The overstated impact of the Super Bowl

Super Bowl LII will be played in a couple of days, between the Eagles and Patriots (and with my Panthers out of the running, I'll be backing the Eagles - the Patriots have had their fill of success in recent years). Tens of thousands of fans have descended on Minneapolis for the game, and accommodation providers, hospitality businesses, and retailers will no doubt see increased sales as a result. However, there is another neglected group that benefits greatly from large sporting events - the consultants who write economic impact studies, and charge thousands of dollars for them. As I've written about before (most recently in terms of the America's Cup), most economic impact studies are junk, or at the very least heavily overstate the benefits. Kevin Draper made the case for recently in the New York Times, related to the economic impact of the Super Bowl:

Depending on what, exactly, constitutes a public dollar, taxpayers contribute an average of about $250 million to build N.F.L. stadiums, according to the advisory firm Conventions, Sports & Leisure International. For U.S. Bank Stadium in Minneapolis — which opened in 2016 and will host the Super Bowl on Sunday — the state of Minnesota spent $348 million and the city kicked in an additional $150 million, a bit less than 50 percent of the stadium’s total cost.

An economic impact report commissioned by the Minneapolis Super Bowl Host Committee stated that much of the taxpayer investment in the stadium would be recouped by the region during the event. It estimated that the Super Bowl would contribute $343 million to the region, including $29 million in tax revenue.

“We are taking a conservative approach with the numbers,” Michael Langley, the chief executive of the Minneapolis-St. Paul economic development agency, said. “But even if you are only talking about $350 million to $400 million, that’s a huge benefit to the community, just in terms of dollars spent in February.”

Sports economists don’t view the situation quite the same way. They said the economic impact study for the Minneapolis Super Bowl began by saying all the right things about how past estimates had “been criticized as extremely overinflated, inaccurate, even purposely misrepresented.” In the end, though, it did the same thing.

The main problem, usually, with economic impact studies is the incorrect specification of a counterfactual - what would have happened if the event (e.g. the Super Bowl) hadn't happened? In most cases, there wouldn't have been no visitors to the area, so it's inappropriate to suggest that all economic activity during or around the event represents extra economic activity. Draper notes:

Take hotel rooms, for example. To host the Super Bowl, Minneapolis had to show that there were at least 24,000 of them within 60 minutes of the stadium, capable of accommodating visitors during the entire 10-day Super Bowl celebration. Accordingly, the economic impact report estimates the Super Bowl will generate 230,000 nights of hotel stays.

But if the Super Bowl were not in town, many of those hotel rooms would have been filled anyway, by business travelers, conventiongoers and — yes, even in Minnesota in the dead of winter — tourists.

A related example, and closer to home. The World Sevens Series is being played in my city (Hamilton) today. My wife and I were thinking about going out for dinner in town last night, but wisely thought better of it when we considered how busy it was likely to be. The restaurant probably gained custom from the rugby fans here for the weekend, but they also lost the custom from my wife and I.

Draper also raises another good point:

The rooms cost more than they otherwise would, generating about $28 million in additional revenue. But Stephenson cautioned against assuming that the money had stayed in Indianapolis; in fact, there was heavy leakage.

“They don’t give it to the housekeeper or bellboy or front-desk person,” he said. “A lot of it just flows to whoever owns the hotel.”

To suggest that all of the benefit of additional spending in the city is a benefit to the city is to ignore where the profits will go. That's an even more important consideration for events in New Zealand, where a significant proportion of profits may be siphoned off by international hotel chains, travel providers, and so on.

In any case, it's a good reminder that we should be careful what we believe when we are presented with big numbers that are labelled 'economic impact'. Including when we read the forthcoming "independent economic report" for the Hamilton Sevens (mentioned here).