

G Worker-years of employment supported # 12,367 - = E ÷ F

H Workers supported per year (assuming 5 year Games development) # 2,473 - = G ÷ 5

Net Indirect/Induced GVA Impact

I Indirect and Induced Impacts Multiplier* # 1.83 1.83

J ESTIMATED GVA IMPACT INCLUDING INDIRECT/INDUCED £m 606.7 525.6 = E × H

K Worker-years of employment supported including indirect/induced effects # 22,632 - = J ÷ F

L Workers supported per year including indirect/induced effects # 4,526 - = K ÷ 5

* Equivalent to Scotland-wide multiplier used in Glasgow 2014 analysis



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1.2. Cost-Benefit Analysis

We have considered the estimated net financial cost of hosting the CWG to West Midlands local authorities and compared it with the estimated GVA benefits as set out above. This produces a ratio that shows the extent to which the estimated benefits of the Games for the West Midlands exceed the funding for the Games provided by the public sector in the West Midlands.

To ensure a like for like comparison of the costs and benefits, we have estimated the NPV of the costs at 2018 prices using the assumed profile of revenue and expenditure defined by DCMS.

The result is that the Birmingham 2022 CWG are estimated to provide a net benefit of approximately £360m to the West Midlands economy, resulting in a benefit-cost ratio of 3.2.

Unit West

Midlands Calculation

A Present Value of Net GVA Impact (including indirect/induced effects) £m NPV 2018 525.6

B Present Value of Costs to Public Sector £m NPV 2018 163.7

C PRESENT VALUE OF BENEFITS NET OF COSTS £m NPV 2018 361.9 = A - B

D RATIO OF NET BENEFITS TO COSTS ratio 3.2 = A ÷ B

* 25% of Total Games Organiser Expenditure net of commercial revenues generated in the West Midlands



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2. Methodology

2.1. Description

The EventIMPACTS methodology is advocated by UK Sport as a tool for assessing the potential impact of UK based sports events. It envisages three levels of analysis: Basic, Intermediate and Advanced. The methodology we have used is consistent with the eventIMPACTS guidance at an advanced level.

Our approach to the assessment of economic impacts has been to develop an evidence base with which to estimate the additional potential expenditure and GVA in the West Midlands as a result of hosting the 2022 CWG. We have used the evidence from the Glasgow 2014 CWG as our starting point, given that:

• There is a good evidence from the post-Games evaluation for Glasgow 2014; and

• The 2014 CWG are widely perceived to be a success and a recent model that Birmingham and the West Midlands could build on.

The assumptions used in our assessment are, therefore, based on Glasgow 2014 evidence, but appropriately modified where the impact of the Birmingham Games in 2022 may be different.

We have considered what the West Midlands would look like without the CWG (i.e. the counterfactual) and then considered the incremental impact of hosting the CWG on two main areas – visitor expenditure and Games Organiser (“OC”) expenditure.

2.2. Limitations

The eventIMPACTS guidance states that the methodology is “generally usable for events of local, national or international significance. Nonetheless, for certain larger events (such as the Olympic Games or FIFA World Cup) the economic consequences can be more far‐reaching and stretch over a longer period of time. Whilst the principles of economic impact analyses still apply to larger events like the Olympics, more sophisticated approaches may be required to judge the full scale of the impact.” This is evidently a limitation of applying the eventIMPACTS methodology to the 2022 Commonwealth Games, given the similarity to events such as the Olympics or the World Cup.

The economic impacts not captured by the eventIMPACTS methodology include longer-term legacy benefits of hosting the 2022 Games in the West Midlands. This could include:

• raising the profile of Birmingham and the West Midlands;

• improved health of the population due to greater sport participation;

• long-term benefits for West Midlands residents of improved access to high quality sports facilities;

• earlier realisation of benefits from expenditure that would have occurred anyway, but will happen earlier to facilitate the Games. For example, construction of the athletes’ village in time for 2022 will bring forward the availability of new homes converted from the athletes’ accommodation.

The expected legacy benefits of hosting the 2022 CWG in the West Midlands are explained in more detail in the separate “Birmingham Commonwealth Games 2022: Impact on the West Midlands” document.

