The NFL recently announced that the 2014 Super Bowl would be hosted by New York/New Jersey and played in the new stadium being built for the Giants and Jets. If you’re not a sports fan you may not realize that although they are considered New York teams, both franchises actually play in Northern New Jersey.
I live about 10 minutes away from the stadium and needless to say there has been a lot of excitement in the area ever since the announcement was made. Everyone is talking about how much the local economy stands to gain by hosting the Super Bowl.
Forgetting the fact that the event is still over 3 years away and no one knows where the economy will be by that time, my initial reaction was that it should give the local economy a nice boost. After all, there will be 100,000 plus visitors staying at hotels, eating in restaurants and sports bars, using taxi or car rental services, and taking in other attractions during their stay. Plus the state could benefit from increased collection of sales taxes, hotel fees, etc.
The story I heard on the local news claims that the Super Bowl will inject $550 million into the local economy. But as I’ve since learned, most independent studies show these estimates to be grossly over-exaggerated. In fact, a study completed by Robert Baade of Lake Forest College and Victor Matheson of Williams College found that on average Super Bowls only generate about one-fourth of the economic impact projected by the NFL and supporters.
Now that is a pretty big difference ($550 million vs $137.5 million). But why?
According to Baade and Matheson, the NFL bases its numbers on simple projections of money that will come in as a result of the Super Bowl. But while that seems like a straightforward way of looking at it, you’ll soon realize that they are leaving out some rather important factors.
First, there is the crowding-out effect in which locals who don’t want to deal with all of the hoopla simply take their business elsewhere. They may decide to eat at home rather than dining out with rowdy football fans. Or they may leave town altogether to be free of the traffic headaches and chaos that the Super Bowl brings with it.
Secondly, projections often overestimate the multiplier effect which is “the notion that direct spending increases induce additional rounds of spending due to increased incomes that occur as a result of additional spending.”
For example, let’s say an influx of customers leads to a record profit for the local sports bar. The owner then spends that extra money fixing up his bar which benefits the local contractor. The contractor uses that extra money to buy a new van from the local car dealership, who then has the money to…and so forth. The initial round of spending multiplies and goes through the local economy again and again in a tidy, little circle.
But there may be significant leakages in the flow of payments. For example, the hotel industry stands to gain a lot from 100,000 or so visitors to the area in need of a place to stay. But if the hotel is a nationally owned chain then most of those profits are getting passed on to the shareholders and big wigs in the corporate offices, not the maids and bellhops who live in the neighborhood.
Now in the end I still think hosting the Super Bowl could be good for the NY Metro area. Although the added traffic might just kill me, I’m willing to accept 2 weeks of craziness if it really is a boon to the local economies.
I’m just not convinced the impact will be anywhere near as great as being advertised.