Stadium Report - AF Comments

8/3/2019 Stadium Report - AF Comments

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Stadium for Cornwall - Economic Impact Assessment

The purpose of the consultant’s report is to assess the likely benefit to Cornwall in terms of economics and employment of building a 10,000 seater stadium at Langarth near Threemilestone to be used by the Cornish Pirates Rugby Club and Truro City FootballClub. The report, produced by expert consultants, was commissioned before the recentfinancial difficulties of Truro City became known.

The key driver for the stadium has to be the additional benefits. As the report states:

“HM Treasury’s ‘Green Book’ states that an impact arising from an intervention(e.g. grant or other form of support such as planning) is additional if it would nothave occurred in the absence of that intervention. The approach adopted for thiseconomic impact assessment is therefore in line with this guidance. The goal is todetermine the ‘Total Net Additional Effects’ which could be created by the stadium.”

In order to do this, the consultants:

- estimated the gross direct effects (ie the spending within the stadium and acrossCornwall as part of their trip);

- removed leakage (ie the proportion of spending which is likely to benefit those outsideCornwall);

- removed any ‘deadweight impact’ (ie economic outputs which would have happenedanyway);

- removed and displacement or substitution effect (displacement means money spent inthe stadium rather than in another stadium and displacement refers to substituting oneactivity for a similar one);

-considered an economic multiplier (ie the effect of stadium related spend as it percolates

through the Cornish economy)

The total is then known as the net economic effect

The consultants also looked at the direct and indirect employment effects of the stadium.

Gross direct effects

The report estimates that the total direct effects inside the stadium will be made up of £1.2million annual ticket income and £1.0 million from other sources.

According to Cllr Chris Ridgers, Cabinet member for the Economy, the £1.2m total annualticket income is based on:

CPRFC 16 games p.a., 4,000 attendance @c.£15 eachTCFC 25 games p.a., 1,000 attendance @c.£10 each.

However, whilst the assumption of Pirates matchday attendance increasing to 4,000 isprobably fair and all economic assessments have to be based on the prospect of nochange in their playing level, there are several other mistakes in this projection. ThePirates will actually only play 11 home league plus 2 home play off games per season witha possibility of one further home game if they are successful. There is also the cup, but for budgetary purposes all clubs predict losing away in the first round (so that anything more



is a bonus). There will also be one or two pre-season friendlies (one this year) for whichtypical attendances are much lower and ticket prices also lower.

This makes a guaranteed total of 13 competitive home fixtures per season and it is thisfigure which should have been used in the economic impact report. Of course the clubmight have more home games with a successful cup run, but it is foolhardy to make any

such assumptions.

The ticket price assumption of £15 represents the pre VAT cost of an adult ticket bought ona matchday and does not take into account any discounts or concessions which might beoffered. Actual average ticket income (excluding VAT) is likely to be more like £13 per head.

The attendance level for TCFC is quiet inflated. Current averages are 639 and there is nostrong reason why they will exceed this if they moved further out of the city to a newstadium. In addition, the guaranteed number of home league games is actually 21 (thesame assumption is made that budgeting will be done on losing an away fixture in the first

round of each cup competition).

Full price tickets for TCFC are currently £10 (ie £8.33 excluding VAT). There is also a widerange of discounts (eg season tickets) and concessions and these offer a much bigger discount than is available for the Pirates including free entry for accompanied under 12s. AVAT excluded average of £6 per person is therefore a reasonable assumption.

On the basis of these revised figures, the estimate that total ticket income of £1.2m lookswildly over-optimistic and is more likely to be around £756,500 per annum.

The £1.0m from all other sources consists of matchday kiosk / bar income, matchdayhospitality & lounge income, non-matchday conference & function space rental income,stadium naming rights income, car parking income, rental income from CPRFC, rentalincome from TCFC, rental income from other sources.

It is impossible to judge the soundness of these predictions without further details whichhave not been given in the economic case report. However, the rental income from the twotenant clubs will have to come from their income streams (which are, of course, far wider than simply the matchday ticket prices) and so would fall within the substitution criteriadetailed above. Without evidence to the contrary, the £1m total estimate will be left tostand but needs further investigation.

Spending outside the stadium

The report looks at a wide range of areas of spend for visitors outside the stadiumincluding spend in pubs, bars, cafes, restaurants, shops and on other entertainmentactivities during their trip.

