Super Stupidity: Super Bowl Economics

Thanks to a call from an astute ScottsdaleTrails reader, I was alerted to an article in yesterday’s USA Today which asks, “Is the Super Bowl really a boost to host cities?

To put it mildly, the economic justification for host city contributions to the “non-profit” NFL are sketchy.

And then in today’s Arizona Republic, Mary K. Faller explores the stupid-nomics that suckered the City of Glendale into investing hundreds of millions of taxpayer dollars into professional sports infrastructure which hasn’t even covered its own cost, let alone made money for the city.

City staff and elected officials in Scottsdale aren’t much better. They’ve shelled out millions of your dollars subsidizing professional golf, polo matches, and car auctions that pay almost no sales tax. This year alone, they gave $600,000 to the Super Bowl host committee ‘to encourage attendees to stay in Scottsdale hotels.’

Please take a moment to read these two articles.

From the USA Today:

It’s the Local Economy, Stupid!

By Neil deMause, Sports on Earth.com

The approaching Super Bowl brings the annual battle between the NFL and economists over whether the game is a boon to host cities. Who’s right?

On one side, you have the NFL. Last week, the league, as part of its non-stop hype-a-thon for the First Super Bowl Outdoors In Cold Weather Isn’t Snow Just Romantic?, reported that the New York/New Jersey economy would see a $600 million boost as a result of Super Bowl spending. “Thanks to the Super Bowl, we’re seeing more hotel rooms booked and restaurant tables reserved and even more excitement than usual for this time of year,” U.S. Rep Carolyn Maloney told reporters.

On the other, you have the nation’s sports economists, who say the actual number is a fair bit lower. Like, maybe, zero. “There still remains no ex post evidence of an economic impact,” says University of South Florida professor Philip Porter, almost audibly sighing over email since, as someone who’s been studying this topic for more than a decade, he gets the same question every year at this time. “Super Bowl attendees simply don’t buy much that the local economy sells.”

So, either more than half a billion dollars, or bupkis. Definitely somewhere in there.

Given that this debate has been going on for eons, you’d think that we’d have reached some resolution by now. And it’s an issue that matters tremendously: The reason the NFL puts out its numbers (other than self-aggrandizement and a desire to drive the latest concussion news off the back pages) is because cities spend big money to lure the big game — not least by sinking hundreds of millions of dollars into the brand-new stadiums that the league says is a condition of hosting — and the supposed economic payoff makes writing those nine-figure checks go down a bit easier. (In New Jersey’s case, at least, the public got off relatively easy, as the Jets and Giants joined to cough up for construction costs with the help of their not entirely happy season ticket holders, though they still got to cash in on a pile of tax and rent breaks.)

We can’t directly evaluate the NFL’s $600 million impact claim, because the league hasn’t revealed how it came up with the number. According to Super Bowl Host Committee p.r. rep Alice McGillion (the former Yankees spokesperson who got to issue angry denials of things like the David Ortiz jersey burial story two days before Yankees officials themselves admitted it), the figures are from a 2010 study by the Super Bowl bid committee that no one’s gotten around to releasing in the four years since.

We do have the NFL’s reports from past years, though, which show similar numbers. Last year’s Super Bowl in New Orleans, for example, was estimated to generate $480 million in local spending, generating $34.9 million in new local tax revenues, according to the NFL host committee’s study. Read that study, and we find that to arrive at this figure, researchers simply surveyed Super Bowl attendees, asking them where they were from, whether they’d rented a hotel room, their total food expenses, and so on, then applying a multiplier to account for how fan spending then got re-spent in the local economy. (This multiplier ends up basically doubling the final economic impact number; more on that in a moment.)

You’ve probably noticed some potential problems here, beyond the dubious quality of survey results derived from asking drunken NFL fans how much they were spending on food. (Median answer: “WOOOOOO NINERS!”) First off, a big chunk of spending is on things like Super Bowl tickets and Super Bowl beers and Super Bowl lawn gnomes — but most of the money for such branded items goes right back out of town once the Super Bowl leaves (except for whatever small sum is paid to the vendors actually selling these items). As Holy Cross professor Victor Matheson, another economist who’s studied Super Bowl impact, puts it, “Imagine an airplane landing at an airport and everyone gets out and gives each other a million bucks, then gets back on the plane. That’s $200 million in economic activity, but it’s not any benefit to the local economy.”

