Sport – Who’s Funding Who

Peter & Paul

With tight budgets, governments should stop wasting our money on sport, right?

In an Olympics year, we can expect to see the usual flurry of articles bemoaning the ‘waste of taxpayers’ money’ funding sports in this country.  At a cost of $10 million per medal, the 2012 London Olympics was one of our least ‘profitable’, yet we all have high hopes for a better ‘return on our investment’ next month.

And then there are our miscreant sports stars who fuel more backlash from the press who question whether supporting them is a good use of public money.  Of course there is some justification for this response when petulant sports stars flaunt their wealth whilst behaving like a pork chop.

However, it is at the grass-roots where the majority of sport is played in this country, and it is there that funding can deliver the biggest effect and largest community benefit.  It is also here where tireless volunteers go cap in hand to government, who benevolently doll out funding in dribs and drabs.

There have been a number of detailed studies by reputable economists into the sum of economic benefits of sport to our economy.  This has been estimated to account for between 2% and 3% of GDP.  These benefits accrue broadly to the nation and include contributions to job creation, productivity, health, as well as social, civic & community benefits.  With Gross Domestic Product currently around $1,650 billion, this equates to an economic contribution by sport to the Australian economy of some $30 to $50 billion.

The positive correlation between health and well-being through increased physical activities is without question.  Common health complaints that hamper our society such as many cancers, diabetes, cardiovascular disease, stroke, obesity and mental health all have empirically proven positive benefits from increased sporting and physical activity, where estimates of the potential financial benefits run into the billions of dollars.

The problem with these sorts of analysis is, whilst the numbers roll impressively and easily off the tongue, they are relatively indirect, they are difficult to observe within the timeframes of our political terms, and easy to dismiss.  Clearly using total economic or health benefits as key metrics is just too arcane an argument as to make any real impact and empower politicians to make any step change in funding.

I wonder what the real numbers are, are sports a waste of public funds as some journalists repeatedly claim, or are sports in fact being hardly done by when it comes to government funding? Perhaps we need some more direct funding metrics on which to base our pleas as we go cap in hand asking for some funding crumbs?

No doubt there is an element of confirmation bias here, but the results of my digging around did surprise me.

Government Spending on Sports

In terms of total government spending across the 3 tiers of government, the only complete analysis that I could unearth was undertaken by the ABS in 2000-2001.  Having been completed just after the Sydney Olympics, I suspect that the data is probably skewed towards the generous, however if we apply the average rise on government expenditure of 2.8% since then, we arrive at the following figures.


Table 1

Interestingly, the Federal Government recently claimed annual expenditure into sport of just over $300M last year, so I am guessing that, as an order-of-magnitude exercise, the numbers above are not wildly inaccurate.  Interesting also that this analysis has not been updated for over 15 years, however I guess the ABS might not be getting too much push from their federal bosses when you look at the spread.

Direct Revenue through Taxation

A complete assessment of the revenue side of the equation is a complex task.  However, my back-of-the-envelope analysis looked at some of the big-ticket items in respect to direct government revenue sources through taxation around sports.  A more detailed summary of the key points follows (along with some related topics that I found interesting).

Table 2

Summary

Even if you totally ignore the studies detailing the significant benefits to economic activity and national well-being, the facts remain that government makes a handsome return in direct revenue on their investments in sport, with some levels of government doing much better than others.  Once you consider all the benefits of sport, plus the potential future returns from increased sporting and physical activity, you realise that the real level of combined expenditure is scandalously low.

When I looked at some of the numbers, it also became clear that the funding model is completely upside down.  Local government bears the brunt of the burden supported by negligible direct revenue.  State and Federal Governments spend a mere fraction of the revenue that is generated through sports – with the federal contribution focused on elite national programs, regulation and governance.

It is no wonder that community sporting infrastructure is so haphazard in this country; as the revenue, incentive and responsibility drivers are completely about face.  I believe local government is best placed to deliver community sporting infrastructure, as they have a direct interface with the public and will be more accountable.  However, on the numbers alone, local government should be getting far greater financial support from their state and federal counterparts.

