The Superbowl, apart from say a word cup final, is by far the largest and most watched sporting event in the world. Last Years Superbowl played between the New England Patriots and the Seattle Seahawks was the single most watched event in American Television history (114 million views per minute). As the big game just past a few days ago, it made me question, what kind of impact would an event of this scale have socially, economically, and even culturally. Some estimates claim that Americans spend as much as $1 billion on food alone for the Superbowl. From the halftime performance of one of the world’s top recording artists, to the commercials, where some tune in solely for and manufacturers shell out $5 million for a 30-second spot, the effect of the big game can be quite surprising on American society. But as it turns out, the Superbowl’s influence extends well beyond simply one day throughout the whole year as most people would assume it does. The social and economic effects are mostly contained to the city where the event occurs, but the effects of a city’s successful bid for a Superbowl can have long lasting effects on the city and its citizens.

Now, one of the more obscure impacts the Superbowl has on the economy is the Superbowl Indicator- which is a superstition that the outcome of the game will influence the health of the economy for that year. For those who are unaware, the NFL has two conferences, the National Football Conference (NFC) and the American Football Conference (AFC): the Superbowl Indicator stipulates that on a year when an NFC team wins, the stock market will be a bull market, however, if an AFC team wins, the rest of the year will be a down bull market. What is surprising, the Indicator has a success rate of about 81%. As the Denver Broncos won last Sunday, which is an AFC team, it remains to be seen if the market will stay a bull market for the coming year. Now, the correlation between these events is complete coincidence, and no one should take it as trustworthy evidence of market outcomes, but the popularity of the Superbowl Indicator make it hard to imagine that this is true for everyone.

As for the halftime show- the NFL has a history of getting some of the most famous and historic recording artists to perform the show, and even more surprising, they DO NOT pay them for the performance. Why? A performance generally lasts about 12-15 minutes, and with over 100 million people watching the game, there is really no greater stage for an entertainer to perform on even if you are Beyonce. As a 30-second tv spot costs around $5 million, then a 12 minute performance constitutes about $120 million of television time all given to the artist. Even more, a lot of their recognition comes the weeks leading up to the show as people find out who the performing artist is, and begin searching their music, as well as after when others are introduced to the artist and begin following them on all forms of social media. Both Bruno Mars and Beyonce both added around 70,000 new Twitter followers the night of their performance, over a million mentions of Facebook, and their Wikipedia pages experiences skyrocketing amounts of traffic around the time they perform the event. The exposure of this one performance far outweighs the lack of financial benefit.

Perhaps, the single most important and long lasting effect the Superbowl has is the way it impacts the local economy that hosts the event. Typically, the NFL will entice host cities who are debating to build a new-more modern stadium for their teams, that if they go forward with these extremely expensive projects, then they will be awarded a Superbowl to compensate for this expenditure. This situation has occurred with Lucas Oil Stadium in Indianapolis, IN, MetLife Stadium in New York, Ny, and most recently this year with Levi’s Stadium in Santa Clara, CA. At first, this deal might not seem like such a problem, but given the fact that the NFL has had the tendency to severely overestimate the financial gains of hosting the Superbowl, local taxpayers end up paying the rest of the bill for cities to construct these new lavish arenas.

That troubling aspect is, the NFL typically drastically overestimates the ROI’s on these projects when pitching the city on building a new stadium. For example, last year’s Superbowl in Phoenix, AZ was projected by the NFL to bring in $500 million of revenue to the area. However, many of the studies used to make these estimates were overseen by the NFL, which many assume was an effort to drive cities to compete for a successful Superbowl bid. One economist, Victor Matheson, estimates the the revenues to between $30 to $130 million maximum. The city of Phoenix spent $30 million to host the game last year, as well as $18 million in 2008 to host. This does still illustrate there could be a sizable profit to be made in Phoenix’s case, but it is quite far from $500 million that the NFL projected as well as not considering the outrageous cost of constructing a new stadium that other cities are faced with.

The city of Santa Clara contributed $114 million dollars to the construction of Levi’s Stadium, as well as over $50 million for their winning bid to host Superbowl 50. Here we start to see how these costs begin to add up, and the feasibility of these investments begins to come into question.

The more important question here is not whether teams should make investments to host a Superbowl: but is there any actual economic benefit of cities investing so heavily in professional sports when their money could be used elsewhere to help their residents?

Between 1990-2000, 95 stadiums were planned or built in the US, costing a massive $21.7 billion! Even more surprising, about, 75% of those funds contributed were public subsidies given by the cities. After the 1970s, cities began fiercely battling one another for the scarce resource of having a sports team in their city, and the public rallied behind them as well. But these massive investments in cities building elaborate stadiums is a complete waste of money for them. Economists John Siegfried and Andrew Zimbalist present three main reasons why US cities investing in professional sports works as a detriment to the city and its citizens:

  1. The Substitution Effect

The NFL and its teams have often presented the argument that building a new stadium or getting a new team will boost spending in the city and spark the local economy, but this is not the case. Rational individuals have saved a certain amount of their income for leisure expenditures, and if something comes along they would rather spend their money on, they will substitute that spending for the more favorable one. If an NFL team colonizes a new city, residents will not spend more, but will just spend less in other areas to enjoy the games.

2. Leakages and Multiplier

Many of the owners and players for these sports teams will not be contributing to the local economy as they are in the highest tax bracket and a large part of their income is going straight to the federal government. They also spend the majority of their time traveling to distant locations, where the potential revenue for the host city is now leaking into other areas. There is also the Sports Multiplier, which is a formula created to measure whether or not a sports team will have a positive impact on the economy of the local city (Sports Multiplier = 1/[1- MPC (1-MPI)(1-t)]. MPC is the marginal propensity of citizens to consume, and MPI is the marginal propensity of goods to be imported to the city rather than produced locally. The authors of this paper found, the Sports Multiplier finds the net economic effect of these investments in sports to be nearly zero.

3.  Budgetary Impacts

For cities to build these stadiums, they must raise taxes or reduce services that they provide to its residents. Economic impact studies commissioned by the NFL argue that the construction and upkeep of the stadium will provide an economic stimulus, but this is a massive oversimplification for stimulating an entire economy and the impact would not be this substantial. The positives in this case certainly do not outweigh the negative budgetary impacts.

The Superbowl is definitely not to blame for all of these shortcomings of professional sports, but as the biggest day in American sports each year, and its usage to lure cities into building new stadiums, it should be in the conversation. We can use the economic impacts of this one mega-event to provide us insight into how American cities should not have to pay the bill for professional teams moving to their cities.

 

 

 

 

 

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