2.3. Definition of the Host Economy

For this analysis the host economy is defined as the West Midlands region. This was considered the most appropriate definition because it includes the vast majority of venues that will be used during the Games1. In addition, as local funding from the Games will come from all of the West Midlands local authorities (not just Birmingham City Council), it is appropriate to evaluate the economic benefits for those funding authorities.

When it has been required to draw on evidence from the Glasgow 2014 experience regarding the geographical distribution of benefits, we have equated the West Midlands to Scotland. This is supported by the similarities between the two, as shown in the table below. With a similar-sized economy, we assume that the capacity of the

1 It is expected that only Track Cycling will be hosted outside the West Midlands



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West Midlands economy to meet locally the Games’ demand for goods and services is similar to that of Scotland (although this does not take into account structural differences between the two economies). With a similar population, we also assume that the West Midlands has the potential to generate local spectators as Scotland.

Unit West

Midlands Scotland UK

Population (2015) millions 5.751 5.373 65.110

Total Gross Value Added (GVA) (2015) £ billion 120 127 1,666

GVA per person (2015) £ £20,826 £23,685 £25,351

Source: “Regional gross value added (income approach), UK: 1997 to 2015”, Office for National Statistics, Dec 2016



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3. Detailed Explanation of Assumptions

3.1. Visitor Expenditure

We assume that the main groups of visitors to the Birmingham 2022 Games will be event spectators, volunteers and media, who are expected to spend in the host economy on food and drink, accommodation, travel, retail and other products and services. Tickets and spend of the teams and officials are captured by the estimated impact of Games Organiser’s activities and, therefore, are excluded from visitor spend to avoid double counting.

Total Games visitor expenditure within the West Midlands is estimated to be £90 million (real 2018 prices). The contribution of each visitor group is shown below:

Unit Value Calculation

A Spectators £m 2018 82.4

B Volunteers £m 2018 4.6

C Media Visitors £m 2018 3.4

D TOTAL VISITOR EXPENDITURE IN HOST ECONOMY £m 2018 90.4 = A + B + C

3.1.1. Spectator Expenditure

We estimate that approximately 930,000 tickets will be sold for Games events, including the opening and closing ceremonies. This is based on modelling of the planned schedule of events, venue capacities and an assumed sale rate of 59% for available tickets2. Assuming that each Games spectator will hold on average 2.5 event tickets (as achieved by Glasgow 2014), this equates to around 370,000 unique spectators. At the Glasgow 2014 Games, an additional 160,000 unique spectators came to non-ticketed events (for example the marathon); we have included the same number. We therefore estimate the total number of Games spectators to be approximately 530,000.

Spectators are assumed to be split between day visitors and overnight visitors in proportion in the same way that they did at the 2014 Games in Glasgow (approximately 64% day trippers and 36% overnight visitors).

To estimate the economic impact of Games spectator spending on the West Midlands economy, we need to remove from consideration two categories of spectator:

• Local West Midlands residents who would have spent their money on something else in the area if the Games had not happened (“displaced” spend). We assume 32% of spectators are in this category. In the economic evaluation of the 2014 Glasgow Games, this was the proportion of visitors from within Scotland; and

• Those visitors who would have been in the area anyway, regardless of whether the Games were on or not (“deadweight” spend). We assume 14% of non-local spectators are in this category, as assumed in the Glasgow 2014 analysis for visitors to Scotland.

We assume a similar level of spend by event spectators as at the Glasgow Games (but inflated to 2018 prices3); an average of £39 per night spent by overnight visitors on accommodation4 and £40 per day spent on non-accommodation items by all visitors (both day and overnight).

Based on the 2014 Glasgow Games, we assume that on average each overnight visitor will stay 6.9 nights in the West Midlands and each day visitor will attend on 2.6 days (i.e. make 2.6 day-long visits to the West Midlands

2 Sale rate specified by DCMS 3 Based on actual CPI inflation for 2014-2016 and forecast CPI inflation for 2016-2018 4 This figure is an average for both visitors who stay at commercial establishments and those who stay with friends/relatives



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to attend Games events without staying overnight). The average number of days spent in the West Midlands for all spectators is therefore 4.2 days.

