Monday, January 29, 2007

Countdown to Kickoff – the Great Super Bowl Economic misnomer

Super Bowl XLI is six days away, the game between the Indianapolis Colts and the Chicago Bears is set for Sunday evening at Miami’s Dolphins Stadium. HB’s Insider Report along with Sports Business News will focus the shift of our content this week to the Super Bowl. We’ll remain on top of all the latest sports business news, but this week the world will be looking towards South Florida. Just how big an economic impact will Super Bowl XLI have on South Florida businesses? If you have NFL officials they’ll suggest a Super Bowl game generally has a financial impact of $350 million on the local economy. If you ask an economist, they’ll make one issue clear regarding the economic impact – if you ask event organizers they’ll suggest money is falling from heaven.

More than 120,000 visitors are expected to head to South Florida this week and the NFL is sticking to their stance the game will generate more than $350 million to South Florida. True but mostly false. South Florida, the last week of January, first week of February – South Florida is pretty well filled with snowbirds and tourists fleeing northern communities for the warmth of South Florida. In simplistic terms – if South Florida can’t generate close to $350 million in tourist income during the same period each year regardless of whether or not the Super Bowl is in town, there are much bigger issues in South Florida. Most hotel rooms, restaurants and tourism related businesses will be full next year during the same dates when Super Bowl XLII will be held in Phoenix.

"If you move that $400 million estimate and you move the decimal point one place to the left you're much closer to what it is that it actually provides," said Robert Baade, an economics professor at Lake Forest College in Chicago who has looked at the financial impact of Super Bowls, Olympics and World Series in an Associated Press report

"A lot of people who might frequent, let's say, hotel areas where they know Super Bowl fans are going to be staying are going to avoid the chaos, the congestion, the peak utilization of sidewalks and roads," Baade said.

And those who don’t agree with economists like Baade and are working on behalf of various Super Bowl host or organizing committees offer this retort.

"I guarantee you that 99 percent of these economists have never been to a Super Bowl and never collected data on the ground," said Kathleen Davis, executive director of the Sport Management Research Institute, who was hired by the host committee to study Super Bowl XLI's economic impact. "They're not capturing the local spending habits and they focus on whatever factors will justify their arguments."

Thursday, PricewaterhouseCoopers released an economic study that indicated (PwC) estimates that Super Bowl XLI will generate approximately $195 million in direct spending for Miami-Dade, Broward, and Palm Beach counties. This excludes the so-called “multiplier effect,” which past studies have suggested can up to double the direct dollars by accounting for "indirect" impacts, such as a concession company's purchase of goods from local producers and manufacturers, and "induced" impacts which occur when the income levels of residents rise as a result of increased economic activity and a portion of the increased income is re-spent within the local economy.

The Super Bowl continues to act as a significant generator of economic activity for its host communities. Over the past 10 years, the game itself and a variety of additional special events and related activities (including approximately six months of pre-game planning) have generated $1.5 billion in local spending.

"The success of Miami and the entire South Florida region in realizing a greater level of economic impact from the Super Bowl reflects several factors including the attraction of South Florida as a destination, the diversity of venues available for hospitality and special events, and the higher cost of hotel rooms and other goods and services,” said Robert Canton, a director in PricewaterhouseCoopers’ Advisory practice focused on sports, conventions, and tourism. "Although any destination will experience a significant increase in local economic activity associated with hosting a Super Bowl, tourist destinations like Miami, San Diego, Phoenix, and New Orleans provide a unique atmosphere that is conducive to a comparatively higher level of spending and extended lengths of stay."

While some analysts have suggested that a "let-down" following the event can have a negative impact on a region's hotel performance in the week following the game, research conducted by PwC in markets that have hosted the past six Super Bowls indicates this is not typical. According to Mr. Canton: "We evaluated hotel occupancy and rates in the five weeks surrounding the game and found that the two-week period following the Super Bowl performed equally well or better than the two-week period prior to the week of the game."

According to PwC, while tourist destinations such as Miami generate higher impacts than non-tourist destinations, others including Detroit last year also realize significant impacts from the Super Bowl and invest heavily to attract the game.

