Will Super Bowl 2010 Be a Bust for Miami?

(MoneyWatch) 

The underdog Saints come-from-behind victory made for exciting football on Sunday, not to mention great Monday morning water-cooler quarterbacking. (Can you believe that onside kick!) But in one major way, Super Bowl XLIV is almost sure to prove a huge disappointment. Not for fans (outside of Indianapolis, that is). And certainly not for the NFL. Some 150 million Americans watched the battle, allowing the league's broadcast partner, CBS (BNET's parent company), to charge advertisers upwards of $2.5 million per 30-second commercial even in this troubled economy.

But for host city Miami, it's likely that the economic impact of the Super Bowl didn't come close to the numbers forecast by the game's boosters. It never does.

Every year, the NFL runs an Olympic-style circus where cities bid to host America's biggest sporting event four years hence. And as soon as Commissioner Roger Goodell & Co. pick a winner, prognosticators project huge benefits, typically from $300 million to $500 million, for the Super Bowl host to-be. Asked to estimate the impact that the big game will have on Miami this year, the South Florida Super Bowl Host Committee points to research it commissioned in 2007, the last time the Super Bowl was held in Miami, which found $463 million in "total effects" on the regional economy. This seems plausible; after all, the Super Bowl attracts hundreds of thousands of visitors, wallets open and cash flying, as well as massive publicity, every year.

But independent researchers say most Super Bowl economic-impact claims are wildly overstated. Looking at income and tax data, Craig Depken, a professor of economics at the University of North Carolina at Charlotte, figures the Super Bowl generated just $58 million for Miami-Dade and Broward Counties in 2007. Super Bowl XXXIII added only $37 million to South Florida's local economy in 1999, according to 2005 research by economists Robert Baade of Lake Forest College, and Victor Matheson and Robert Baumann of the College of the Holy Cross. And earlier research by Baade and Matheson found that from 1970 to 2001, cities gained an average of $92 million (adjusted for inflation) by hosting the Super Bowl, and that two cities (Atlanta in 2000 and Tampa in 2001) actually lost money on the game.

"The impact of the Super Bowl isn't zero," says Matheson. "But independent studies generally come up with numbers that are one-fourth to one-tenth of those used by host committees and the NFL."

Three economic ideas help explain the huge gap between promise and results:

First, there's "crowding out," which is the tendency many non-sports fans have to avoid visiting a destination during a mega-sports event because of big crowds, high prices and bad traffic. For instance, when European fans flocked to South Korea for the 2002 World Cup, Japanese tourists and business travelers stayed away. As a result, the total number of foreign visitors South Korea attracted during that soccer tournament didn't change from the prior year, according to Forbes.com. In Miami, the Super Bowl is likely to lure football fans, but the city may not see much of a net influx over the number of winter travelers who would head there in early February anyway. In fact, in February 2007, when Miami held Super Bowl XLI, hotel occupancy rates decreased slightly from a year earlier.

Second, there's "substitution," which is the tendency local residents have to simply shift, rather than increase, their spending when a big sports event comes to town. During the 2002 Winter Olympics, for example, Salt Lake City's hotels and restaurants boomed, but its department stores and ski resorts saw declines in business, and overall taxable sales actually declined. Miami is prone to this effect, too. In 2007, organizers assumed the city's many tourist stops would benefit from the Super Bowl. But the Seaquarium had no increase in visitors, and ticket sales plunged at Monkey Jungle.

Third, there's "leakage," which is the tendency for money to leave a local economy rather than ripple through it. There's no doubt that prices and profits jump during an event like the Super Bowl, but wages, which drive local spending, don't keep pace. "When a hotel quadruples its room rate, it doesn't quadruple the money it pays desk clerks and maids," says Matheson. Some jobs, such as police work and firefighting, do pay overtime, and some spending does circulate. Ultimately, however, most of the excess cash a huge sports event generates escapes the local economy and benefits shareholders in hotel and restaurant chains.

Add it all up, and there's quite a difference between the gross amount of sales, spending, or income a Super Bowl generates and its net economic effect on a host city. Yet municipal officials, host committees, and the NFL all have strong incentive to maximize their public estimates of the game's impact because rosy numbers help convince voters and local politicians to direct public money to football stadiums. For years, the league has had a carrot-and-stick approach to cities around the country: Build (or substantially renovate) a stadium, and you can get vast benefits from the Super Bowl; don't, and you won't get the game at all.

Just before Election Day in 2004, then-commissioner Paul Tagliabue traveled to Arlington, Tex. and strongly suggested that residents would get a future Super Bowl if they approved tax increases to help fund the Dallas Cowboys' new stadium. They did, and in 2011 the Super Bowl will take place in North Texas. Similarly, the NFL put Super Bowl XL in Detroit and Super Bowl XLVI in New Orleans only after those cash-strapped cities came up with hundreds of millions of dollars in stadium subsidies.

The Dolphin Stadium in Miami Gardens, Florida.

Already, the South Florida Host Committee has announced it is gearing up to bid for another Super Bowl in 2014, hoping to impress the NFL by proposing a roof and other major improvements to Miami's Dolphin Stadium, even though the place underwent a $250-million renovation just three years ago. To justify the new costs, Host Committee Chairman Rodney Barreto "pointed to the economic impact Super Bowls have on host communities, citing the $400 million in direct spending at the last Super Bowl," according to the Miami Dolphins' Web site.

Unfortunately for Miami and other host cities, such estimates are rooted in optimism, inflated costs, and politics, rather than sound economics.