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The profits of tourism.
Estimating the economic benefits to Sidmouth of hosting the Sidmouth International Festival.

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It is easy to criticise the many claims made for how much benefit the Sidmouth Festival brings to Sidmouth and the surrounding area - if only because the figures appear to based on little or no data or analysis. Festival finances have been the subject of sometimes acrimonious debate in Sidmouth for many years. A transparent calculation methodology is therefore long overdue - indeed this may apply to tourism more widely. This page sets out some of the principal arguments that would need to be incorporated. Some initial estimates of key variables for the Sidmouth Festival are also given. The page will be updated as new information becomes available. Firm data may be produced when (if) the report commissioned by EDDC on the future of the Sidmouth Festival is published - for some early discussion read the report of the town meeting. If any other festivals have been analysed in detail and the data published, please email me. Summary details for all UK festivals are presented in an unsatisfactory form in a report that is discussed on the next page.

Claim and counterclaim based on little or nothing is probably typical of the tourism industry where regions compete in 'spin'. Both councillors and local officials may be only too keen to accept inflated figures if it suits their purposes. People who produce glossy tourism brochures may well have no analytical ability. Certainly, the economic importance of tourism as a whole may be overrated in Sidmouth, as elsewhere.

The town council is to some extent populated by people who are aligned with tourism and of course the industry by its nature is 'visible'. There is even a separate tourism and publicity sub-committee of the council. Whether it has ever achieved anything worthwhile could be debated - and I speak as a past member. As far as I am aware no-one has ever worked out how much it costs as a fraction of the overall council expenditure of 159,000 annually (and rising). However, Sidmouth Town Council does pride itself on producing a glossy and 'upmarket' guide advertising hotels, guest houses and local attractions. More details can be found on the official website.

Much of the confusion in Sidmouth arises because some people appear to assume that money spent by tourists and/or folkies equates to money going "into the local economy". This is nonsense - but probably many other towns and councils don't realise it either. A simple example is a good way of illustrating the point.

The example of Somerfield.

One of the stores in Sidmouth that does 'a roaring trade' during folk week is the only town-centre supermarket, a small branch of Somerfield. Their trade may increase ten fold - the exact figure is unimportant, as is the amount of money they take in excess of what they would take during a more typical August week. For the sake of argument assume that the extra money rung up at the tills is 100,000 - the store is open about 80 hours during folk week, so 100,000 equates to about 20 per minute, or about 7 per minute for each of three tills. This might well be claimed to be 'added to the local economy'.

What actually occurs is that Somerfield employs (let us assume) one extra member of staff to man the tills and maybe half an extra person to restock the shelves - 1.5 people for 7 days or 10.5 person-days, the take-home wages for which may be no more than 500. This may well be extra money genuinely going into the pockets of local households. Other extra staff are employed - security guards who patrol the tills and supervise the two or three times a day removal of cash from the store. So much food is purchased that keeping even one day's takings on the premises would probably void their insurance cover - even if they had a safe that was big enough!

These guards may be subcontracted from a firm elsewhere in Devon (or beyond) and they may live outside the county. Their wages will be derisory and most of the gross cost of employing them is likely to go to the company headquarters and management outside of Devon. Arguably, none of the cost of employing them may 'enter the local economy'.

Profits from food sales, maybe an extra 30,000 (30% of 100,000) will go straight to the headquarters of Somerfield and unless their main offices and support staff happen to reside in East Devon none of this may benefit Sidmouth. Clearing up the litter that may result from selling thousands of sticky buns, bananas and baguettes may well incur a local charge - one that comes out of local council taxes. Leaving aside the 'illustrative' nature of this calculation, 100,000 has reduced to 500 in a 'worst case' scenario where profits all disappear from the county. Both these figures will be incorrect. It is the gulf between them that is significant.

Income from tourism.

Care needs to be exercised in assessing the true benefit to the local community of any group of tourists - if only because the mix and amount of expenditure of various groups may be different. Those who stay at expensive upmarket hotels may spend 300 per day or more. However, if most of it is at the hotel or in 'designer' fashion shops that are also owned by people outside of town then local people may receive little or no benefit. Similarly, folkies may spend a disproportionate amount on alcohol but much of the gross expenditure will go to the government in tax and most of the profits may go to an out-of-town brewery chain. Purchase of petrol is an extreme example: spending 25 generates probably no more than a few pence in the pocket of a local forecourt cashier. Petrol retailers are in effect poorly paid tax collectors.

How many folkies?

