The purpose of this study is to measure the contribution made by the thoroughbred racing industry towards the economy in each State or Territory. In this way, it is a generalised measure of the industry’s contribution to each State / Territory economy. Additionally, impacts have been aggregated to present a generalised national impact figure.

DISTRIBUTION TO REGIONS
The direct expenditure has been allocated  to metropolitan and regional geographic regions within each State / Territory with the exception of the ACT. The level of economic output will not always proportionally follow the expenditure profile, as regional areas generally have higher import penetrations than metropolitan areas – i.e. more of their expenditure is on goods and services imported from metropolitan areas.

This study employs a tops-down distribution model that recognises that where regional input-output tables exist, direct industry ratios of value added, employment etc are generally similar between the state and sub-regional table, but regional induced impacts are on average of the order of 50%-70% of the state induced impacts (dependent on the region and the sector).

This will vary from industry to industry sector, and from region to region, but this observation has been used as a basis for distributing the state level impacts to regions. That is the direct impacts have been distributed proportionally, while the induced impacts have been distributed with a 25% discount for the outer metropolitan region, and a 50% discount for the other regions. The balance is distributed to the metropolitan area.

In summary, the impact at the regional level is almost 60% of the state impact in terms of the expenditure, and in terms of initial or direct impact – but after allowing for the leakages from the regional area in terms of induced impacts, has about 50% of the total level of activity.

ADJUSTMENT OF EXPENDITURES
The aggregated expenditure data is converted from purchasers’ prices to basic prices, as the raw data include margins, taxes and subsidies. All monetary values in the national and State input-output models are expressed as basic values.

The prime differences between purchaser prices and basic values are that:
+ basic values exclude the cost of transport and wholesale and retail trade embedded in the purchase price (and allocate these to the transport and trade sectors).
+ GST will be allocated to Gross
Operating Surplus

The input-output models adopted in this study have been developed using a location quotient approach based on the national 2012/13 table (ABS) and employment data from the 2015 census. It is assumed there have been limited labour productivity gains since that time.

The core assumptions to make the adjustments from purchaser price distributions to basic values are:

+ The average value added in each of the industry sectors is extracted and then the GST component (at 10% - which is only paid on the value added) is deducted and separately identified.
+ The purchaser price is adjusted for the average margin for wholesale, retail and transport sectors, as identified in the national input-output tables.

ECONOMIC CONTRIBUTION
The economic contribution of an industry refers to the contribution that the industry makes in terms of:
+ gross state or regional product,
+ household income, and
+ the employment that these income measures support.

Industries do this is in two ways – by the employment and activity it supports directly (and in the industries that depend on it as a  customer); and the flow on effects which filters through the economy.

The importance of the expenditures generated by an industry in the production process is that they will sustain turnover in local industry, and specifically this will support local jobs and incomes. It is the jobs and incomes that are taken to be the measure of economic impact or benefit (after netting out leaked expenditure on items such as imports). It is also generally acknowledged that, in addition to the jobs in direct suppliers of services to the production processes of the industry, the production expenditure also has a multiplier effect within the community. In this way, the direct expenditure impact  of the racing industry generates a ‘flow  on impact’ on other sectors through the expenditure of wages and purchases of the direct suppliers to the industry.

The use of multipliers, derived from input- output tables, has been a prominent  process for translating directly created expenditure (a final demand stimulus) of industries or projects into jobs and incomes. The multipliers allow for the measurement of the extent of the flow-on impact generated in the economy, as a result of the racing industry expenditure. There has been some level of academic argument about appropriate models for converting increases in external expenditure (final demand) into  regional economic impacts. The critics of using input-output tables often argue that multipliers are used to overstate the value of an industry – with the term multiplier taken as ratcheting up the value (or overstating the impact).

This criticism used to be valid when analysts applied turnover multipliers but is not the case with the more appropriate use of value added multipliers – which translate the expenditure estimates to a national accounting framework measure with a whole of economy context.

Indeed, value added multipliers (the value added impact (direct and induced) relative to a dollar of created expenditure) are often less than one. Used correctly multipliers provide a more appropriate measure.

