Report: SXSW 2017 pumped $348.6 million into Austin’s economy

South by Southwest contributed $348.6 million to the Austin metro area’s economy in its latest fiscal year, as the growth of the organization and higher attendance costs helped drive a resurgence of economic gains for the region, according to an analysis released Wednesday by festival organizers.

While still short of the double-digit growth rates SXSW posted earlier this decade, this year’s 7.2 percent increase in regional economic contributions marked a notable rebound from the modest growth rates the prior two years. Last year, the festival generated about $325 million for the region.

The 2017 gains stemmed in large part from the growth of SXSW operations, which includes sponsorships, as well as greater spending by attendees, according to the analysis conducted by Greyhill Advisors.

The operations of the SXSW organization for the 12 months that ended on June 30 accounted for $173 million of the total contribution to the region, up 23 percent from the prior fiscal year, the report said. The impact of direct, indirect and induced spending by official participants was $149.9 million, up 8 percent.

“All those folks from Brooklyn coming in with their skinny jeans are leaving behind fat cash,” Austin Mayor Steve Adler quipped during a news conference at City Hall.

Yet, the rising cost to visit Austin during SXSW did more to boost those totals than an upswing in attendance. Despite more lodging capacity coming online for this year’s events, demand pushed the average hotel rate to $373 in 2017, up from $350 last year and double the average rates in 2010, the report found.

“It’s nice to say there’s a larger impact,” said Mike Shea, SXSW’s chief logistics officer, “but there is more strain on attendees.”

Next year, new hotel capacity at places such as the 1,048-room Fairmont Austin, which is set to open in the coming months, could help alleviate some of the supply-demand imbalance. However, officials noted, much of Austin’s newer hotel capacity is coming from higher-end establishments, which could prop up average rates.

Still, anyone who tried to get around downtown in early March knows the rising costs didn’t chase many people away. The number of hotel room nights booked dropped to 50,000 this year from roughly 59,000 last year, but the 14-day event still drew about 440,000 direct participants – most from outside the region.

Officials said the SXSW remains the single most profitable event for the Austin’s hospitality industry, with direct bookings generating almost $1.8 million in hotel occupancy tax revenue for the city.

“Every $1 from South by Southwest is $1 we don’t need from property taxes,” Adler said, adding that most of the city’s costs to support the festival are paid by SXSW itself, and the roughly $1.5 million that’s not is covered by Visit Austin instead of direct taxpayer dollars.

The festival will remain a key contributor to the Austin’s economy and international reputation in the years to come. However, officials said, the sheer volume of SXSW events and attendees will cool growth rates in the years to come, especially as the festival nudges toward a ceiling on capacity.

Growth will depend more on factors such as lodging and attendance costs, sponsorship revenues and consumer spending at peripheral events, said Ben Loftsgaarden, a partner at Greyhill.

“We don’t have the hockey stick growth over the last couple years that we saw four or five years ago,” Loftsgaarden said, but SXSW should be able to maintain a steady expansion of its economic contributions in the years to come.

Historically, SXSW’s impact boomed with the rapid growth of the Interactive track from 2004 to 2014, said Hugh Forrest, the organization’s chief programming officer. In 2013, for example, the festival’s economic contribution to the region jumped almost 15 percent — more than double the pace of 2017.

(The economic contribution soared 44.5 percent in 2014, but that gain stemmed from the addition of a new category of broader consumer spending on peripheral events. As such, it was not an apples-to-apples comparison with the prior year.)

Forrest said there’s not as much room to grow now, but certain changes to the programming – such as breaking out the gaming track – helped boost results.

More broadly, he and Shea said, the proposed expansion of the Austin Convention Center and the additional hotel capacity would help. At Wednesday’s news conference, both of them noted their support for expanding the convention center and for the broader “downtown puzzle” plan advocated by Adler.

While a convention center expansion might not generate higher attendance in and of itself, Shea said, it would allow SXSW to consolidate some of the dispersed programming held this year at the Palmer Events Center and other downtown hotels and parks.

That would make for a more convenient experience for festival attendees, he said.

It also could open up capacity for events at the satellite locations, potentially raising the ceiling on the festival’s overall event capacity and driving future growth.

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