The total number of visitors to the stadium has been projected at 118,352. (i.e., visitors tomatches plus non match day visitors). This figure is calculated from the financial model.

On the basis of the calculations above, the total number of stadium users for matches is

likely to be more like 65,400 rather than the 89,000 assumed in the report. If theassessment as to non matchday visitors is accurate (there is little evidence given to justifyit) then this brings a total number of stadium users to 94,752.



The report suggests that 95% of the stadium visitors will be day trippers and the additional(non stadium) average spend will be £5 per head.

The report suggests that 5% will stay overnight and that their average spend will be £40per head.

The opportunity to carry out research to back up these figures exists but has not beendone. Surveys could be conducted with fans at both Truro City and the Pirates to showwhat proportion of visitors stay overnight and how much each category of visitor spends.The failure to carry out such basic research casts a shadow over the whole report.

However, it does appear that the report has made a significant miscalculation. It assumesthat all stadium users are ‘visitors’ - ie not home fans or users from the nearby area.

A better assumption of the additional spend for Cornish based stadium users shouldactually be £0. A fair assumption can be made that all spend would have been maderegardless of the visit to the stadium - ie that it will actually be deadweight spending (eg a

supporter who drinks a pint and eats a pie during an evening match would likely have hadsomething to eat and a pint to drink that evening in any case).

The proportion of staying visitors is likely to be over-estimated at 5%. However, what isquite likely is that the spending of away fans coming to watch Pirates and Truro Citymatches should all be considered deadweight. No evidence has been given that any moreaway fans will come to Pirates or Truro City matches on the basis of a new stadium towatch the matches in. Therefore all that these visitors do spend would have been spent inany case.

The only new benefit to the Cornish economy will come from non matchday visitors to thestadium. As discussed above, those from Cornwall are unlikely to spend any more than if they had not been visiting the stadium so the only benefit to the Cornish economy willcome from people coming from outside Cornwall. If we assume that the 5% and £40figures are accurate then this provides an additional economic benefit of just £58,000 per year.

Note - All figures in the report exclude VAT. This is because VAT (and other taxes) doesnot provide local / regional benefits. They ‘leak’ outside the area of benefit (e.g., VAT goesto the HMRC).

Estimate of leakage

The report suggests that the stadium – as a community based project - will be planned tooptimise local and county benefits. For example, the stadium’s supply chain (of suppliesof goods and services) will predominantly be local and county-wide.

This is a very optimistic assumption. With both clubs (until recently) partners in the stadiumproject, it would have been possible to look at their buying pattern to see what percentageof their purchasing is actually done in Cornwall. The current financial situation for both

organisations means that the chance that they will be spending more in order to buy localis very low. Clubs will typically be forced to buy cheap because of the very tight margins in



sport at this time. Buying cheap and buying local are, regrettably, not always mutuallypossible.

The report makes the reasonable assumption that all staff employed at the stadium will livewithin Cornwall.

The report quotes an English Partnerships benchmarking exercise and chooses toassume that the amount of leakage will be ‘low’ and therefore a 10% assumption has beenused. It is highly disappointing that a more accurate survey of the clubs current spendinghas not been done. A ‘quick and dirty’ survey of two comparable clubs found that their leakage rate was between 25% and 50%. It’s impossible to say that the leakage for a newstadium would be exactly the same, but a much better justification is needed before the10% figure can be accepted.

Estimate of the deadweight effect

The report correctly states that both clubs would still be in existence without the stadium

but then claims that attendances would be substantially lower. It is likely that theattendance for the Pirates is likely to rise because of the move to the stadium. If anassumption of 3,000 for their average home gate at the Mannaye is used and the report’sassumption of 4,000 for their attendance at the new stadium then there is a deadweight of 75%.

For Truro City, there is no evidence that a move to the stadium will result in increasedattendance. The report is based on a settled season (ie after any ‘newness’ effect hasworn off). A deadweight effect of 95%-100% is therefore reasonable.

As stated above, whilst Pirates home fan attendances might rise, there is no reason tothink that away fan numbers will go up.

The report makes an assumption of a deadweight effect of 25% - in other words that of thetotal spend, only a quarter would have been spent anyway. This is a nonsensicalassumption. Whilst there will be new spend because of the higher rugby attendances andthe non-matchday use of the stadium, the likely new spend level is likely only to be aroundone third giving a deadweight figure of 66%.

