Rising hotel and other costs fuel SXSW’s growing economic impact

A rising cost of living and high prices for hotel rooms and other tourist accommodations helped fuel a 7 percent increase to the economic impact the city of Austin felt as a result of the South by Southwest festival.

That was one of the observations of SXSW Executive Director Mike Shea during a press conference Wednesday announcing that the 10-day festival generated $348.6 million in economic activity locally this year.

“A large part of the (impact) number is a result of the city becoming more expensive to visit,” Shea said. “On one hand it’s nice to say that’s resulted in a larger economic impact. On the other, it does put a little strain on the budget of people attending SXSW.”

The impact – determined by consulting firm Greyhill Advisors’ analysis of more than 60,000 pieces of economic data – had been nearly flat in recent years after a handful of double-digit growth numbers from 2010. With the $23 million increase measured this year the festival now has twice the economic activity that it did as of 2011.

During remarks touting the festival’s lasting effect on Austin’s perception throughout the world, Mayor Steve Adler said SXSW is nearly as economically significant as hosting a Super Bowl every year, minus the nearly billion-dollar cost of a large football stadium.

“I call it the World’s Fair of the future … it’s also a really good time,” Adler said while touting the effect the festival has on local creative, technology and entrepreneurial talent. “It’s that combination that makes us Austin. To an increasing number of people the first association when they hear the word Austin is South by Southwest. We can’t lose sight of what this event means to this city.”

In recent years the cost to public safety and other departments associated with managing tens of thousands of visitors for more than a week has become a point of contention during city budget sessions. Adler said the sizable economic benefits created by those visitors frequenting local businesses and hotels more than offset the $1.5 million price tag, much of which has been shifted to the budget of the Visit Austin nonprofit.

“During South by Southwest there are lots of people who come here who aren’t attendees of the conference and go to the clubs up and down the town,” he said. “There is a cost associated with that across the town and those aren’t directly chargeable to the event. The benefits to the community in terms of restaurants and clubs that make a lot of their yearly income during this period are pretty clear.”

The event also provided an opportunity for SXSW management to voice its support for Adler’s “downtown puzzle” concept to fund a series of public projects – especially an expansion of the Austin Convention Center expected to cost more than $500 million – through a 2 percentage-point increase in the city’s Hotel Occupancy Tax.

“South by Southwest might not be around today and might not be generating millions of dollars in economic benefit to Austin if City Hall hadn’t pursued and overcome tough opposition to build a convention center that opened in 1992, and then expanded in 2002,” said Hugh Forrest, SXSW’s chief programming officer. “To this end, SXSW supports the mayor’s downtown puzzle and convention center expansion plan, not just because existing events need it but because it’s a visionary solution to a complex set of problems.”

Asked about the effect an expansion would have on festival programming, Shea said SXSW would run more efficiently and be easier to navigate for attendees if there was more “head and elbow room” at the convention center. He said programming is currently spread out to a half-dozen hotels and other gathering sites throughout the downtown, and that number would likely decrease with a larger convention center.

As to worries about the fate of thin profit margin music venues that provide the dozens of stages needed for the festival’s music programming, Forrest said he and other festival managers are working with Adler and the city to stabilize the Red River Cultural District and its more than one dozen clubs that make up something of a backbone for music showcases.

“That’s a fragile situation but we’re all working together to make it more stable,” he said. “We have a staff that works a lot with the city. That one week in the year is a big one on Red River. If we could find a way for the rest of the Red River clubs to be as productive through the rest of the year as they are that one week, it wouldn’t be as much of a challenge.”

Photo by Jason Persse made available through a Creative Commons license.

The Austin Monitor’s work is made possible by donations from the community. Though our reporting covers donors from time to time, we are careful to keep business and editorial efforts separate while maintaining transparency. A complete list of donors is available here, and our code of ethics is explained here.