“While few events measure up to magnitude of the Super Bowl, Indianapolis has a great history of hosting major sporting events, including Final Fours and the annual Indianapolis 500, and with its new Lucas Oil Stadium, expanded Convention Center, and visitor-friendly downtown, it should have a real opportunity to compete for the Super Bowl event in 2011” explains Mr. Canton. “To successfully attract the Super Bowl, a destination must not only be capable of providing the venues, hotel rooms, transportation, and entertainment environment, but must also be willing to invest millions of dollars on items including public health and safety, hosting special events, recruiting and training volunteers, clean-up, and other items. Indianapolis has a history of strong commitment by its leaders to create and sustain a tourism environment based largely on major sporting events and conventions.”

The last three Super Bowls where held in Houston, Jacksonville and Detroit respectively. None are considered warm weather tourism destinations. Miami is the perfect Super Bowl city, but again a destination that is filled with tourists from early December until late April.

Jacksonville, host of Super Bowl XXXIX, organized more than 120 special events over a 10-day period culminating with their Super Bowl on February 6, 2005. NFL officials believed Jacksonville’s Super Bowl would generate over $300 million in economic impact for Florida’s First Coast region. But the rationale for Jacksonville organizers was simple – they believed hosting a Super Bowl would validate Jacksonville as a legitimate major league/mega event city.

The host committee raised more than $12 million in private funds and the city kicked in close to $3 million, as well, with $5 million in additional revenues that came back in sales tax and hotel surcharge revenue alone. Security expenses in Jacksonville topped $6 million, with those costs split between various local, county and state governments.

In 2000, Jacksonville voters approved a $2.2 billion growth management plan that helped change the face of downtown. Among the civic improvements made in the years leading up to Super Bowl XXIX: a 16,000-seat arena and minor league baseball park were built, along with a new three-mile river walking/biking/jogging trail, a library, courthouse, equestrian center, and major improvements at the zoo.

Jacksonville didn’t have enough hotel rooms within the immediate area to accommodate the 100,000 people who traveled to the city two years ago. The Jacksonville Super Bowl organizing committee charted six ocean liners and turned the rooms in the luxury liners into the additional hotel rooms they needed. The organizing committee leveraged the cruise ships by selling dinner and overnight packages on the cruise ships to local residents on Wednesday, the day before the ships were turned over to the NFL. The cost of dinner was $239 per person; overnight is $599 a couple.

Exploiting every possible money-making opportunity, the host committee sold sponsorships to stages at the downtown SuperFest, as well as naming rights to a transportation hub.

The host committee absorbed about $1.5-million to create a downtown entertainment district to make up for the scarcity of Jacksonville’s nightlife. The rationale was easy to understand – if you’re going to spend tens of millions of dollars in hosting a Super Bowl investing an additional $1.5 million in enhancing your cities night life makes perfect sense.

The 2002 Super Bowl played in New Orleans represented a serious of monumental challenges to the organizing committee and the National Football League. The first major global sports event that followed the terrible events of September 11, 2001 forced NFL officials to move the game forward one week ahead from its scheduled date. The NFL made the change after postponing their games the Sunday following Tuesday, September 11, 2001.

The NFL swapped dates with another major convention -- the National Automobile Dealers Association -- paying $7.5 million (plus an additional $500,000 to the auto dealers’ charity) to move the 30,000-person convention and its 16,000 hotel room commitments (a week ahead, the original Super Bowl dates). The league even paid $5,000 each to 11 parade clubs so they could celebrate Mardi Gras a week earlier. The league also paid to move a monster truck show and several minor league hockey games.

Zenophon Abraham of Sports Business Simulations, was in Houston for Super Bowl XXXVIII, said "The Super Bowl changes that. If the viewer comes to Houston, that's an economic impact in addition to the mention of the name in the media, but is caused by that action. It's safe to say that Houston will receive about $25 million in economic impact from this source – media exposure – alone because of the two-week Super Bowl period. Add that estimate to the base estimate of $240 million, and that's a $265 million economic impact. Media marketing is about 10 percent of that total."

Dr. Bruce Seaman of Georgia State University estimated the total impact of the 2000 Super Bowl in Atlanta to be $292 million, which is the combination of the direct and indirect impacts of the spending attributed to the event.

