As economic boost, Super Bowl underwhelms

A worker secures a screen over a fence that surrounds the Mercedes-Benz Superdome as crews prepare for the NFL Super Bowl XLVII football game on Sunday, Jan. 27, 2013, in New Orleans. The Baltimore Ravens and San Francisco 49ers are scheduled to play in Super Bowl XLVII on Sunday, Feb. 3. AP Photo/Patrick Semansky

(MoneyWatch) Both the San Francisco 49ers and Santa Clara, Calif., home to the team's new stadium, are desperate to win Super Bowl XLVIl. While the team is playing for the NFL championship on Sunday, the Silicon Valley city is vying to host the big game in the coming years.

Given all the costs involved in staging the Super Bowl, taxpayers may root for the other team.

The 49ers' Santa Clara stadium won't be finished until next year, but it is already a finalist to host the 50th or 51st Super Bowl in 2016 or 2017. City officials are currently weighing whether to proceed with their bid for the game in the face of substantial demands by the NFL.

The league wants the city to give it below-market prices for leasing the stadium and other nearby facilities, such as the Santa Clara Convention Center, according to the San Jose Mercury News. The NFL also wants possible tax breaks or a portion of the tax revenues received from hotels or other venues during the event. These same terms are being demanded from Miami and Houston, which are also on the short list to host the game.

The question for cities, including local businesses and taxpayers: Is it worth it?

Studies by both the NFL and groups competing to host the Super Bowl say the event typically brings in at least $300 million for the host city. For instance, before Houston hosted Super Bowl XXXVIII in 2004, a committee formed to generate support for the bid estimated that it would generate more than $330 million in revenue.

Independent analysts dispute such numbers. After the game, Houston controller's office found that it resulted in only $129 million in direct spending in the two-week period around the bowl.

Economics professors from Williams College and Lake Forest College also examined the NFL's 1999 claim that a Super Bowl would bring a $670 million increase in taxable sales in South Florida and a$396 million increase in economic activity.

"Statistical analysis reveals that, on average, the Super Bowl could not have contributed by any reasonable standard of statistical significance, more than $300 million to host economies," they concluded in a related study that looked at the economic impact of Super Bowls from 1970 to 2001. "Indeed, the evidence indicates that at best the Super Bowl contributes approximately one-quarter of what the NFL promises," they found.

In the last decade, host cities have fared better, but the economic impact of hosting the Super Bowl has fallen far short of the $300 million in revenue that proponents tout. Indianapolis, which hosted last year's Super Bowl, is estimated to have seen a roughly $150 million increase in economic activity. According to a 2012 study by PriceWaterHouse Coopers, that is on par with other recent host cities like Tampa, Fla., and New Orleans, but less than the roughly $200 million realized by Dallas/Fort Worth and Glendale, Ariz., for Super Bowl XLV in 2011 and Super Bowl XLII in 2008, respectively.

One factor that accounts for the disparity between seemingly more optimistic estimates of Super Bowl-related economic activity and the actual amount spent is because of the different financial assumptions used in make such forecasts. Typically, these projections include the amount of economic activity that would take place in a city in an ordinary week when the game isn't in town. It also usually includes money made made by large hotel and restaurant chains. While this does increase local tax revenues, most of the money doesn't stay in the community but rather goes to the business' corporate owner.

Notably, forecasts of the Super Bowl's economic benefits also tend to omit the cost of preparing for the Super Bowl. Those can be significant. Indianapolis spent $12 million to add a pedestrian mall in a three-block area near Lucas Oil Stadium, which was used as the Super Bowl village during last year's game.

Although Santa Clara, with a population of 120,000, would have to bear most of the costs, it will not see all the rewards. Many of the pre-Super Bowl events are expected to take place in the city the 49ers are moving from -- San Francisco.

But Derrick Heggans, managing director of the Wharton Sports Business Initiative at the University of Pennsylvania, said other small cities have profitably hosted Super Bowls.

"For Santa Clara, if the city itself did not have the full infrastructure to provide the experience that is consistent with what the league and the people who attend the Super Bowl are accustomed to. . . my hope is that they would look to their neighboring cities to combine efforts to do so," said Heggans, a former assistant counsel for the NFL. "When you think about Arizona [which hosted the 2008 Super Bowl], it's Phoenix, it's Glendale, it's Scottsdale that all came together to do that."

While it is likely that Santa Clara will bid for the Super Bowl, local officials have already proven a willingness to go against the NFL's wishes. Last year they pulled $30 million of the $40 million promised by the city as seed money for the 49ers' new $1.2 billion stadium. Officials said the money would be better used for education than for professional sports.

  • Constantine von Hoffman On Twitter»

    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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