Then there’s the issue of displacement. When hordes of Super Bowl visitors descend on a city’s hotel rooms, that fills up all the hotel rooms, which means — wait for it — no more hotel rooms for anyone else. So people who might have visited New Orleans otherwise are forced to steer clear. (The NFL study tried to account for this by subtracting out New Orleans’ lost convention business, but as you may be aware, there are other reasons to visit New Orleans in the winter other than for a convention.) In fact, because Super Bowl rooms are often required to be rented by the week but many visitors only show up for the game weekend, some economists have suggested that all those incoming NFL fans only end up displacing people who would have spent more, on average, during their time in town.

So what do non-NFL studies find? Matheson says his research shows an average impact of between $30 million and $120 million in overall spending, which is more than Porter’s nothing, but still a whole lot less than $600 million. And as for how much of that actually trickles down to the hosting city, the University of Maryland’s Dennis Coates’ study of the 2004 Super Bowl found that Houston received about $5 million in added sales tax revenues thanks to having the game in town, a number that would likely be somewhat higher today thanks to inflation. (It would be higher still if not for the fact that the NFL’s tax-exempt status allows its employees to avoid paying any local sales taxes for their dinners or hotel stays during Super Bowl week; in New Orleans, this amounted to $800,000 in lost sales tax revenue.)

There are some indications, according to these economists, that a New York Super Bowl could actually work out better than the average. For starters, as Rep. Maloney noted, the freezing weather is actually a plus as far as the economy is concerned, because February isn’t peak tourist season in New York, for obvious reasons. Holding the Super Bowl in a more typical locale like Florida may make for toastier fans, but it’s a waste from an economic perspective, since you don’t need to twist people’s arms to go to Florida in the winter. (Plus, then you can’t sell Super Bowl Santa hats.)

New York also has more hotel rooms than God, which makes tourist displacement less of a worry, even before accounting for all the Super Bowl visitors who will end up staying on docked cruise ships. “You could reasonably go to New York for something other than the Super Bowl in three weeks,” says Matheson. “It would be absolutely insane to do that in Indianapolis.”

None of these arguments are new, nor are they likely to change anytime soon. The essential problem with debates over economic impact studies is that they’re way too easy to rig — as a friend of mine who used to work in economic analysis recalls, clients would routinely ask him to come up with a methodology that would justify the desired result, and to dress it up in a clear plastic binder.

So it’s not entirely worthless to host a Super Bowl — or a World Series, or an NCAA championship game, or a World Cup, or any of the other things that sports boosters are forever prescribing as the cure-all for any city’s economic woes. Given the findings of Matheson, Coates, Porter, and their colleagues, it’s probably not unreasonable to guesstimate perhaps $100 million or so of new money changing hands within the New York area during the first weekend of February, and a few million of that trickling down to the public in the form of new taxes.

That sounds good — until you realize that the state of New York alone will spend $5 million on advertising for Super Bowl-related events, leaving the only benefit as … advertising New York City as a place that’s brutally cold in the winter? With economic strategies like these for NFL cities, the concussionpocalypse might turn out to be a blessing.

* * *

Neil deMause is a Brooklyn-based journalist who has covered sports economics for Slate, the Village VoiceBaseball Prospectus and a bunch of other places you wouldn’t remember. He runs the stadium news website Field of Schemes, and co-authored the book of the same name.


 

From the Arizona Republic/AZCentral.com:

Jobing.com Arena’s promise unrealized

By Mary K. Reinhart The Republic | azcentral.com Wed Jan 15, 2014 10:18 PM

Jobing.com Arena’s 10th anniversary came and went without much fanfare for the hockey and concert venue that has failed to live up to the outsize expectations of Glendale leaders, developers and fans.

The arena, near Loop 101 and Glendale Avenue, opened in late December 2003 with fireworks, aerial dancers and the Great One, Wayne Gretzky, leading the Phoenix Coyotes franchise.

