Saturday, 23 December 2017

Even less reason to believe in the economic impact of the America's Cup

The New Zealand Herald reported on Thursday:
The Ministry of Business, Innovation and Employment (MBIE) today admitted errors in its report on the economic benefits of the hosting the cup.
Its initial cost-to-benefit ratio estimate was between 1.8 and 1.2, meaning benefits would outweigh cost by between 80 and 20 per cent. However, it today revised this to a high of 1.14 and a low of 0.997, the latter scenario would mean the cost would outweigh the benefits.
"In simple terms, the cost benefit ratio is normally the total benefits divided by the total costs," MBIE said in a statement.
"However, Market Economics had erroneously divided net benefits (new spending less the costs to deliver the goods and services) by total construction costs."
The error was brought to the Government's attention by policy think tank the New Zealand Initiative.
When doing cost-benefit analysis, it pays to be comparing the right costs and benefits, even if the numbers rely on some heroic assumptions. I didn't pick up the mistake in the costs when reading the report. Luckily, Sam Warburton has a keener eye for the detail than I do. I thought the cost-benefit analysis was the most believable of the three analyses, and I concluded that: takeaway from the report is that the benefits might outweigh the costs of hosting the America's Cup, but that relies on the costs being kept under control and the number of challenger syndicates increasing by nearly half over the previous Cup. As with most of these events, you could argue that the spending is good value for a big party, but arguing that it has an overall economic gain for the country (or for Auckland) is probably too strong a claim. 
It now seems even less likely that the benefits of hosting the America's Cup outweigh the costs, even if you make the generous assumption that costs could be kept under control.

[Update]: In the comments, Sam Warburton points to his calculations. Under Sam's final calculations, the costs outweigh the benefits!

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  1. Hi Michael

    If you were curious, here's where I breakdown the error.


    1. Great, thanks Sam. I looked on the NZ Initiative website, but couldn't find your calculations. I should've guessed it was on Twitter!