Estimate of the effects of displacement and substitution

The report claims that there will be some displacement and substitution, as a number of users will be diverted away from existing sports and other facilities in the area. However, itis likely that – given the scale of the project – the stadium will stimulate additional visitor trips and spending. In other words that the wow factor will draw people in. They thereforeuse an English Partnerships benchmarking to calculate a displacement factor of just 25%.There is almost no data given to back up this assumption and so it will have to be taken ontrust. However, market research could have been carried out to establish a more evidencebased figure.

Estimate of the multiplier effect

The multiplier effect looks at the trickle down effect of the spending on the Cornisheconomy. Again, an English partnerships benchmark is used and, on the basis of the



presumed high in-Cornwall re-spend, the report authors choose to assume a highmultiplier of 1.7. However, given the doubt over the true amount of in-Cornwall spend andthe overall lack of information, it is much more sensible to use the EP average figure of 1.5.

Staffing within the stadium (‘direct employment’)

The report looks at the numbers of people likely to be employed by the two tenants, by thestadium management company and by the contract caterer and bar contractor.

Based on very initial estimates, it claims that there could be 30 full-time equivalents(’FTEs’) employed within the rugby club, 20 FTEs within the football club, 3 FTEs withinthe stadium management company and 20 FTEs in the catering/bar side (although thisfigure will be made up of many part-time and casual staff.

It is assumed that the majority of these jobs will be new (additional), and all of theseemployees will live in Cornwall.

These figures are the most dubious of all in the report. Whilst it is possible to assume thatthe majority of staff (if not all of them) will live in Cornwall and there is no reason to doubtthe numbers given for stadium management, the assumptions on Pirates and Truro Citystaff are ridiculous. No rugby or football club at this level has that number of employees. Inthe case of a championship rugby club (and excluding stadium management, groundsmanand catering) I would expect 6-8 FTE. For a conference south football club, 1-3 FTE. Andnone of these staff will be new. All will be filling roles currently undertaken within Cornwall.In fact, the two clubs will probably lose FTEs as grounds and catering staff will be providedby the stadium rather than the clubs under the new set up. The 20 FTEs for catering isalso highly speculative. With two completely different set ups at the moment, the number of catering and bar staff will probably not increase beyond a very few with the move to thestadium

Employment supported by the net additional effects (‘indirect employment’)

The report seeks to estimate the number of new jobs in the wider Cornish economy basedon the additional spend generated by the stadium, Via various means it estimates thataround 36 new jobs will be created in the wider Cornish economy in this way. There willcertainly be jobs created during the construction phase but, given the very low additionaloutside spend it is probable that the number of non-construction jobs that will be supported

will be minimal. However, without evidence to the contrary, we have to go with the 36figure given in the report.

Summary of economic outputs

The report estimates that the net additional effect will be £2.6 million made up of aGross direct effect of £3m, less leakage of £0.3m, less deadweight of £0.7m, lessdisplacement of £0.5m plus a multiplier effect of £1.1m.

Alternatively, I would suggest that the gross benefits might be as high as £1.75m but thatthe deadweight element is likely to be all but the increase in ticket sales (around £195,000)and the spend of overnight non-matchday visitors (estimated above to be just under



£60,000). With leakage of 25% and a multiplier effect of 1.5, the net economic effect islikely to be around just under £300,000 per annum.

Summary of employment outputs

The report estimates additional direct employment of 73 FTEs and indirect employment of 36 FTEs for a total of 109 FTEs

However, as explained above, these figures a seriously flawed. The net new employmentis likely to be limited to three stadium management company employees and a smallnumber (up to five) within catering and bar. The indirect employment predictions are alsolikely to be significantly exaggerated other than for the construction phase. However,without evidence it is impossible to make accurate predictions.

Flaws in the study

The major flaw in the report is the lack of hard evidence gathered from Cornwall. This isnot a theoretical exercise. Both the Pirates and Truro City already exist within the broadmarket that the stadium will operate in. It’s therefore deeply troubling that the consultantshave not sought to use hard evidence gathered from the clubs and their fans to providebulk to the report.

Claims made by Cllr Ridgers.

In a recent statement, Cllr Ridgers made the claim that the stadium:

“has the potential to create 109 full time jobs and £3,000,000 additional spendper annum in the Cornish economy”

Even on the basis of the consultants’ report, the first of these figures is not justifiable. Thereport sets the net new spend at £2.6 million. On employment, the report’s claims of newemployment within the clubs are so unsustainable that the 109 figure should be disowned.

Stadium Report - AF Comments

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