$19-to-$1 Claim Invites Skepticism

If you accept the conclusion of a recent study, Tennessee’s Department of Tourist Development may be seen as a profit-making agency.
According to Longwoods International, $42 million in state and local government tax revenue was produced from state-sponsored advertising that promotes Tennessee as a great place to visit. The department’s budget is $20 million.
Ergo, the department returned more than $2 in tax revenue for every $1 in tax money spent. All that other stuff that Commissioner Susan Whitaker and her staff do, such as operating 14 welcome centers along our interstate highways, is covered by the revenue-generating side of things.
But the Longwoods study, based on 2010 data, specifically addresses just $2.2 million in “direct advertising dollars” — the portion that went to the newspapers, magazines, broadcasting stations and websites that ran the ads. For that portion, the report declares there is a $19 to $1 “return on investment.”

The $2.2 million brought 3.6 million new visitors to Tennessee during 2010, the study says, and they spent $570 million, paying the $42 million in taxes in the process. That’s a conservative estimate, Longwoods advises, since the study’s authors don’t count travelers who would have come to our state anyway; only those making an ad-inspired journey.
(Note: A summary of the study is available by clicking on this link:TN_2011_ROI_Topline_-Sept_2011.pdf )
The study is based on responses to a survey of Longwoods’ “online consumer panel,” a sample of which is extrapolated to project visiting and spending for all travelers. According to department spokeswoman Cindy Dupree, it cost $115,000 and that was paid by the state’s advertising agency, Sullivan Branding (known as White Thompson LLC prior to a merger last year) from the state money the agency receives. The contract is capped at $4.5 million per year.
Not everyone accepts the conclusion. Ben Cunningham, a founder of Tennessee Tax Revolt and the Nashville Tea Party, says the whole notion of government promoting an industry with tax money is a form of corporate welfare.
“The claims in this report are, in my opinion, absurd and an insult to the taxpayers and their elected representatives,” he said in an email after looking over a summary of the Longwoods study.
If tourist industry executives believed spending money would generate such a return, Cunningham said, “they would gleefully and joyfully do so on their own without any help from Tennessee taxpayers.”
Maybe so. Most of the big tourism attractions — Dollywood and Opryland, for example — do spend significant advertising and marketing dollars of their own.
Some of the sales-tax-collecting retailers — restaurants, gas stations, clothing stores and the like — benefit from tourists passing through, but not enough individually to justify an advertising campaign in other states. They may see state spending as a way to get tourists into the neighborhood.
The tourism “return on investment” study, similar to those conducted in many states, is in itself a marketing and advertising effort. The target audience is the politicians who decide where to spend tax dollars and the sales pitch is, basically, give us $1 and we’ll give you back $19.
Indeed, Whitaker cited the study in presenting her budget request to Gov. Bill Haslam. She wants about $5.4 million that’s in the budget this year as “non-recurring” funds transformed into “recurring” money. The money stands to be eliminated if not specifically renewed each year. If it becomes recurring, the opposite is true — it’s automatically renewed unless specifically cut.
The state’s budget belt appears likely to loosen next year rather than tighten, but tourism business folks would still like the reassurance of more permanent funding.
Hence the sales pitch, which like many such pitches don’t tell the whole story.
As a threshold proposition, the $19-to-$1 claim rests on only $2.2 million of the $4.5 million that goes to the state’s advertising agency. Thus, if that figure was used as the basis for calculation — instead of just the “direct advertising dollars” — the “return on investment” would be more than halved.
Longwoods does studies for several states and has a competitor or two in generating studies on the benefits of tourism advertising. A look through information on the Internet indicates it has a good reputation in the business. Still, such claims invite skepticism. If the huge return on investment is true, a legislator once wondered, why don’t we give them $100 million, then we’ll be awash in sales tax revenue from tourists and can cut taxes for the rest of us?
We have a long history here. The Department of Tourist Development was created 36 years ago by former Gov. Ray Blanton and, at the time, was the first such stand-alone tourism department in any state. Today, it is institutionalized in Tennessee – making tourism the only business with its own department, unless you count the Department of Agriculture as an agency for farming — and many other states have followed the example. And the states compete for tourists.
Perhaps not surprisingly, Longwoods has done a study finding that, when a state axes its tourism budget, the state suffers. It’s based on Colorado, which eliminated its tourism advertising budget a few years back.
Just to venture a guess, that’s not going to happen in Tennessee. You see, there’s this study…
Note: This is a column written for the Knoxville Business Journal, also available HERE.

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