The table below presents how the total spectator expenditure in the West Midlands has been estimated, giving total expenditure of £82 million (real 2018 prices).


A Total number of event tickets sold million 0.93

B Average number of event tickets per spectator # 2.50

C Total number of spectators at ticketed events million 0.37 = A ÷ B

D Unique spectators at non-ticketed events million 0.16

E Total unique spectators million 0.53 = C + D

Displacement and Deadweight Adjustments

F Deduct spectators resident in host economy (32%) (“Displacement”) million (0.17) = E × 32%

G Spectators visiting from outside host economy million 0.36 = E – F

H Deduct casual visiting spectators (14% of visitors) (“Deadweight”) million (0.05) = G × 14%

I CWG-only spectators visiting from outside host economy million 0.31 = G - H

Accommodation Expenditure by Overnight Visitors

J % spectators overnight visitors % 36%

K Number of overnight visitors million 0.11 = I × J

L Average number of nights spent in host economy per person # 6.90

M Total visitor-nights million 0.77 = K × L

N Average accommodation expenditure per visitor-night £ 2018 39

O Total accommodation expenditure by overnight visitors £m 2018 30.14 = M × N

All Other Visitor Expenditure

P Average number of days spent in host economy per person (all spectators) # 4.20

Q Total visitor-days million 1.31 = I × P

R Average daily expenditure on non-accommodation items £ 2018 40.00

S Total other visitor expenditure £m 2018 52.27 = Q × R

T TOTAL SPECTATOR EXPENDITURE IN HOST ECONOMY £m 2018 82.41 = O + S



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3.1.2. Volunteer Expenditure

We assume that Birmingham 2022 would require the same number of volunteers as Glasgow 2014 (c. 12,500). We also assume the same average spend (including inflation to 2018 prices) of £172 per volunteer during recruitment and £290 during the Games (inflated to 2018 prices). Of the volunteers for the Glasgow 2014 Games, 80% came from outside Scotland, so we have assumed that the same proportion of volunteers at the 2022 Games will come from outside the West Midlands. Only expenditure by these volunteers not resident in the West Midlands can be counted as economic benefit, as shown in the table below.


A Total number of volunteers # 12,467

B Proportion of volunteers not resident in host economy % 80%

C Total number of volunteers not resident in host economy # 9,974 = A × B

D Average spend in host economy per volunteer during recruitment £ 2018 172

E Average spend in host economy per volunteer during Games £ 2018 290

F Total average spend in host economy per volunteer £ 2018 462 = D + E

G TOTAL VOLUNTEER EXPENDITURE IN HOST ECONOMY £m 2018 4.61 = C × F

3.1.3. Media Visitor Expenditure

Given Birmingham 2022 is likely to be on a similar scale to Glasgow 2014, we assume the same number of media visitors (just over 4,000) for the 11 days of the Games, with an average spend of £93 per visitor per day reflecting Glasgow spend (inflated to 2018 prices). Of the media visitors at the Glasgow 2014 Games, 80% came from outside Scotland, so we have assumed that the same proportion of media visitors at the 2022 Games will come from outside the West Midlands. Only expenditure by these media visitors not resident in the West Midlands can be counted as economic benefit, as shown in the table below.


A Total number media visitors # 4,127

B Proportion of media visitors not resident in host economy % 80%

C Total number of media visitors not resident in host economy # 3,302 = A × B

D Average number of days spent in host economy # 11

E Average spend in host economy per media visitor £ 2018 93

F TOTAL MEDIA VISITOR EXPENDITURE IN HOST ECONOMY £m 2018 3.38 = C × D × E



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3.2. Games Organiser Net Expenditure

Our approach to evaluating the economic impact of Games Organiser expenditure (“OC” expenditure) follows the eventsIMPACT methodology by estimating OC spend within the West Midlands, and then deducting any OC commercial revenues raised within the West Midlands. We cannot assume that expenditure within the West Midlands that results in revenues for the Organiser (e.g. ticket sales to West Midlands residents) contributes to local economic benefits as these revenues will be used to offset the costs of hosting the Games. This ensures that the net effect on the West Midlands economy is quantified.

