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When Super Bowl XLVIII lands in New York City next year, the world’s most-watched sporting event will meet the financial capital of the U.S. As you would expect, the money associated with the big game will likely reach unprecedented levels.
But when those 80,000 screaming football fans fill up MetLife stadium, will the Big Apple’s economy even notice?
Despite the predicted record-setting prices on luxury suites, the answer’s not as clear cut as you might think. Research into the economics of sporting events reveals a practice that’s highly imprecise. Almost every industry study on major sports events overestimates the benefits and underestimates the true costs.
Why? Well, measuring the long-term impact of a single event on a metropolitan region is inherently complex. And, more importantly, because the "researchers" who typically conduct these studies often have some skin in the game. Not in the game itself, of course, but in the outcome of the decision-making process.
Let’s tackle the first issue by looking at the upcoming Super Bowl, which will be played at MetLife Stadium outside of New York City. Box suites are expected to command upwards of $1 million a pop, about three to four times the typical Super Bowl rate. This alone will provide a nice revenue stream along with ticket sales across the NFL’s largest stadium. Tack on the double-digit beer prices fans will undoubtedly pony up for and the NFL seems well on its way to making some serious dough.
That’s fine for the NFL, but everyone knows it makes a pretty penny off the big game. Furthermore, it’s easy to measure the NFL’s proceeds: Tally up revenues from tickets, concessions, parking, advertising, and licensing, and then back out the costs.
When it comes to the economic impact on New York City itself, the price tag’s not quite so obvious.
For starters, an economist would look at two broad categories, the direct and indirect economic impacts. The direct economic impact takes into account the money spent by the attendees that would not have otherwise been spent in the region. At a high level, it’s the number of “visitor days” multiplied by the “visitor’s expenses,” including everything from hotels to meals to spur-of-the-moment Broadway tickets. Seems simple enough.
Start calculating the indirect economic impact, however, and the math gets fuzzy. Economists state that the indirect impact results from the circulation of new money (“the direct spending”) to other areas of the economy. If that sounds obscure, well, it is. No one can predict how quickly the tourist vendors or hotels will spend the cash they bring in over Super Bowl weekend or in what manner. As a result, estimating the indirect economic impact is highly subjective and can lead to wildly varying projections.
The NFL, for example, routinely estimates that the Super Bowl will rake in between $300 million to $400 million for the local economy. Yet, in-depth college studies of three decades of Super Bowls revealed that the NFL drastically overestimates by at least four times the actual economic benefit.
Another sports economist who works for Sportsimpacts points out that the real benefit probably lies somewhere in between those two estimates, but the NFL’s figure is overinflated nonetheless.
Which brings us to an even more critical point: Always consider the source and their incentives. While everyone has a motive for publishing their calculations, in the sports world, it’s often the promoters, leagues, and team owners who carry the most clout. After all, they have stadiums to build, seats to fill, and advertising contracts to sell.
For example, it shouldn’t come as a surprise that MetLife Stadium, a $1.6 billion structure, was appointed Super Bowl host only a few years after its completion. This is a recurring phenomenon in football (see Dallas and Indianapolis in recent years), but one that’s prevalent in other professional sports as well. Between 1970 and 1997, 87% of the newly constructed baseball stadiums were selected by MLB to host an All-Star Game within five years of their construction. Coincidence? Doubtful.
A look at the history of predictions and outcomes for mega sporting events reveals a highly imprecise economic science. However, the real culprits in this overestimation game might be the “scientists” themselves. Before assuming that this year’s Super Bowl, which is “projected” to bring in $550 million, will be a huge economic boon, consider the source. The legendary value investor Charlie Munger said it best: “Never, ever, think about something else when you should be thinking about the power of incentives.”
An investor’s takeaway
While the Super Bowl might not create long-term economic stimulus for a city like New York, other sporting events have a more proven impact. The U.S. Open Tennis Championships, for example, regularly rank highest in various studies that assess lasting economic benefits for New York.
Why? Because for two full weeks every year it draws fans from all over the world to the Big Apple. The far-reaching international appeal and the recurring revenue for the city draw new money into the area unlike other sports.
Would this come as a surprise to value investors like Warren Buffett? Probably not. The genius of Buffett can largely be attributed to his ability to ignore the “flashy” (i.e., the Super Bowl) and stick to the more under-the-radar but stable operations (the U.S. Open). This approach turned him into one of the richest men in the world. You can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.