You would be forgiven for thinking that after 50 years of hosting a festival in Sidmouth someone would have a good idea of how many people attended. A figure of 60,000 or even 'up to 80,000' is often quoted but (apparently) this is derived from the number of tickets sold, including season tickets. Many visitors to the town don't buy a ticket to any event, they are 'hangers on' and may limit their participation to a few bags of chips and several pints of ale - there is no accounting for taste...... The important point is that (again, apparently) no-one seems really sure how many people actually come to the region because of the festival. Likewise, no-one knows how much they spend but (no doubt) an inflated figure looks good in the press releases and once used, tends to become adopted as an article of faith.

Let us begin with a figure of 60,000 - and what follows is off the top of my head. It is probably more accurate than anything you will find on either the Sidmouth Town Council or East Devon District Council websites. The EDDC site even refers to the festival in these terms (or it did on 27 June 2004 ...)

The Sidmouth Folk festival is famous world-wide as one of the biggest folk music events on the planet.

If you want to be pedantic (would I?) there are three errors here: there should be a capital F for Festival, the correct title is the Sidmouth International Festival and it is not (any longer) primarily a folk music event. Apart from that, well done the boys and girls of EDDC.

And how much money?

How many full week adult season tickets are sold by the festival in a typical year? Let us assume 2000. The average cost is 150 to 250 including camping, giving a total of 400,000. (The actual cost depends on when you buy the ticket and if any discounts are applied). Actual figures are here: these guesses turned out to be remarkably accurate!

This is in the right ballpark - in Derek Schofield's letter he states that "Half a million pounds comes from committed income before the week starts" which is presumably from pre-festival ticket sales of all types. However, 2000 folkies is a lot short of 60,000 visitors. It may be (as was discussed at the town meeting) that 60,000 tickets includes some people with season tickets who go to 20 events, and are counted as '20 visitors' - the overestimate here is balanced (perhaps, but I doubt it) by the people who come as visitors but do not buy a ticket to any event. How much would the average folkie spend locally in addition to their (perhaps major) outlay on their season ticket during a week in town?

Folkies are not renowned for visiting five star hotels to eat and, believe it or not, some of us don't drink alcohol (not much anyway) - so maybe 5 per day each on basic food, 3 on ice cream and 5 on alcohol, all averaged out over children and adults. Remember - this is for expenditure in local shops, and does not include food, drink and other goods purchased in the arena showground and at the stalls near the Ham marquee. So here we have an estimate of 2000 folkies at 13 per day or maybe 80 for the week. This yields 160,000, only a little way short of 6 million. Casual visitors, most of them day-trippers, will add to the total but by how much? This is an important question because casual day visitors may spend a higher percentage of their total outlay in town shops. It would be fair to include much of this as a 'festival benefit' because these people are drawn to Sidmouth for the day to see just a little of the sights and sounds. Some would come anyway.

Some folkies stay in local B&B and other local accommodation and this money may well mostly be counted as 'income to the local economy' especially as some of it is probably not declared to the Inland Revenue..... Maybe 250 folkies at 150 pounds a week each - your guess is as good as mine. However, a further factor must be considered here - the marginal occupancy of guest houses. During August, guest houses in Sidmouth would likely be fully booked anyway, so whether or not there is a festival would make no difference to local income. You could argue that people displaced from folk week might come another week but the numbers will certainly not be 100%. If the festival was a mid-winter event, all expenditure on B&B (etc) could genuinely be calculated as income to the region.

Effect on different types of shops.

Few folkies probably bother with the gift shops that sell overpriced stuffed squirrels and other exotic items as bookends and doorstops - some shops patronised by 'mainstream tourists' report a fall in weekly income - probably owing to the fact that the average intelligence level of visitors to Sidmouth is higher during folk week. During other weeks, coaches disgorge their cargoes of power shoppers, intent as ever on bolstering the glorious consumer society. Disagree if you wish - it's my website, not yours. There are arguably too many shops in Sidmouth selling 'cheap and tacky' merchandise. In the eyes of most members of the town council, shopkeepers are pillars of society  - except when they are charity shops paying only low business rates.

However, there is a serious point in that it may be claimed that some or many of the shops used by local people (and employing local people) would close if it were not for the trade during a few principal tourist weeks. One pub in Sidmouth is reputed to make half its annual profit during folk week. If indeed shops (and their staff) do in effect owe their jobs to a festival or similar event then this could be included in any analysis - but it would need to be town-specific and should take into account that if there are 'excess' shops of a certain type in an area, it may be better for some of them to close. In all, this merely reinforces the need for proper analysis based on firm data for each town and festival - overall averages are likely to be misleading even if based on good data.