Overall, estimated OC expenditure in the West Midlands is higher than commercial revenues raised in the West Midlands, so the net effect is positive for the West Midlands economy. This is shown in the table below, with a total net surplus of £651.3 million (real 2018 prices) in the West Midlands. When public subsidy is taken into account, it can be seen that this expenditure in the West Midlands will only be partly offset by the 25% contribution to Games costs that will have to be made by West Midlands local authorities. The remaining 75% of costs will be met from national budgets.

Games Organiser Surplus/(Deficit) in host economy Unit West

Midlands Rest of

UK Total Calculation

A Games Organiser Expenditure £m

2018 668.5 188.6 857.1

B Commercial Revenues £m

2018 (17.2) (87.1) (104.4)

C GAMES ORGANISER SURPLUS/(DEFICIT) IN HOST ECONOMY

£m 2018

651.3 101.4 752.7 = A + B

D % of public subsidy to be met by local/national government

% 25% 75%

E Public subsidy to be met by local/national government £m

2018 188.2 564.5 752.7

F Games Organiser surplus/(deficit) taking into account public subsidy

£m 2018

463.1 (463.1) 0.0 = C - E

3.2.1. Games Organiser Expenditure

Total capital expenditure by the Games Organiser is estimated to be £93.3 million (real 2018 prices). This figure includes all OC capital costs for venue development of a permanent nature. We do not take into account any long term benefits that this capital investment may be able to generate for the West Midlands (e.g. improved revenue generation potential of sports venues).

All other items listed in the table above relate to the operating costs that will be incurred in organising the Games.

Based on the experience of the Glasgow 2014 Games, where Scotland is an equivalent host economy to the West Midlands, we assume that 78% of OC expenditure will be within the West Midlands economy, with the remainder occurring elsewhere in the UK or overseas.

We estimate total games organiser expenditure will be £857.1 million (real 2018 prices)5, of which £668.5 million will be spent in the West Midlands.

Games Organiser Expenditure £m 2018 prices Calculation

Chief Executive's Office 1.1

Commercial 1.3

Communications & Marketing 14.7

Ceremonies, Culture and QBR 29.8

Corporate Services/Administration 44.9

Workforce inc Volunteers 74.3

Games Family Services 8.6

Games Services 18.8

5 This value is the £917.7 million Full Games Life cost converted from nominal to real terms



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Games Organiser Expenditure £m 2018 prices Calculation

Press Operations 1.2

Transport 30.5

Logistics 8.3

Security 200.8

Sport 9.0

Venue Development - Capital 93.3

Overlay - Temporary 68.4

Venue Operations 14.2

Village Operations 7.0

Technology & Broadcast Operations 77.2

CGF/Host Nation CGA Payments 11.0

Operational Contingency 142.8

A Total Games Organiser Expenditure 857.1

B % of expenditure spent in host economy 78%

C Total Games Organiser Expenditure in host economy 668.5 = A × B

3.2.2. Games Organiser Commercial Revenues

Total expected commercial revenues are £104.4 million (real 2018 prices)6. Based on DCMS advice, we have assumed that 23% of sponsorship revenues will be raised from West Midlands companies, based on what was achieved by the 2014 Glasgow Games from Scottish companies. We also assume that 32% of ticket revenue will be generated from the West Midlands, based on the proportion of spectators resident in the West Midlands. None of the revenue from other sources is assumed to be raised locally. Overall we estimate that revenue of £17.2 million will raised within the region, 17% of the total.

Games Organiser Commercial Revenues £m 2018

prices Calculation

Sponsorship 40.7

Broadcast Rights 33.1

Ticket Sales 24.7

Other (including Catering, Hospitality, Accommodation, other) 5.9

A Total Games Organiser Commercial Revenues 104.4

B Total Games Organiser Commercial Revenues from host economy 17.2

C % of revenues generated in host economy 17% = B ÷ A

6 This value is the £112.4 million Full Games Life commercial income converted from nominal to real terms

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