When a decaying industrial city in Spain’s Basque country decided in the 1990s to spend $228.3 million on a modern art museum, critics objected to squandering so much public money on something so irrelevant and exclusive. This year is the Guggenheim Museum Bilbao’s (GMB) tenth anniversary, sufficient time since its opening to evaluate the museum’s effectiveness in reactivating the city’s economy. So, have the public authorities that invested in the Guggenheim recovered their costly investment?Guggenheim Museum Bilbao, economic valuation

Plaza, Beatriz

English

Research Papers in Economics

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Title: The Bilbao effect (Guggenheim Museum Bilbao) 
Author: Plaza B 
Source: MUSEUM NEWS   Volume: 86   Issue: 5   Pages: 13-+   Published: SEP-OCT 2007. 
American Association of Museums. 
 
 
 
 
Reproduced with permission of the copyright owner. 
Available at: http://www.scholars-on-bilbao.info/fichas/MUSEUM_NEWS_The_Bilbao_Effect.pdf  
 
 
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The Bilbao Effect 
Beatriz Plaza 
 
When a decaying industrial city in Spain’s Basque country decided in the 1990s to spend $228.3 
million on a modern art museum, critics objected to squandering so much public money on 
something so irrelevant and exclusive. This year is the Guggenheim Museum Bilbao’s (GMB) tenth 
anniversary, sufficient time since its opening to evaluate the museum’s effectiveness in reactivating 
the city’s economy. 
The museum attracts an average of 800,000 non-Basque visitors a year (compared to less 
than 100,000 before GMB opened), possibly a world record for any third- or fourth-tier city. Despite 
attempts to emulate the Bilbao effect elsewhere in the world, very few new museums or galleries 
outside capital cities have succeeded in getting so many visitors. For example, the National Centre 
for Popular Music in Sheffield, England, opened in 1999 and projected 400,000 visitors a year. 
Seven months after opening, just over 100,000 people visited. The museum went bankrupt the 
same year it opened.  
Bilbao did not construct the museum simply for the sake of having an iconic building; this 
was one answer in a quest to address a number of serious problems. The city suffered an 
extremely high unemployment rate, up to 25 percent. Traditional industries had become obsolete, 
and the city center hosted a busy riverport plagued with severe traffic congestion. Other troubles 
included violence from extremist Basque separatists, urban deterioration, pollution and a poor 
public transport system. 
The city determined to tackle these problems through a holistic plan. It created a new a 
subway line, new drainage and water/air clean-up systems and an airport; residential, leisure and 
business complexes were built in town, while new river and sea waterfronts, a seaport and 
industrial and technology parks were built away from the urban center. The icing on the cake was 
the construction of the Guggenheim Museum Bilbao and additional cultural investments, such as a 
concert hall and incubator for young artists, to promote art and cultural tourism as a means of 
diversifying the economy and reducing unemployment.  
The primary aim of Bilbao’s facelift was to increase the quality of life for the citizens. This did 
occur in more ways than expected. In fact, approximately nine million people have visited GMB to 
date. The museum has brought hope to citizens and city officials and has united political parties, 
trade unions and civic associations in a gigantic urban regeneration still under way. 
 
