Economics of the Super Bowl Daniel Ciancioso Case

Economics of the Super Bowl Daniel Ciancioso Case written by: Victor Matheson

Introduction �Super Bowl is the most significant sport event in US � Highest ticket prices � Advertising �Neutral site with location changes every year � 2000 -2009 average television viewership � Super Bowl: 90 million � World Series: 19 million � NBA Finals: 14. 3 � Stanley Cup: 4. 1 million

Economic Impact of the Host City �NFL claims Super Bowls generate large benefits �NFL/ W. P. Carey MBA Sports Business Program � $500. 6 million from Super Bowl XLI in Phoenix (2008) �NFL SMRI study � $670 million in taxable sales in South Florida 1999 � $396 million increase in economic activity � Average income of Super Bowl attendees vs. tourists �$144, 500 compared to $40, 000 -$80, 000

Reasons to be Skeptical �NFL has strong financial incentives �NFL uses Super Bowl to get public subsidies � 325 million tax increase for $1. 1 billion AT&T Stadium � $400 -$500 million boost to local economy �New NFL stadiums � $5 billion in taxpayer money since 1995 � 11 cities hosted Super Bowl in the last 15 years � 6 were awarded immediately after new stadium �Tampa, Dallas, Indianapolis, Phoenix, Houston and Detroit

How to Measure Economic Impact Super Bowl XXVIII in Atlanta Number of visitors x Spending per visitor = Direct Impact + Indirect Impact (Multiplier Effect) = Total Economic Impact $306, 680. 00 $252. 00 $77, 000. 00 $89, 000. 00 $166, 000. 00 *Numerous difficulties with this estimation method 1)Substitution Effect 2)Crowding out 3)Leakages

Substitution Effect � Consumers spend money on a sporting event that would have been spent elsewhere � Ex/Christmas present � Few local attendees/week long event � 75% available tickets to individual teams � 17. 5% for participants � 1. 2% for � 5% for host team � 25% for sponsors, networks, VIPs and host committee

Crowding Out � Crowds and congestion assorted with a sporting event displace regular economic activity � Some people less inclined to visit host city during that time because of large crowds � Super Bowl in warm cities with large tourism � 80% Economic impact should only include extra rooms sold to sports fans over what would have been there � Sep. 11 th Example � New Orleans auto dealer convention

Leakages � Much of the money made in the host city may immediate leak out of the city � The event may generate income for the city but not its local residents � Hotels raise rates 3 -4 x normal level during Super Bowl � Shareholders, not local hotel members see that money � Capacity constraints � Labor and capital must be imported to meet demand � Jacksonville Jaguars � 6 cruise ships holding 7, 600 guests

Other Issues �Casual visitors � Tourists who attend sporting event on travel, not sport � Spending counted in typical economic impact study � Not significant issue during Super Bowl week �Time switching � Planning to visit a city anyway but rearranges to coincide with sporting event � Event doesn’t influence if but when � Once sports fan has seen the city, crossed off vacation destination

Empirical Studies of the Super Bowl �Independent scholars not connected with NFL examine ex post impact of hosting Super Bowl � Employment, personal income, per capita income, taxable sales, tax revenues, visitor statistics �Conclusion: Super Bowl generates a fraction of economic impact claimed by NFL boosters

Independent Scholars � 2000: Baade/Matheson � 25 Super Bowls 1973 -1997 � Average economic impact of $30 million (1/10) � 2002: Coates/Humphreys (per capita income) � All post-season play in North America � Hosting Super Bowl no effect on per capita income � Winner experiences $140 in per capita income � 2005: Matheson said $50 -$60 increase in per capita income � Not statistically significantly different from zero at 5% � Negative effect? � 2009: Davis and End study of hosting and winning Super Bowl � Winning had positive coefficient at 5% � Hosting had a negative coefficient at 5%

Difficulties measuring the economic impact �Hard to isolate within large, metropolitan economies � $500 million is less than 0. 2% of Miami’s annual GDP � Super Bowl only lasts for a few days �Taxable sales � Available monthly � Cover individual cities instead of entire metro areas � Used to finance many publicly funded sports facilities � Single largest component of GDP is consumer spending

Taxable Sales �NFL claimed $670 million increase in South FL 1999 (Miami Dade, Broward, and Palm Beach) � NFL did not to account for factors besides Super Bowl �Inflation, population growth, routine economic expansion �Over 90% of increase because of these variables �Broward and Palm Beach had taxable sales lower than expected despite Super Bowl ($14 and $16 million) � Only Miami had increase($67 million) �Taxable sales were $1. 26 higher the year after the Super Bowl!

Non-monetary Benefits �Assessing impact of Super Bowl in Glendale, Arizona � Powerful memories and good feelings � Return visits, family and business relocations � Word-of-mouth marketing � Game serves as an advertisement to the city � 30 -second shot of downtown Miami- $3 million � Value of commercial � Diminishing marginal returns

Conclusion � NFL convinces cities that a new stadium will bring a significant economic impact to host city � Because Super Bowl is used to extract public financing, we should be skeptical � NFL measures activity that does occur because of the Super Bowl but not activity that doesn’t � Scholars not connected with NFL found observed effects of the game on real economic variables to be generally positive, but a fraction of what is claimed by the NFL