Appendix: Estimating Economic Impacts

The economic impact of this additional spending (increase in demand) is measured as the value added (equivalent to GDP) and employment sustained. The direct impacts occur in sectors which directly service the event - marine suppliers and provedores, accommodation and hospitality, construction, entertainment, service providers, berthage and compound facilities, and so on.

However, the direct effects then flow on through other parts of the economy. The businesses that directly serviced (i.e., sold goods and services to) the America's Cup syndicates in turn increased their own demand for materials, components, goods and services from other businesses not directly involved in the event. Demand thus flows through the economy, and generates further sales for other businesses. This is the indirect effect. Finally, individuals and households earn additional wages and salaries as a result of the increased business activity, and they further stimulate the economy when they spend these earnings on (consumer) goods and services. This is the induced effect. Both the indirect and the induced effects are estimated in terms of "multipliers" of the direct effect.

The total economic effect of additional demand for goods and services is the sum of the direct, indirect and induced effects. The way in which demand flows through the economy from business to business and to employees is determined by where the direct expenditure occurs, and by the structure of the economy (the inter-relationships among sectors). For the study, inter-industry models were developed to reflect the structure and operation of the Auckland and national economies, and which identify the multiplier effects (direct and total) of the additional spending arising from the ongoing America's Cup activity.

This methodology is widely applied as the most appropriate method for estimating the contribution of an event to an economy. However, the impact results do not tell the whole story of effects on the economy, and do not deal with:

• externalities - transactions that take place outside the formal market, including the impetus such an event gives to New Zealand maintaining a competitive advantage in areas of sailing and marine technology. Also, the substantial improvements to the local environment and Auckland's urban amenity could be considered to fall into this category.
• possible future impacts where demand for New Zealand goods and services - especially marine sector and tourism - is stimulated by media coverage in overseas markets, generally termed the "equivalent value of advertising".
• the efficiency of spending decisions made by organisers, syndicates and individuals that generate the flow of money through the economy.

These matters fall outside the terms of reference of the current study, although it is useful to acknowledge them and, in some instances, to consider whether or not they may have contributed positively to outcomes sought by individual parties to the regatta. Nor does the current analysis seek to evaluate the many expenditure decisions, including capital spending decisions, underlying the regatta in terms of economic efficiency or the returns they provided to the organisations making them.