In 2011, the National Sport and Recreation Policy Framework was signed by all state and federal governments.   Interestingly, the policy can now be found of the Australian Government Department of Health’s website.  Having read through this policy framework, it really all makes sense.  However, it defines a mind-bogglingly complicated web of government departments and, just like a great strategic plan does not make a great business, the policy is strong on regulation but light on solutions and certainly no call to action.  Undoubtedly, there has been a renewed focus on sporting governance and one cannot argue that this is an important first step.  However, when it comes to a commitment to providing funding back to sports, securing substantial money for hard grass-roots infrastructure is like pulling teeth.  Citing lack of funds just doesn’t cut it once you realise important and integral sports are to government revenue statements.  Indeed, further investment will not only defray community and health costs, but it stands to reason that greater participation will bring even more sporting sourced taxation revenue into the coffers.

It seems to me that the further removed our politicians are from the people (I dearly wanted to say ‘the punters’ here), the less interested they are in the tangible things that make us tick, and the relatively small dividends that state and federal governments give back to grass-roots sport are mostly focused on where the media and grandstanding opportunities lie.

There seems little argument that increased participation in sport and physical activity will further the nation as a whole, however, we need the proper facilities to achieve this.  In a mature and sophisticated society such as Australia, run-down or sub-standard facilities just won’t cut it anymore.  We need greater investment in the rebuilding of our aging sporting infrastructure to suit modern generations, and any analysis of the numbers makes you wonder why this is such a struggle.

Perhaps sport is just seen as a luxury item and an opportunity for wealth distribution through taxation?

The Gory Details

Total Economic Benefit of Sport

The estimated $30 to $50 billion dollars that sports contribute to GDP is sourced from:-

  • Direct and indirect job creation
  • Productivity benefits associated with increased physical activity
  • Mental and physical health benefits and cost savings
  • Criminal justice benefits of sporting participation
  • Economic contribution of sporting volunteers
  • Elite Sports, social well-being and national pride

Interestingly, there is research to suggest there could be up to a 1% increased contribution to GDP, or around $16.5 billion, through a sustained increase in physical activity and sporting participation.

GST

Estimates for the total household expenditure in Australia for 2015/16 are around $650 million. In a report commissioned by the Australian Sports Commission In 2011, Frontier Economics calculated that the percentage of direct household expenditure on sport & related products is 1.8%.  This suggests that total household expenditure in the area would be around $11.7 billion and the GST revenue collected by the federal government would be around $1.06 billion.

In 2000, the federal government estimated that the domestic and international sports tourism market was worth some $3 billion.  This was before the introduction of GST and, after adjusting for inflation, would suggest that a further $450 million in GST is collected.  Domestic sports tourism includes sports carnivals and major domestic sporting events, but not the millions of dollars we collectively spend to attend to our regular family sporting pursuits.

In 2014, IBIS world estimated that the total revenue generated by the sporting industry in Australia was $27 billion which would suggest that GST receipts from the sporting industry could in fact exceed $2 billion, indicating that the numbers in Table 2 are conservative.

Under the Intergovernmental Agreement on Federal Financial Relations, the state are entitled to receive their proportion of the GST revenue that is collected by the federal government, hence I have reallocated the GST revenue to the states in my analysis.  The problem with such an arrangement is that, once revenue has been consolidated, mixed around, and then redistributed in bulk, any source and application concept is difficult to sustain.

Gambling Taxes

Getting your head around these numbers is a challenge, and once again, let’s ignore any moral discussion for the purposes of this debate.  Gambling taxes account for roughly 10% of state revenue, coming in at around $5,440 million in 2013-14.  According to the latest annual publication of Australian Gambling Statistics (13-14), around $3,100 million is generated by non-casino based electronic gaming machines (EGM’s) & keno.

There are around 197,000 gaming machines in the country of which over 58% of those are located in clubs.   According to Clubs Australia, around 70% of clubs in the nation are sports or sports-related clubs, which would suggest that around 40% of all gaming machines in the country are associated with sports.

Clubs also gain a tax rebate over for-profit gaming machines that varies around the country, but is roughly equal to the GST.  So, after working through all of this, I estimate that around $1.3 billion of state gambling revenues from gaming are earned through an association with sport.

Government revenue from legal sports betting is only a fraction of total gambling revenues, and Australian Gambling Statistics data indicate that it amounts to a mere $30 million, or under 0.6% of total state gambling revenues.  It’s hard to see what all the fuss is about however, this sector is clearly entering a period of high growth.

