Say your city is hosting a huge event, like a political convention. The event's backers tout the economic opportunity they say it will mean for small businesses. Whether it's the Republican National Convention, or something not related to politics, like San Diego Comic-Con or South by Southwest in Austin.
What impact do events like this really have on local business owners?
First off, the numbers associated with all these events are pretty big.
In 2008, the Republican convention in Minneapolis generated $170 million in economic activity, according to a report by the convention's organizers. And this time, an independent research firm in Tampa suggests the Republican convention there should mean at least $153 million in local economic impact. Republican organizers say it will be more like $200 million.
(Of course, those estimates didn't consider the impact of Hurricane Isaac. Although current forecasts suggest Tampa will won't bear the brunt of the storm, organizers have scaled the convention back from four days to three. Also, some of the celebrations will be toned down out of respect for those dealing with Isaac wherever it does make landfall--currently estimated to be somewhere between New Orleans and the Florida Panhandle.)
Democrats will hold their convention in Charlotte in early September. Last time out, in 2008, the Democrats generated $266.1 million in economic benefit for the metro Denver area, according to a report the city later published.
Meantime, Comic-Con and SXSW are annual moneymakers for San Diego and Austin. San Diego gets about $193 million in activity from hosting Comic-Con every year, while South by Southwest is good for about $168 million annually in Austin.
Who Gets the Money?
The official Denver report on the Democrats' largesse four years ago includes testimonials from small business entrepreneurs, including a taxi company that reported a 42% increase in business over comparable weeks, and a shuttle bus company that did 60% more business than usual.
One restaurateur reported "sales of 3.5 times a normal week in revenue at one location, and twice as much at our second location," while a camera store owner reported three times as much business as usual in his downtown Denver location.
"We sold out of inventory in the middle of the week and had to move stock from our other stores," he said, according to the report.
Notwithstanding those testimonials, there's a problem with calculating the impact of these big one-off events, according to economists parsing predictions for the Republican convention this year. Much of the economic benefit goes to businesses that aren't based in the area of the conventions.
Here's an example. In 2004, the Democrats held their convention in Boston. The net economic impact? Only $15 million, according to research group, the Beacon Hill Institute at Suffolk University. Why? Because with the expected influx of out-of-towners, many Bostonians found ways to get the heck out of the city for a few days. And that means that they weren't around to patronize all of the small businesses they normally do.
Thus, according to the report, for almost every dollar gained in overall activity, nearly a dollar was lost by Boston area small businesses!
"It's absurd," Philip Porter, an economics professor at the University of South Florida, told a Tampa newspaper, suggesting that estimates that include federal subsidies for the conventions, or that include corporate profits that will be taken out of the region, are irrelevant.
Better to Grow and Return
While we're at it, would you be better off as an entrepreneur if your city held a one-off event like a convention, that millions will pay attention to, or a smaller scale, perennial event that will draw a passionate crowd?
The impact of annual conventions like Comic-Con and South by Southwest is probably more predictable because there's more data and more time to prepare.
Moreover, because those festivals started small and have grown year after year, they're more integral to the local economies. The Austin Business Journal describes SXSW as, "massive economic storm system raining down increased business throughout Central Texas."
And Comic-Con is a "very important event for San Diego economically, but also from the standpoint of the press it gets," said Joe Terzi, president and CEO of the San Diego Convention & Visitors Bureau. (Not surprisingly, other cities including Anaheim and Las Vegas have been trying to pry Comic-Con away from San Diego for a few years.)
So, it looks as if entrepreneurs and cities are probably better off growing their presences at a perennial event than chasing to import a one-off event every four years, if they can. The problem, of course is that for every South by Southwest, there are probably a few dozen AutoWorlds!