What We Talk About When We Talk About Economic Impact: COTA Edition

Oct 29, 2014

You might have read or seen one of the many news reports this week on the economic impact of Austin's Circuit of the Americas track.

A report commissioned by the track found that it had a nearly $1 billion impact on the local economy over the last year. That's a big number, nearly three times as much as the estimated economic impact of South By Southwest.

But what does it mean, really? What are we talking about when we talk about economic impact?

I put that question and more to Ben Lofstgaarden of Greyhill Advisors, the firm commissioned by Circuit of the Americas (COTA) to do the report (and the same firm that does annual reports on SXSW's economic impact).

"What's unique about the impact [report] that we did for COTA is that it wasn't just for one single event," he says. "It was for the whole suite of activities that they do over the course of the year." 

So it's not just Formula One, it's also all the other races, concerts and events like the X Games held at COTA throughout the year. (COTA is a separate entity from Formula One – F1 is the race, COTA is the venue.) The actual direct economic impact of all of that – dollars that can be traced directly from the track into the economy? It's $515 million. So how do you go from that to nearly a billion dollars of economic impact? There's some nuance to the numbers.

What this report and other economic impact studies of events like SXSW and the Super Bowl do, Loftsgaarden says, is calculate indirect impacts, as well. 

"So the indirect effects, though, are when those dollars are spent," he says. "So let's say COTA hires a caterer, that's a direct expense. Well, that caterer now has to go and purchase goods and services to provide its services. That's a supply chain effect, so there's an indirect effect. So based on the industry presence in Austin, how does that dollar trickle through all the other companies in Austin that need to support that one dollar [of direct spending?]"

In addition to those indirect dollars, there's another, even less direct layer. It takes all of the direct and indirect dollars and the jobs they create and coming up with the third impact: induced impact.

"That employment creates payroll, it creates wages," says Loftsgaarden. "It creates an increased level of wages to supply those goods and services. So a portion of that income that those employees earn is now spent back in the regional economy."

Let's recap: COTA hires a caterer; that caterer hires another company; someone at that other company makes more money than they would have otherwise, and that's incorporated into the economic impact model. 

This is standard practice for economic impact reports – it's how under two hundred jobs at COTA gets pumped up to 9,000 jobs in the region that the report says are "supported" by the track. Together, that all adds up to nearly a billion dollars, according to Greyhill. 

Not included in the economic impact study are any of the tax breaks or incentives given to Formula One, Loftsgaarden notes. That's because the race is a separate entity from the track.

"That money does not flow to COTA, so that's not included in any economic impact, positive or negative, because that flows to F1," he says.

Subsidies and tax breaks for Formula One aside, Circuit of the Americas is in a tussle over how much it's actually worth. The venue is fighting its tax bill, saying the track is worth $100 million, while Travis County says it's worth almost three times as much. The two are set to face off in court next year.