Thursday, January 31, 2013

Countdown to Super Bowl XLVII – the economic misnomer

The Big Easy’s hotel rooms are filled this weekend, Super Bowl XLVII is set for Sunday. Super Bowl XLVII managed to extend Mardi Gras, or least put that party aside for a few days. Because of the Super Bowl festivities the New Orleans Mardi Gras krewes (parades) are taking the weekend off. If Super Bowl XLVII wasn’t being played at the Superdome Sunday, Mardi Gras celebrations would continue, hotel rooms throughout the Louisiana city would be filled to capacity with Mardi Gras celebrants.

According to a New Orleans Times Picayune report a sampling of Super Bowl economic impact studies shows a reported $292 million spending boost in Atlanta for 2000, a $367 million benefit in San Diego in 2003, a $261 million spike in Detroit in 2006, a $463 million wave in Miami in 2007, a $500 million gain in Arizona in 2008 and a $384 million bump in Indianapolis last year. New Orleans saw $249 million in 1997 and $299 million in 2002.

"We're all fond of saying, 'Move the decimal point one place to the left and you're more accurately predicting what the impact will be,'" economist Rob Baade of Lake Forest College in Illinois said about Super Bowl economic impact studies in a New Orleans Times Picayune report. "You really need a kind of dispassionate, objective appraisal."

Hosting the Super Bowl makes sense in helping to promote tourism in the city hosting the game – regardless of whether or not New Orleans hosted Super Bowl XLVII the city remains a tourism destination.

Most Super Bowls are held in warm weather cites. Miami has hosted ten Super Bowls. New Orleans, home to Mardi Gras every February, hosts their tenth Super Bowl this weekend. 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, four of those five cities are each busy this weekend and they’re not hosting the Super Bowl. The lone exception, New Orleans the games host this year.

Detroit has hosted two Super Bowls and last year Indianapolis hosted Super Bowl XLVI. 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.

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.

"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 Finance.com. "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."

"We think the NFL has an impact far beyond the game itself and people who come to the game," University of New Orleans economist Janet Speyrer told the New Orleans Times Picayune. "My sense is it will have a positive and lasting effect for some time.

"Usually the comparison still leaves a positive number when it's the Super Bowl," Speyrer said.
It’s expensive to host a Super Bowl week. Infrastructure costs can cost close to $100 million, with security the most expensive taxpayer paid component of hosting a Super Bowl.

"Everyone is coming up with the answer that the Super Bowl is good thing, but it turns out to be a good thing that's less than half, and sometimes as much as a tenth," of common estimates, economist Victor Matheson at College of the Holy Cross in Massachusetts said in the New Orleans Times
Picayune report.

"There's no doubt that the Super Bowl is a big event," he said. But, "they do a really good job adding and multiplying. The problem is they don't do a good job subtracting."

Following Super Bowl XLVI in Indianapolis, the local organizing committee offered an economic study and impact report following the February 2012 event.

"Super Bowl spending by residents was eliminated wherever possible; arguably those expenditures would have taken place without Super Bowl XLVI," the report said. "Spending streams that immediately left Indianapolis were also subtracted. Examples include game ticket purchases or operational expenditures that went to businesses outside the area. Where identified spending streams lacked sufficient data, they were not included."

That study believed the Super Bowl created a gross contribution to the Indianapolis economy of $384 million. It narrowed total spending from sources outside the region to $342 million the study eliminated $46.9 million in displaced tourism business, believing Super Bowl XLVI had an a $295 million net contribution to the Indianapolis economy. The study again offered by the Indianapolis Super Bowl host committee said businesses that worked directly with Super Bowl events and customers took in $176 million. The Indianapolis study concluded that the event amounted to "a huge economic and fiscal windfall for the region."

New Orleans Super Bowl Host Committee President Jay Cicero spoke with the New Orleans Times Picayune offering his own spin on the benefits of hosting Super Bowl XLVII.

"You mean to tell me they would've had that amount of business, paying that amount of money, without the Super Bowl being here," Cicero said about local companies. "Would they be doing the same amount of business on the first weekend of Mardi Gras? The answer is no."

"It just dwarfs everything out there," Cicero said. "You can see with your own eyes. This isn't a small event.

The National Football League wanted New Orleans to host a Super Bowl as part of the league`s belief in the city and the cities recovery from Hurricane Katrina. New Orleans hosts a party like few cities in the world can. That said, the economic benefits might not be as great as organizers would like to believe, but it is an event that for the most part offers tremendous benefits to a host city.

For Sports Business News this is Howard Bloom

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