Data: Budget vs. Events

In this week’s Monday Huddle Up, we return to our data driven series on a topic that pops up in EVERY project we work on – Budgets. While it would be easy to talk about who has how much money, and how the larger markets have more than the little guys, we will take it one step further. We aim to find the “sweet spot” if you will, on budget size versus how many events destinations are hosting at each financial level. That is, what budget size has the best return on investment (ROI) on average?

My favorite college professor, Dr. Wells, was a brilliant economist. Not only well published in his field, he was a fantastic instructor. He made the Yield Curve interesting (for those that are not econ geeks like me, disregard the joke here). One of the tenets of economics is the theory of “diminishing marginal returns.” This theory basically says that when you continue to allocate more resources (such as money), at some point the return on that investment doesn’t continue to deliver the same level of return.

When we dive into the data within the Sports Tourism Index™ we find that there is a distinct budget level where diminishing marginal returns occurs. In the chart below, you can see the different cutoff points that the Index measures. Two major notes here: (1) the Index has data on over 450 destinations across the United States, so this is no small sample size. (2) The budget number represented here is what we call a destination’s “deal making funds,” that is, money that can be used to attract events to their community. That money could be in the form of grants, bid fees, facility cost offsets, or sponsorships (we don’t like that word, however that is for another Huddle Up). However it is spent to capture business, that is what is evaluated here, no salaries or overhead are included.

Take a look at the chart and we will dive into the data…..

So at the under $20,000 level, those destinations host just over four (4) events per year on average. The next two levels are pretty consistent at nine-plus events per year. The $100,000 to $200,000 level there is a small jump to 11-plus events. A similar jump in the $200,000 to $500,000 level to 13 events per year. Then here is where the diminishing returns pops up.

The data says that going from the 200K to 500K level to $500,000-$1,000,000 destinations on average actually host FEWER events. That is diminishing marginal returns. Adding more budget to go over the $500,000 mark doesn’t bring in any more business until you get to the million dollar plus plateau. So the data would suggest that if you are going to increase your budget from anything over $500,000 you need to go all the way to $1M or forget it. Incremental moves from say 500K to 650K won’t move the needle according to the data.

Okay, so most of the destinations we serve are not in that $500,000 discussion. Heck, most of them are not even in the $200,000 range. For those people there is a data nugget here. Look at the events per budget size in rows two and three in the chart. The data says that going from $20,000-$50,000 to the next budget tier up really doesn’t increase the number of events held. It may increase the total economic impact because if you have more money you can likely attract larger events, but not necessarily more events. This is called “average marginal returns,” meaning that additional financial allocations return the same ratio of output as the previous level of investment.

In this last example, if you are making a push to garner additional funding for your sports tourism efforts and you are in that second tier, here is what we would suggest. You should make the case that with additional funding you may land one or two new events, however these new resources will likely allow you to attract LARGER events that will drive more economic impact and fill more hotel rooms. Lean on the data when making your case. Maybe not MORE, but LARGER.

We hope today’s economics “class” helps you as you advocate for your share of the budget pie.