City leaders envisioned that Glendale’s investment in sports would pay for itself and then some.

However, arena-related revenue has yet to pay the costs for Glendale, which borrowed $180 million to build the arena. Hockey fans have been dragged through years of ownership drama, and early returns on a new management agreement are unclear.

The city last year promised the Coyotes an additional $225 million to manage the arena over the next 15 years and earlier agreed to pay the National Hockey League $50 million in a desperate effort to keep the team from leaving.

Some City Council members and the new Coyotes ownership are hopeful that the latest deal, combined with a recovering economy and a winning hockey team, will finally bring financial stability.

But sports-financing experts and longtime City Hall watchers remain skeptical, pointing to the sordid history of publicly financed sports venues around the country and the broken promises that those facilities would generate enough revenue to recoup taxpayer investment.

David Swindell, who directs the Center for Urban Innovation at Arizona State University’s School of Public Affairs and has researched the economics of pro sports for decades, said he and his colleagues frequently use Glendale as a cautionary tale.

“It is incredibly enticing for a community to be home to a major-league team,” Swindell said. “I think that frequently interferes with our rational decision making.”

‘Just the beginning’

Ten years ago, the arena — and the Gretzky-led hockey team that came with it — were supposed to usher in a new era for Glendale, beginning its transformation into a sports and entertainment mecca, which in turn would bring more investment and more jobs.

“I don’t want to minimize it,” then-City Manager Ed Beasley said days before the arena opened, “but this is just the beginning.”

To be sure, the arena’s grand opening on Dec. 27, 2003, launched a sports-venue building boom that included University of Phoenix Stadium, built for the Arizona Cardinals in 2006, and Camelback Ranch Glendale, built as a spring-training home for the Los Angeles Dodgers and the Chicago White Sox in 2009.

The arena provided another concert venue for the Valley, bringing in big names such as Taylor Swift and the Rolling Stones.

City officials and developers promised that the arena — surrounded by the Westgate shopping center, enticing people to play, eat and spend money — would pay for itself through sales-tax revenue supplemented by ticket surcharges, parking fees and a monthly rental payment from the Coyotes.

But the city’s own data show that hasn’t happened, at least not yet. The $7.7 million in average annual tax revenue from the Westgate Entertainment District and other commercial properties that were part of the original deal, combined with $2.6 million in average revenue from parking, ticket sales and arena fees, as well as Westgate development penalties, fall just short of the average $10.6 million a year in debt service for the 18,000-seat facility and adjacent development.

In addition, the city is on the hook to pay millions to the Coyotes’ owners to run the taxpayer-funded facility.

City leaders consider sales-tax hauls from Tanger Outlets, Cabela’s and the Northern Crossing shopping plaza to be part of the overall arena-related revenue picture. They reason that the arena made those developments possible.

City leaders, however, have not included the debt service on Cabela’s-area development, which averages $1.7 million a year, the NHL debt payments or the costs and revenue associated with the Renaissance Glendale Hotel and Spa.

Julie Frisoni, interim assistant city manager, said the city’s Cabela’s-related debt has never been factored in because officials figure the infrastructure improvements would have been made regardless.

“The arena was Number 1. It was the first thing there, with the vision that all the surrounding growth and revenue would help pay the debt,” she said.

Former Mayor Elaine Scruggs, who led the charge for all three taxpayer-financed sports projects, said she doesn’t regret the decision to build the arena. But the council’s July arena-management deal with the new Coyotes owners has soured her view of the future.

“I do not believe the optimism was misplaced, even with the economic downturn,” Scruggs said recently.

“But there is absolutely nothing at all left that resembles in any way what the council had worked out at that time. Other than that, there’s a team that plays hockey on ice.”

More than an arena

To say the lure of professional sports has been a powerful force in Glendale over the past decade would be an understatement.

But even some of the city’s harshest critics say they understand why the council fashioned a deal to bring the Coyotes to town in 2001 after the hockey team outgrew America West Arena in Phoenix and Valley developer Steve Ellman’s courtship with Scottsdale failed.