[PLACE TABLE 1 AND FIGURE 1 ABOUT HERE] 
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GMB faced some serious financial challenges. Signature architecture is overwhelmingly expensive. 
The iconic building’s budget was $119.6 million, whereas the total GMB project before opening 
totaled $228.3 million. This includes $12.1 million for architect Frank Gehry, $6.4 million for 
executive architect Idom, $100.8 million to construct the building and surroundings, $24.7 million to 
the Solomon R. Guggenheim Foundation in New York, $9.9 million for the land, $44.5 million to 
establish the collection and $30.3 million for other operative costs before opening. 
In today’s competition for funds to support facilities that contribute to quality of life, 
museums do not fare as well as other public investments such as health, education and elder care. 
A number of iconic museums, such as Santiago Calatrava’s new wing at the Milwaukee Art 
Museum or the KIASMA Helsinki Museum of Contemporary Art by Steven Holl, failed to attract the 
number of visitors they had initially projected. One reason is that often impact studies overestimate 
the visitor figures of the future building. It is close to impossible to project such figures accurately, 
but in order to get a reliable estimate, fledgling museums should consult independent sources, not 
only the consultants paid to work on the new building. 
So, have the public authorities that invested in the Guggenheim recovered their costly 
investment? According to GMB’s official report in 2004, the initial investment of $183.8 million was 
recovered within the first six years of the museum’s operation. This is an ostensibly daring 
assertion that needs closer examination. 
GMB is an interesting model for those museums that have been set up as economic 
reactivators. Unlike most museums in Europe, GMB has adopted market-oriented budgeting with 
parallel commercial activities such as image copyright usage management, cafes, a high-end 
restaurant and a large museum store all aimed at making the museum staff more efficient and 
sensitive to customers’ tastes. Traditionally state-financed European museums have been reluctant 
to cash on such activities. At GMB, 70 percent of operating costs must be covered by museum 
revenue and 30 percent by the local government. As a consequence, fulfilling the budgetary 
predictions implies a commitment to attracting the highest number of visitors possible, normally 
through special exhibitions. This is the type of museum that generates the largest impact on local 
economy. 
A method called the discounted cash flow (DCF) is used to estimate whether the investment 
was recovered at the end of the investment period. Revenue from all economic activity generated 
by GMB is tracked to see whether it surpasses the initial and continuing public investment by the 
funders (the Basque Government and the Provincial Council of Biscay). If the income surpasses 
public investment then it can be concluded that GMB is an effective reactivator of the economy. 
This method it can be problematic when applied to museums because researchers rarely 
have access to the institutions’ detailed income statements and balance sheets. Another difficulty   4
arises when a city has several iconic museums in one area, making it difficult to discern which 
museums are generating tax income from tourism. In London, for example, several museums are 
within close proximity of each other; it would be impractical to use the DCF approach. 
Bilbao, nevertheless, is close to a perfect lab for testing the economic impact of an iconic 
cultural investment because no other museum is nearby to skew the data. This analysis is limited, 
however, since it only looks at the yield of net cash flows (all the cash received and paid by the 
local government). This does not capture the value generated by GMB in terms of, say, aesthetics 
and cultural value. The DCF method solely explains whether the public sector recovers its 
investment through tax income. Obviously this issue is vital for those museums hoping to act as 
economic engines. The recovery of the investment signifies that the museum is in fact reactivating 
the economy and subsequently generating tax income.  
While the Guggenheim Museum Bilbao was a costly venture, its return on investment (not 
including the value of the permanent art collection) was complete as early as seven years after 
opening. Figures show that since the museum’s opening, the city has received an average of 
779,028 new yearly overnight stays and has created 907 new full-time jobs. GMB earns around 
$39.9 million annually for the Basque treasury. 
The Basques, however, will not recover the approximately $374 million in initial and 
continuing investments, which includes the amount spent on purchasing the museum’s permanent 
collection, until 2010 or at the latest, 2014. If the Guggenheim were sold at the end of 2017, the 
profit amount would depend on both the value of the iconic building and, equally importantly, the 
permanent collection. 
In the end, we are talking about highly costly public investments that must generate either a 
clear social or economic return on investment. The Guggenheim Museum Bilbao was a very risky 
project, but it is on the right track to being worth the huge risk and investment. 
 
 
References 
Plaza, B. (2006): The return on investment of the Guggenheim Museum Bilbao. 
International Journal of Urban and Regional Research 30(2): 452-467. 
 
 
—Beatriz Plaza, economics professor at the University of the Basque Country in Bilbao, 
Spain. For a full list of academic works and statistical updates regarding Bilbao and its 
regeneration, see www.scholars-on-bilbao.info.  All figures have been converted from euros at 
current exchange rates.   5
Table 1: Number of Visitors to Guggenheim Museum Bilbao  
(annual data from 1997 to 2006) 
 
Years  
Number of Visitors to 
Guggenheim Museum 
Bilbao 
1997 (October–December)  259,234 
1998 1,307,065 
1999 1,109,495 
2000 948,875 
2001 930,000 
2002 851,628 
2003 869,022 
2004 909,144 
2005 950,000 
2006 1,008,774 
TOTAL 9,143,237 
     
Number of months opened  111 
Average monthly  82,372 
Non-Basque Country Visitors (80%) 65,897 
 
Source: Guggenheim Museum Bilbao.   6
Figure 1: Overnight Stays of Foreign Visitors in the Biscay Province (monthly 
data from January 1980 to September 2006) 
 
0
20000
40000
60000
80000
100000
80 82 84 86 88 90 92 94 96 98 00 02 04 06
BFONS
 
 
Source: Instituto Nacional de Estadística (INE). 
 
Note: The Guggenheim Museum Bilbao opened its doors in October 1997. Bilbao is the 
capital city of the Biscay province of the Basque Country (Spain). 
 

The Bilbao effect (Guggenheim Museum Bilbao)

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