Seaman estimated that the average out-of-town visitor to Atlanta stayed for 3.7 days, arriving on Friday and leaving the Monday after the game.

According to Seaman, each visitor to Atlanta spent an average of $350 per day, or about $375 in 2003 dollars. In Atlanta, corporations spent approximately $11.2 million. The 2004 Houston Super Bowl Host Committee anticipated corporations spent approximately $10 million. Seaman estimated media expenditures of approximately $6.5 million in Atlanta.

If the numbers from Seaman's study are adjusted to reflect differences between Houston and Atlanta and inflation during that four year period, the direct economic impact of the 2004 Super Bowl would have been $156 million. This, combined with the indirect impacts (using Seaman's 1.08 multiplier) implies a total economic impact of $324 million.

This is only 3.5 percent less than the $336 million estimate offered by the 2004 HSHC. Therefore, the HSHC's position may not be terribly overstated.

The estimated impact of the 2004 Super Bowl sounds impressive and, for some, might justify the approximately $450 million public expenditure on Reliant Stadium. However, caution is in order.

The main determinants of the estimated impact of the Super Bowl in Seaman's calculation (aside from the multiplier's value) are the length of the average visit and the per diem of the average tourist. A small change in either can cause a large change in the estimated economic impact of the Super Bowl. And that goes back to the premise made at the start of this Insider Report – South Florida would be filled with tourists this week regardless of whether or not a football game was being played Sunday at Dolphins Stadium.

That isn’t stopping some hotels from taking advantage of the opportunity. According to swank South Beach, the Delano Hotel is getting $1,200 to $1,875 a night for rooms, and the Setai Hotel wants $950 to $9,000 a night for suites. Spokesmen say these are their usual popular prices but acknowledge hefty minimum-stay requirements -- five nights at the Delano and seven nights at the Setai. It's becoming as much a South Florida tradition as Uzis -- the Art Basel crowd also cried "price-gouging" -- and the NFL is not amused.

The league has sued three hotels, alleging they reneged on contracts to provide the league rooms at a certain rate to pursue higher-rate customers. "There are those who see a chance to do a year's worth of business in a weekend and would like to take a shot at stepping away [from their contract]," says Frank Supovitz, who as the NFL's senior vice president for events is the league's Super Bowl honcho.

To Supovitz, it isn't so much that business execs passed up Detroit altogether, but that they passed less time there. "They came, but not necessarily for four days," he says. "A number of corporate clients came in just for the day." (One day as opposed to four dramatically has a negative affect on the economic impact).

Robert Tuchman, whose TSE Sports & Entertainment has sold about 1,000 Super Bowl XLI packages, after only selling 350 packages for Detroit’s Super Bowl XL.

"The blue-chip companies that cut back after 9/11 are starting to do more again," he says. "There's also been a revival on Wall Street, which has driven a lot of our business."

Economists Robert Baade and Victor Matheson told The Miami Herald estimates of the Super Bowl's benefits are almost hopelessly overstated. The men studied Super Bowls from 1970-2001.

Their conclusion: ''Evidence from host cities from 1970-2001 indicates the Super Bowl contributes approximately one-quarter of what the boosters have promised.''

In Miami, it was even lower. Super Bowl XXXIII (or 33) produced one-tenth the anticipated economic gain, they found.

Of course, there are non-monetary benefits. For instance, the host committee notes that much of its projected economic impact comes from ''exposure that leads to increased tourism and business relocation.''

Peter Roby, director of the Center for the Study of Sport in Society in Boston, told the Associated Press he believes the estimates relating to the Super Bowl’s economic impact are probably somewhat inflated "because people are trying to justify why they want to bring that particular event to the city." However, Roby stills calls the event a "major economic catalyst" that could provide benefits for the community and charities.

Organizers want to say, "Not only did we put our full face out to the public to see, but we used some of the revenue from this event to benefit some of those things," Roby said.

Is it worthwhile to host a Super Bowl, that’s a rhetorical question. Of course it’s great to host a Super Bowl event but it’s important to appreciate when a Chamber of Commerce or a local Super Bowl Host Committee extols the financial benefits of hosting a Super Bowl. It’s essential to consider all of the financial variables in determining the true economic impact of events like the Super Bowl.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report:, the Associated Press and The Miami Herald

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