Almost as an aside, some shops in Sidmouth have told me that although their trade is 'manic' during folk week, additional staff need to be employed who have 'eyes in the back of their heads' because of the high rate of theft! Extra staff on the tills are not required because the number of tills in these particular shops does not increase. In effect, the additional staff may be needed primarily to reduce opportunities for theft and are a drain on any extra profits despite representing employment for local people.

Why take an interest?

My interest in all of this started when I was a town councillor for a year (1998/99). Week after week I had to endure listening  to the views of other councillors. I think I deserved a medal - but that is only my opinion. Many of them seemed wedded to the idea that tourism was the driving force behind Sidmouth's economy. Tourism, the hotels, the hotel owners, the shopkeepers, they could do no wrong. The tourism sub-committee was boring even by the standards of town council debate. There were so many unquestioned assumptions that it was enough to drive anyone half-numerate insane. I wrote a few letters to the local newspaper suggesting that pension and investment income just might be more important than tourism (about ten or a hundred times more important) and made a few more enemies. Believe me, it's easily done in Sidmouth!

Apparently no-one has ever analysed the Sidmouth economy - one of my first questions to the town clerk when I became a councillor was concerned with how to calculate the income stream to the town from tourism. I wanted to compare this with that from pension income and investments, and with income earned by working families. In my naivety I assumed the data either existed or could be obtained. She looked at me as a mother hen might look at a new born chick  "Why don't you just forget the idea, they'll never give you the data".

In fact, it would not be difficult to calculate - total up the number of bed spaces, apply an occupancy figure, allow for a bit of cash in hand and multiply by six if you are preparing a press release. Less easy is to calculate the income streams from pensions and investments. I have compared these to pipelines laid from London and terminating in the more affluent parts of Sidmouth with twenty pound notes gushing out in an unbroken torrent, many of them going straight into the waiting hands of local trades people - now there is a real contribution to the local economy.

There are probably many households in Sidmouth whose net income from pensions and investments exceeds 50,000 per year. At one financial seminar held in the town an example was used of a man who had purchased 1 million worth of with-profit bonds to enjoy the 5% annual tax-free draw-down that was (still is?) a feature of these products. 50,000 tax free per year - and of course the financial advisors were keen to sell them. This was in the days when up-front commission was 5% or more and with-profit bonds were onto a winning streak. MVAs were an irrelevance. If you don't know what a MVA is, ask a man who bought Equitable Life bonds.

Tourism is of course important to many of the shops - but there are very few compared with the number of households. The hotels along the seafront add greatly to the ambience of the town. Any calculations of the benefit of the festival need to take into account not only its (probably small) contribution to the total tourist economy - itself a small part of Sidmouth's total income - but its contribution to making the town special and 'putting it on the map'. Its financial contribution to East Devon as a whole is certainly quite small - one reason why it might be unwise to rely in future on a generous grant from EDDC.

There is also the 'spiritual' dimension. If a town as rich as Sidmouth is unwilling to welcome a largely well behaved and gloriously colourful mixture of people from across the world to share its streets and its scenery for just a week every year, then good luck to any town or city that offers the festival a new home.

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What price the festival?
Sidmouth will never really know until and if it loses it.

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Postscript:  It is not only in the field of calculating the impact of tourism where 'system boundaries' are important. In the increasingly intertwined world of multinational companies, even financial experts can be unsure of where profits are generated and indeed what activities 'create value'. In an article on 31 January 2004 The Economist magazine put it thus:

According to UNCTAD, a United Nations agency, in the early 1990s there were 37,000 international companies with 175,000 foreign subsidiaries. By last year there were 64,000 with 870,000 subsidiaries. Increasingly, such companies are being managed on regional or even global lines, not national ones. An extraordinary 60% of international trade is within these multinationals, ie, firms trading with themselves. Many have global brands, global research and development, and regional profit centres. The only reason for preparing national accounts is that tax authorities require it. But it is hard to say quite where global firms' profits are generated.

Sophisticated tax planning abounds and makes use of 'transfer pricing' : manipulating prices 'paid' for transfer of goods from one country to another so as to generate (for example) less profit in higher tax zones. A US Senate report in 2001 claimed evasion of taxes of around $45 billion and cited selling toothbrushes between subsidiaries for $5655 each.


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