It doesn't add up

Division of Labour takes a look at the revenue stream claimed for a new tennis center.

"Nina Lovel has a vision for a new tennis center. As a member of the Rome Tennis Advisory Council, she wants a facility that’s bigger, better and has more courts in one place. <snip> One reason is money. The Georgia State League Championships, currently occupying 70 courts in seven locations across the county, is expected to bring in around $2 million during the four days it’s here."

...if tennis tournaments are such gushers of money then why doesn't some entreprenuer spring for the $750k that the article reports would be necessary to build a new tennis center? Even if the new tennis center could capture only 10% of that magical $10m that tennis tournaments bring to Rome, it would pay for itself in only 1 year. Not many investments pay for themselves that quickly! The fact that no one in Rome--or anywhere else apparently--builds a private facility suggests that the $10m is a wee bit inflated.

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One thing I note is that the $10 million is for all tennis tournaments in the city, not for any one center. And I suspect a lot of the $10 million is counting externalities – tourists spending money outside the tennis center, wages and salaries to employees (who won't be earning them elsewhere, by the way), and other income streams attracted by, but not to, the tennis center.

These externalities are not captured in the balance sheet for the tennis center. This means the people analyzing them may be able to fudge them in a number of ways.

Firstly, at least some externalities are speculative – hard to measure at best, distorted at worst. For example:

An anecdotal reason to suspect it's inflated: While eating Friday night at a restaurant that should be one of the beneficiaries of tourist spending, my better two-thirds, Pee Wee, and I observed less [sic] than a dozen people in tennis attire. While some may have changed clothes there couldn't have been too many tennis players eating there because the restaurant was only half full.

Although I'm sure this wasn't the only place to eat in all of Rome, it illustrates the problem involved in measuring this particular externality. You'd have to survey all eateries in Rome, during periods when tennis tournaments are underway and during periods when they're not, to see if you could measure an effect overall. Very few people are inclined to do that sort of work for free.

Secondly, since externalities are, by definition, not caught in the balance sheet, there's no particular penalty if you miss one in your analysis, or double-count another. If, for example, you count the average tourist as spending $100 per day, you assume he spends $40 on meals, $50 on lodging, and $20 on miscellaneous items, the $10 shortfall in the expected take won't bite you for quite a while, if ever.

Likewise, if you overlook the increase in pickpockets, muggers, vandals, and even honest tourists who put more wear and tear on city facilities, that won't bit you for a long time, either.

I suspect double-counting of benefits, and undercounting of costs, goes on a lot more than most people think.