Thursday, February 02, 2012

Countdown to Super Bowl XLVI – the economic impact misnomer

The National Football League’s annual spending orgy, better known as the Super Bowl, is heading into the home stretch in Indianapolis. Indianapolis has hosted six Final Fours and more than 100 Indianapolis 500 races. While those events have had a significant economic impact on Indianapolis, if you listen to anyone associated with Super Bowl XLVI, the economic impact is staggering – bigger than any other event Indianapolis has ever hosted.

More than 150,000 people will be in Indianapolis this weekend. Hotel rooms are filled. A Days Inn located near the Indianapolis Airport that normally sells for $47 a night, is selling for more than $900 a night this weekend.

Super Bowl Host Committee Marketing Coordinator McKenze Rogers told The Ball State Daily News that she anticipates Indianapolis will bring in from $150 million to $400 million as a direct result of hosting Super Bowl XLVI. Michael Hicks, associate professor of economics at Ball State University, backed up Rogers’ claims based on recent Super Bowl earnings and the fact that this is Indianapolis' first year hosting this monumental event.

"Sixty thousand or so are going to see the game in the stadium; the rest are family and friends and attendees," Hicks said in The Ball State Daily News. "They're going to spend money; they're going to stay in the hotels; they're going to buy food and drink and brochures and T-shirts and everything else.

"Added to that is going to be the response of the community to the Super Bowl. Part of that is all the advanced construction that you've seen over the past couple months, but more of it is going to be positioning Indianapolis to be a tourism destination down the road. Hosting a Super Bowl is a gateway to being a top-tier community for tourism and conventions and those sorts of things."

Most Super Bowls are held in warm weather cites. Miami has hosted ten Super Bowls (more than any other city). New Orleans, home to Mardi Gras every February, hosts their tenth Super Bowl next February. Tampa, San Diego and Phoenix have each hosted multiple Super Bowls in late January or early February. Those five cities are tourist destination points. If those cities weren’t hosting Super Bowls in late January or early February, most of their hotels would still be filled with tourists. Those five cities host conventions during the winter months. In simpler terms, those five cities are each busy this weekend and they’re not hosting the Super Bowl.

Detroit has hosted two Super Bowls and this is the first time Indianapolis has hosted a Super Bowl. In the cases of these three Super Bowls, it is a safe assumption hotel rooms in Detroit or Indianapolis wouldn’t be filled unless the Super Bowl was there.

Patrick Rishe offered a number of interesting points regarding the “economic impact of a Super Bowl” in a Forbes Magazine report:

· Super Bowls do confer net economic benefits in terms of new visitor spending from fans, corporations, and the media…and that there can be lagged non-local spending benefits as well as real-time cost savings associated with the media value that hosting the Super Bowl can confer upon one’s city;

· Most Super Bowl impact estimates tend to be inflated (some widely so) because they don’t properly account for all the factors which ultimately pull net impact estimates well below gross impact estimates.

Dr. Rishe, Director of SportsImpacts, a national sports consulting firm that has conducted economic impact studies for two Super Bowls, three Final Fours, and more than 70 projects all together since 2000, believes that many Super Bowl economic studies fail in what they’re supposed to do by:

· Not properly sorting “locals” from “non-locals”…and though the “vacationing at home” argument has validity, some over-estimate the degree to which this effect is applicable;

· Not accounting for the fact that ticket revenue, NFL merchandise, and similar itemized expenditures don’t stay within the host city because that revenue is ultimately slated for the NFL’s pockets or that of some non-local supplier;

· Not accounting for monetary leakages of various types…non-local suppliers taking money out is one example, and any restaurant or hotel with a national headquarters based outside of the host city yields some additional leakage which reduces the impact of the Super Bowl;

· Not accounting for displacement or crowding out effects.

Indianapolis is a good Super Bowl city. Major hotels that can house the teams, the NFL, their sponsors, the media and tens of thousands of fans are all in the downtown area. Lucas Oil Stadium and the NFL experience taking place in the Indiana Convention Center are also in the downtown area. For those staying in the downtown area, they don’t even need a car. Super Bowls (wait for Super Bowl XLVIII in New Jersey in 2014) can be a transportation nightmare.

"It's definitely not going to be as much fun walking around the streets of Indianapolis as it would be in New Orleans, but I don't think the weather, unless it's a drastic snow storm, would greatly affect attendance," Hicks said. "Tickets right now are going at $3,000 and $4,000 a pop, so I don't think the prospect of bad weather is going to keep people away."

The Dallas Morning News reported that Planalytics, a business weather intelligence firm in Pennsylvania, suggested the economic impact for Super Bowl XLV (held in Dallas in February 2011) had an economic impact of between $200 million and $250 million. Spending at last year’s Super Bowl was impacted by terrible weather in Dallas. Hotel rooms were filled, but tens of thousands of Super Bowl visitors stayed in those hotel rooms when ice storms plagued Dallas in the days before Super Bowl XLV. The ice storms cost Dallas retailers at least $25 million last year.

"I was surprised. I thought the impact from the weather would have been much greater," Scott A. Bernhardt, chief operating officer at Planalytics, told The Dallas Morning News. "After Tuesday, everything just stopped, but the floodgates opened on Thursday."

Per person spending between Thursday and Sunday at Super Bowl XLV averaged $1,200, Bernhardt said. At recent Super Bowls, spending usually worked out to about $1,000 per person.

"The debate over economic impact has been going on in the academic literature for about twenty years," Craig Depken, an associate professor of economics in the Belk College of Business at UNC Charlotte, told The Daily "Generally speaking the economics literature has found little evidence to support the idea that mega-events such as the Super Bowl or the Olympics generate the net economic impacts predicted by event promoters/advocates."

"The studies [saying there are big benefits from the Super Bowl] are just guesses, not studies," says Philip Porter, a professor of economics at the University of South Florida in Tampa. "While there is a lot of money being spent there is no opportunity for the city to grab it."

There are benefits to hosting a Super Bowl that extend beyond filling hotel rooms and the impact the Super Bowl has on local retailers and restaurants during the week leading up to the Super Bowl.

There are more than 2,000 media people in Indianapolis this week. Assuming a city is prepared to host a Super Bowl (and the weather cooperates), there is a good chance that city will receive hundreds of millions of dollars of exposure through media reports. That can often translate into tourist dollars, people discovering a city or a region because they read, heard or saw a Super Bowl report and decided to visit that city. Indianapolis hopes the benefits of hosting Super Bowl XLVI will pay off in tourist dollars in the years ahead.

“You get free television coverage showing a place where people can play in January and February," said Phoenix Deputy City Manager Ed Zuercher, the city staff's liaison to the Host Committee in a report after Phoenix hosted the 2008 Super Bowl. "If people are sitting in New England in freezing temperatures, they're thinking, 'Maybe I can go to Arizona where the sun is shining and the skies are blue.' "

The infrastructure costs associated with hosting a Super Bowl can be staggering. The costs of security and additional events easily top $100 million. In the eyes of an NFL team owner and a city that has the ability to host a Super Bowl, any costs linked to hosting a Super Bowl far outweigh the benefits of hosting the Super Bowl

For Sports Business News this is Howard Bloom

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