City leaders were looking to make Glendale more than just a bedroom community, and Ellman, the team’s owner at the time, sold his vision of a flashy commercial center adjoining the pro-hockey venue.

“The deal was much, much more than just the arena. The whole Valley was tilted,” Scruggs said. “Everybody left the West Valley, went someplace else to spend their money and then came back home to go to bed at night.”

The arena deal required Ellman to redevelop a rundown shopping center at the city’s center, and he did so ahead of schedule. Northern Crossing, now anchored by Walmart and Lowe’s Home Improvement, brought in nearly $3 million in sales-tax revenue last year.

But Ellman struggled to develop Westgate and sold the Coyotes to partner and trucking magnate Jerry Moyes, who put the team into bankruptcy in 2009. Both Moyes and Ellman declined to comment.

Westgate went into foreclosure in 2011. Beasley’s 2003 projections that the arena project would generate enough to pay off the debt and net the city at least $100 million had been wildly overstated.

Remarkably, on the ice the Coyotes were winners, but attendance remained among the lowest in the league, and the Coyotes couldn’t turn a profit.

Three bids to buy the team collapsed. Amid continued threats from the NHL to move the team, the council paid the league $50 million to keep it in Glendale, borrowing from its enterprise funds even as Glendale faced a $35 million deficit.

Councilman Ian Hugh has been a frequent critic of the city’s sports-related financial decisions and voted against the most recent Coyotes deal.

“I understood why the mayor and council were doing it. But I didn’t think it would actually ever pay for itself,” he said. “They wanted to do it for pride and having something for the city.”

New Coyotes owner Anthony LeBlanc said the fact that the hockey team is still here speaks volumes about the resilience and dedication of both the city and the fans. Ownership turmoil and economic troubles of far less magnitude have killed other teams, he said.

Future unclear

LeBlanc predicts a bright future for taxpayers and fans, as long as the team wins.

The new arena-management contract with IceArizona, the Coyotes ownership group, requires the city to pay $15 million annually through 2028, with the team reimbursing the city a projected $9 million a year from revenue derived mostly through parking fees, ticket surcharges and naming rights.

LeBlanc said he fully intends to make that target.

And he predicts that the surrounding retail development will continue to benefit from the Coyotes, particularly as the economy improves.

“Everybody focuses on the (management) number,” LeBlanc said. “But I think people are forgetting the amount of money that’s going back to the community that wouldn’t be going back if were weren’t here.”

The future for the arena includes more big-name non-hockey events and a face-lift, LeBlanc said.

Justin Timberlake is scheduled to appear in August, and the ownership group will announce more high-profile concerts in the coming weeks, he said.

The team also is working on facility upgrades, with construction planned for the off-season. Fans will see more food and beverage options, LeBlanc said.

Longtime Glendale resident Ken Jones isn’t convinced. The former construction manager, part-time cowboy and full-time council critic long ago tired of spending taxpayer money on professional sports teams.

“They have used us like a bunch of stupid people,” he said of the sports executives. “We’re not the first town that this has happened to. It happens because you get City Council people in there who have no conception about spending millions of dollars.”

 

You may also like

2 Comments

  1. Sports are the opium of fools. Putting the Coyotes arena in Glendale made no sense. Most of the fans were in Scottsdale many miles away.

    Football does OK at “Jiffy Pop” stadium I guess because the team wins a few games and the NFL is a lot more popular than the NHL but if they tank that place will be empty. That stadium is too far west also.

    I remember when the tax to build those places at the county’s expense passed. The polls had it dead in the water when they pushed it for the NFL and the Bidwills. Then, they changed course and aimed at the yuppie moms touting how ball fields would be built from the money for their kids and it squeezed by. Brilliant marketing to be sure.

    Glendale showed what a rookie it was during all this and are now suffering for it.

  2. You didn’t mention the cost to every law enforcement agency in the Valley. It is huge from security at the actual game to security for teams and at the events leading up to the game. Scottsdale’s leadership doesn’t take working officers overtime seriously nor do they take paying them for top quality skills and work. It is a joke to make them look like they know what they are doing.

Leave a Reply to Jim McAllister Cancel reply

Your email address will not be published. Required fields are marked *