The number one sport in America is American football, and with the Superbowl ultimately deciding the annual U.S. football champion, it comes as no surprise that the Superbowl is huge. In 2020, 99.9 million people tuned in to watch the Superbowl. To put this into perspective, the Academy Awards only received just over 23 million viewers earlier this year.
In the past, the job of hosting the Superbowl was mainly given recurringly to cities, with Miami, Los Angeles, and New Orleans all having hosted 30 times combined in the Superbowl’s 53-year-old history. In the last fifteen years, however, the league has awarded the Superbowl to nine cities following the construction of new stadia. The unspoken agreement is roughly as follows - should a city be willing to provide new, or in many cases, heavily upgraded facilities, chances are that they will be chosen to host the event.
Obviously, the construction of stadiums isn’t cheap. One recent Superbowl was held in the Lucas Oil Stadium in Indianapolis, which cost a whopping $720 million to build. Although, with the NFL claiming that the Superbowl brings somewhere in the region of $300-$500 million in economic activity per event, this should mean that the host city is left with a much smaller bill to foot. Many sports economists disagree though, and say the actual number is just a fraction of what the NFL predicts. But how do they go about calculating the economic impact of a sporting event?
Put simply, you need to consider the direct and indirect economic impacts…
Measuring the direct economic impact of a sporting event
To do this, one would add up the number of attendees at the game and estimate the average fan’s expenditures in connection with the game. Will the crowd be buying drinks and food at the stadium, the jersey of their favourite NFL star, or even an upgrade to their seats? Will fans around the world pay a one-time subscription to a sports channel or streaming platform that is showing the event?
Measuring the indirect economic impact of a sporting event
To do this, one would take the direct impact and apply a multiplier to account for the initial round of expenditure recirculating in the economy. For example if a sporting event brings in a direct impact of $50 million, and then an economic multiplier of 2 is then applied, then there is another $50 million of indirect economic impacts for a total economic impact of $100 million. This is because any money made as a result of the Superbowl (think restaurants being full all week, AirBnBs being booked up and local attractions seeing increase in visitors) will further benefit the economy if it is not saved – as anything not saved is considered to be spent.
However, the following factors must all be taken into account:
1. Crowding out
- Crowds and congestion associated with a sporting event displace regular economic activity (if normally locals would go to bars and spend money in the evenings, then lots of people from out of town crowding bars dissuades these locals)
- People may be dissuaded from visiting Superbowl host cities or people may have been going there anyway, it just so happens that they are visiting the same week as the Super
bowl. Their money spent may go down as money spent as a result of the Superbowl when really the money would have been spent anyway.
- If a restaurant is fully booked up during the week of the Superbowl but in normal weeks it is 70 per cent full, the benefit from the Superbowl can only be the increase in sales compared to a normal week. In this case, it would only be a 30 per cent increase.
- Money is sometimes spent on a sporting event that would have been spent elsewhere in the economy, so total expenditure in the economy hasn’t been increased. Rather, it has just been diverted. If, for example a Superbowl party is held and a household spends $50 on this party, this likely would have been spent on something else if the Superbowl not been in town, as they were not intending to save this money.
However, it’s thought that, with the Superbowl attracting an audience of mainly non-locals, this effect is fairly small.
- Much of the money spent is not staying within the local economy. So, the money doesn’t end up in the pockets of the residents. If hotel chains see huge booking increases and charge 300 per cent more than the normal rate, this doesn’t mean that any more money ends up in the pockets of local people working at the hotel chain. The local workers can’t then spend the money in the local economy to boost the multiplier.
- Another point to note is that the Superbowl is so widely watched and attended that outside workers and services have to come in to meet demand, and again the money leaves the local economy. The perfect example being the Jacksonville Superbowl, where cruise liners helped increase hotel room capacity for the Superbowl week, then sharply departed afterward, taking with them all the money spent by those tourists. The money in this case went straight from tourists to outside corporations, with locals seeing none of the economic benefits.
So, is it really worth building new stadiums to host the Superbowl? The numbers from economists suggest not, with most actual figures being put somewhere around the $150-200 million mark. The reason it is a problem is that whilst taxpayers money is being used to shell out for new fancy arenas and their upkeep, funds could be better used to support the local economy which would be more beneficial to society.