Interestingly, racing now only accounts for around 6% of total state gambling revenues, or around $334 million, and has fallen 80% after its peak in the early 1990’s.  Per capita consumption (and hence revenue) from gaming machines also seems to have peaked and is now on the decline, which is perhaps reflecting a demographic shift in the consumption of gambling products.

Payroll Taxes

Australia’s total taxation burden as a percentage of GDP comes in at around 25.8%.  State payroll tax accounts for 5.2% of the total tax burden.  We know that around 0.8% of people are employed in the sport and recreation industry in Australia.  With GDP at around $1,650 billion, this would indicate that the sports and recreation industry contributes around $177 million to state revenues in the form of payroll taxes.  I was staggered to find that the State Sporting Organisation (NFP) which I am involved with pays payroll tax with no chance of exemption.

Alcohol

A reader of a recent article about sports betting questioned the issue of alcohol in sport.  The social and health issue of alcohol and sport is a massive topic worthy of extensive study, a task that is being pursued by groups such as Drug Arm, Drug Info, Australian Drug Foundation, Australian Medical Association and Good Sports to name a few.   The Department of Health and Ageing has estimated that the economic cost of excessive drinking in Australian society is some $15.3 billion and the links between sport and our alcohol culture are obvious and well-known.  There are some big social academic, political and corporate issues and reputations at stake here.  However, this is not the object of this article when looking at the government revenue gained through sale of alcohol products.

According to the parliamentary budget office, total alcohol tax revenue in this country was around $6 billion in 2014-15 on sales of 184 million litres of pure alcohol, with GST adding a further $3 billion to that number.  Alcohol taxation is incoherent, however economic modelling suggests that, when Excise, Wine Equalisation Tax and GST are all taken into account, the federal government collects taxes from sales of alcohol at a rate of around 30% of sales.

It is difficult to assess how much alcohol is consumed at our sporting clubs but it would be significant.  Deakin University has the best empirical study that focussed on examining the links between at-risk drinking and management practices at football clubs.  They estimate that around 27.5% of club members consume at least 5 standard drinks at least once per month at a sports club.  There have been similar studies that include other sports and the results have been fairly consistent.  Incidentally, regularly consuming 5 drinks or more in a single sitting is considered at-risk drinking.

According to the ERASS 2010 report, the top ten club based sports accounted for some 3.3 million regular participants.   Analysis of tax information published by the federal government shows that alcohol tax per standard drink varies based on the drink, but would average out at something around $0.50, and GST on product sales a further $0.30 to $0.50.  So, you can imagine that the total tax revenue from alcohol consumed around sports and sports clubs throughout the country would be a large number.  Calculating this accurately would be a massive job and worthy of a master’s thesis at least!

So, another way to tackle this issue would be to look at advertising sponsorship by the alcohol companies.  In a 2013 article by the ABC on alcohol and sport, it was suggested that the total adverting and sponsorship spend by major alcohol companies in Australia that is associated with sport and around sporting events would be approaching $500 million.  Other historical data that I looked at would show that this is definitely in excess of $300 million, and that $500 million does not seem implausible.  It has been estimated that alcohol companies spend between 5.5% and 7.5% of revenue in advertising.  This would suggest a total sales revenue target of some $6.7 billion to $9.1 billion for that spend of $500 million.

This results in a total tax revenue from the sale of alcohol that is promoted through sport is perhaps between $2.0 billion and $2.7 billion.  Personally I think this number is conservative due to discrepancies between wholesale and retail sales data.  However, even if my back-yard economics are out by 50%, this is a big number.

Although apparent per capita consumption has hit a 50 year low in Australia, excess alcohol consumption remains part of our sporting folklore.  Sport can play a key role in promoting a more responsible drinking culture in this country.

Property Taxes and Rates

Urbanisation and increasing population density is putting pressure on our sporting facilities and our backyards.  It is also increasing property values and receipts from property taxes and council rates.  We also know that having well located sporting facilities adds to experiences and increases livability and desirability of our towns and cities, which also increases property values and subsequent property rates and taxes.  It would seem logical that improved amenity should result in happier residents, who should be willing to pay for such amenity through their rates and property taxes.

Indeed, economic studies in the US have shown that the increase in combined property values exceeds the quantum of investment in sporting facilities, which should be recouped by government in any well-constructed property tax and rating regime.

Sports Stadiums and Major Events

There has been plenty of studies to support spending on major sporting events and the infrastructure to support them.  Many of these have strong vested interests, however, the willingness of government to continue to support such initiatives would seem to indicate their voracity and political appeal.