In short, the use of these input-output  based multipliers allow for reporting of  the estimated outcomes of that industry  in terms of: 
+ the effect of expenditure or turnover on value added across a regional economy, and
+ its impact on the labour market in terms of job creation

These measures are consistent with national accounting frameworks.
It should be emphasised that this methodology – of identifying the local expenditure associated with production by the industry and tracing the expenditure through the rest of the economy - cannot be interpreted as saying that Gross State / Territory Product  or employment would fall by this amount  if the industry somehow did not exist. In  the first instance local people would spend their money on other activities and the contribution of those other sectors would rise and replace most or all of that which was previously generated by the racing industry. What this study calculates is the level of direct and induced employment and income that is linked to people choosing to spend their entertainment dollar on racing (after allowing for imports which are used in the production process). This could be considered as being the gross economic impact of the sector and is therefore a measure of its significance generally. If a similar gross impact was calculated for every other sector of the economy, then the sum of the impacts would be considerably greater than the size of the economy in total.

An alternative methodology would be to measure the net economic impact – which is the extent to which this industry expenditure is supported by revenues that can be considered new to the State / Territory . This would include the supply of services by the local industry to racing activities interstate (i.e. serving a visiting Mare from another State / Territory).

It would also focus only on spending by tourists or visitors to the State / Territory who attend the races rather than the stimulus created by spending by all attendees where it is associated with engagement with  the racing industry. Under this scenario,  it would reasonably be expected that
some race attendees would attend events interstate if they were not available within their State / Territory of residence, and that some operators would base their operations interstate if this was the case. Whilst a valid approach, this particular approach (net economic impact) does not fit the purpose of this study.

The methodology used in this report is consistent with that used in recent studies undertaken in various jurisdictions over
the last five years.

ACKNOWLEDGEMENTS
IER would like to acknowledge the contribution of the following organisations and individuals:
+ Racing Australia
+ Principal Racing Authorities in eachState / Territory
+ Australian Bureau of Statistics

The following terms have been used throughout the study and are defined as follows:

+ Direct expenditure - is defined as expenditure associated with producing racehorses (breeding), preparing racehorses (training) and expenditure made by racing’s customers in the following areas: 
- net wagering revenues (from punters)
- on-course raceday spending
- spending related to non-raceday functions/facility utilisation
- visitor spending in the broader economy where linked to racing event attendance
- spending made by sponsors, members and partners

+ Direct Value Added - represents the amount of income included in the direct in-scope expenditure, and therefore is the amount of wages and salaries plus gross operating surplus directly created in supply these services and product, which is also equal to the direct in-scope expenditure less the purchases the provider of the goods and services makes in providing the goods and services.

+ Flow-on Impact – represents the value added activity generated to support the purchases made in providing the inputs to the providers of the direct services, along with the value added impact in providing households with goods and services as they spend their wages, and the trickle on effect of this.

+ Total Value Added – is the sum of the Direct Value Added plus the Flow-on Impact
– which represents the total wage and salary income plus gross operating surplus generated directly in providing the goods and services involved in the direct in-scope expenditure and the wages and salaries generated as an extension. It therefore represents the contribution to Gross State/territory Product resulting from the events and activities of the thoroughbred racing industry in each jurisdiction.

+ Full Time Equivalent employment - is a unit that indicates the workload of an employed person in a way that makes workloads or class loads comparable across various contexts. An FTE of 1.0 is equivalent to a full-time worker (i.e. 38 hours), while an FTE of 0.5 signals half of a full work load (i.e. 19 hours).

+ Household income - is defined as being wages and salaries (before tax) earned from employment generated by the thoroughbred racing industry.

+ Participants in racing - is defined as being the number of employees (full time, part time and casual), participants and volunteers directly involved in the thoroughbred racing industry. Does not include down-the-line suppliers of goods and services.

Input-output modelling – is the  economic modelling used to determine the economic outputs within this study.  It is an economy wide model, which shows the inter-linkages between industry sectors in the economy. Therefore, the change in economic circumstances (specifically a change in final demand), for one sector of the economy can be traced though to its effect on other sectors.