Friday, January 25, 2013

Sorry, New Orleans: The Super Bowl Won’t Bring A Major Boost To Your Economy

New Orleans is gearing up to host Super Bowl XLVII, the National Football League’s annual championship that will pit the Baltimore Ravens against the San Francisco 49ers on Sunday, February 3. The city and its businesses are predicting an economic boom that will result in the ultimate comeback for a city that was decimated by Hurricane Katrina in 2005.

Officials expect 150,000 people to descend on the city for the Super Bowl, and economic impact studies estimate that the game will bring $434 million to the city’s economy. Hosting three mega sporting events — the 2012 NCAA men’s Final Four and this year’s Super Bowl and women’s Final Four — will boost the city’s economy by more than $1 billion, according to an estimate from the International Business Times. And business leaders and lawmakers think the media exposure involved with hosting the big game will push the boom to immeasurable levels.

Those estimates, though, are likely fool’s gold, according to an assortment of academic research into the actual economic impact of Super Bowls and other major sporting events. When professors Victor Matheson and Robert Baade studied the economic impact of Super Bowls from 1973 to 1997, they found that the games boosted city economies by about $30 million, “roughly one-tenth the figures touted by the NFL” and an even smaller fraction of what New Orleans officials predict. A later Baade and Matheson study found that the economic impact of a Super Bowl is “on average one-quarter or less the magnitude of the most recent NFL estimates.”

Similarly, a 1999 paper from professor Philip Porter found that the Super Bowl had virtually no effect on a city’s economy. Research on other events New Orleans has hosted, including the men’s Final Four, is similar. When Baade and Matheson studied Final Fours, they found that the events tend “not to translate into any measurable benefits to the host cities.”

There are multiple reasons the estimates are often overstated. Impact estimates usually take into account how much money will be spent in the city during an event like the Super Bowl without examining how much potential spending will be lost because people don’t visit or leave the city to avoid the crowd — that is, the impact studies account for gross spending, but not net spending. And the estimates rarely include the additional cost of putting on the event, further distorting the disparity between gross and net spending figures.

Another factor is the possibility of leakages, whereby money spent doesn’t remain in the local economy. Much of the spent money will be at hotels, which often raise prices three-fold for events like the Super Bowl. But as Matheson notes in one study, those price increases don’t translate into three-fold increases for hotel employees, so much of the increased spending never makes it back into the local economy. And many Super Bowl services are outsourced to outside contractors, who don’t return all of their earnings back to the local economy either.

But even if the Super Bowl creates activity to match the most generous estimates, that wouldn’t be nearly as big a deal as it seems. Total economic activity for the New Orleans metro area totaled $80.3 billion in 2011, meaning a $434 million boost would amount to about 0.5 percent of the city’s yearly economic activity.

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