Not all major sporting events translate into immediate economic benefit, and some studies suggest that a focus on attracting major events that do not need large upfront capital investment is the best strategy.   Of course, there is a chicken and the egg conundrum here, but the studies do suggest that careful economic analysis and management of major events can pay off handsomely.  Clearly annual or regular major events stand the best chance of success.

Rents of Community Infrastructure

Based on my own research, I would suggest that rents paid by commercial, school and NFP sporting organisations would not make much of a dent in the maintenance obligations of local governments.

Elite Sport

Whilst not necessarily the object of this article, the obsession that the press have with elite sports means that this topic requires some attention.  Despite some of the unsavoury behavioural habits of a minority of elite sportspeople, there are obvious and tangible linkages between sport at the elite and community levels where exceptional performance in one area will enhance the other to varying degrees.  Using census data, Frontier Economics undertook some modelling where they analysed the ‘feel-good’ benefits of elite sports performance.  Surprisingly, events such as the Olympics and other major sporting events can produce a positive movement of up to 4% in measured well-being.

Using data obtained by analysing these movements in measured well-being, they concluded that it is plausible to suggest that the amount currently invested by governments in elite sports is likely to be less than the household benefit (and hence their willingness to pay through taxation).

Other more aggressive economic studies suggest that this benefit could be more than 6 times the amount currently invested by government.

Sugar Tax

Worthy of a brief mention given the debate as to whether Australia should follow Britain’s lead and introduce a ‘Sugar Tax’, it has been estimated that this would raise an estimated $400 million if a similar taxing regime was implemented.  One would argue that a large percentage of this should be directed towards sport and physical activity, however, our consolidated revenue regime would not auger well for this to occur.  Anyhow, living in a sugarcane state, I think this is a long way off.

 

About Peter Robertson

Born and bred in Eumundi and Nambour, in strong company indeed. After studying Maths and Physics at uni in Brisbane, I pursued a business career that I sometimes worry is best described as 'Jack of all trades - master of none'. Having safely made it to my mid 50's, I am still yet to have a real job - but I expect to grow up someday. My love of sport has never waned and I regularly play tennis, golf and surf. Other pursuits include fly fishing and trekking. I have been serving on a few private and NFP boards in sports and other areas to keep me out of mischief.

Comments

  1. Thanks Robbo. This is a really interesting, and important, topic. I think you learn a lot about a politician’s view of the world when you hear them speak about the place of sport in all aspects of life (including economic). Interestingly Barnaby Joyce has been strong in this area! He even argued for compulsory student unionism because it gave campuses clubs, especially sports clubs. Interesting!

  2. Thanks for the feedback John. I confess that I was surprised by the size of some of the numbers I came to in looking at this. I guess that taxes from gambling and alcohol is an uncomfortable situation for government and hence why the conversation is stilted. Frankly, the other contributions that sport can make to the balance sheet and general economy dwarf the more direct amounts generated courtesy of sport. It is frustratingly difficult (and poor use of our largely volunteer human resource assets) to get real money for embedded grass roots sporting infrastructure (both hard and soft) with funding seemingly geared towards flavour of the month projects.

    Interesting your comments about Barnaby. His ideas seems to work on a number of levels as I know that one of the big problems facing our modern (and massive) campuses is the lack of connection and sense of isolation that students are grappling with. It was not the same experience I had at uni, where sport played a large role in the joy of my experience – which must ultimately play out in student outcomes.

    Robbo

  3. Phil Hill says:

    I do not think that Government at any level should fund any sport. It always finishes up being spent on Public Service wages and the like. Let something like the Bendigo Bank, oh horror, a capitalistic private body, put money into LOCAL sport.

    Rotary’s charity Foundation is proud that 97 % of the money raised gets to the end users. The Commonwealth Bank sponsorship of Australian cricket is one thing that allows the now enormous edifice that disfigures cricket in this country to survive.

    Remember when Bradman said that players were invited to play for Australia and they didn’t have to accept. It was the end of a noble idea that sport could be for the masses and not the elite.

  4. Thanks Robbo,
    really enjoying these targeted in depth articles, especially around the mechanisms of gambling in sport. I think now we’ve got so many Senate members on the cross-bench who are pushing gambling related agendas, we’ll be seeing more about it in the media.
    Looking forward to the next one.

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