The Super Bowl is now less than a week away and various local news broadcasts and newspapers claim that the big game and all the hoopla surrounding it will inject an estimated $600 million into the local economy.
But how accurate are those numbers? After doing some research I’ve found that 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.
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. If the actual amount of direct spending falls short of projections then all additional rounds of spending will be reduced as well.
There are also 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.
This year is a bit more complicated because revenues from Super Bowl related activities will be shared between New York and New Jersey. The game itself will be played at MetLife Field which is located in East Rutherford, NJ. But many of the festivities leading up to the Super Bowl will actually take place in New York City. Visitors will likely be split between the two states so hotels, bars, and restaurants in both states should benefit.
In the end, I think the Super Bowl will be good for the New York metro area (though I’m glad I moved last summer and I’m now further away from the stadium and traffic). I’m just not convinced the economic impact will anywhere near as great as being advertised. Time will tell.