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business newsChamps and Chumps: When the Big Game Comes to Town, Not Everybody Wins
By
John F Kelly Nov 02, 2009 9:40 am
Exotic dancers? Cops? Local hotels? You'd be surprised at whose profits drop during major sports events.
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Well, that depends on whom you ask.
Sports leagues will say that the influx of free-spending fans pumps millions of dollars into the city’s hotels, restaurants, and other businesses. Local city tourism officials typically claim the economic impact of the NFL’s Super Bowl to be $300 million to $400 million. The MLB All-Star Game is said to bring in $75 million, while the NCAA Men’s Basketball Final Four might score between between $30 million to $100 million.
But put the same question to an economist who studies the business of sports and you'll get a different answer. Because calculating the actual dollar amounts associated with these mega-events is such an imprecise art, they conclude that the reported numbers are usually highly inflated.
"A good rule of thumb with those dollar numbers is to take the decimal point and move it over one place,” Victor Matheson, associate professor of economics at College of the Holy Cross in Worcester, Massachusetts, tells Minyanville. "Most league-sponsored economic impact studies not only potentially exaggerate the benefit side of the cost-benefit equation but also often completely ignore the costs of hosting such an event.”
Continue reading this story, below, or click on a category to see who wins and who loses when the big game comes to town.
Economists point toward a number of factors that lead to the gross overestimation of game-related revenue. For one thing, the estimates rarely take into account the cost of new stadiums or infrastructure projects -- funded by local taxpayers -- built to attract a game. Of the 15 new MLB stadiums built between 1970 and 1997, 13 were selected by the league to host an All-Star Game within five years of their construction.
Other costs are hidden in the "unseen” amount of money not spent in a city during a mega-event weekend. Residents of a city that’s hosting the Super Bowl, for example, may choose to leave when the game is in town to avoid the excessive traffic and crowds. This means that the dollars they normally would be spending locally will end up somewhere else.
Tourist-spending figures that are labeled as game revenues can be deceiving, too, say some experts. Since these events are usually held in cities that are already popular tourists destinations, a large increase in hotel stays isn't necessarily a given. For example, various studies have shown that hotel occupancy rates when hosting a Super Bowl are only 1.24% to 7.3% higher than the same month of the previous an following years.
Even more telling, and troubling, were the findings of a study conducted by Phil Porter, an economist at South Florida University. He examined Super Bowl XXXIX, held in Jacksonville, Florida, in 1995 and reported that the event resulted in $41.3 million increase in taxable sales. At a rate of 7%, that meant about $3 million in tax revenues for the city. The local government’s bill -- for making the necessary infrastructure updates, adding overtime pay for security, police, firefighters, and EMS workers -- was estimated to be about $15 million.
Which means it costs Jacksonville and Dade County $12 million to host Super Bowl XXXIX.
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