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Super Bowl Projects Super Growth?

As the final whistle was blown in the US Bank Stadium in Minneapolis, the fifty-second edition of the Super Bowl witnessed the underdogs Philadelphia Eagles miraculously defeat ing the New England Patriots by the score of 41 to 33, also one of the most controversial games ever played. And yet, while the sport is only exclusively followed by Americans, it somehow manages to attract hundreds of millions viewers every year that escape beyond the influence it has in the United States. The biggest winners from the hosting of this event is the National Football League (NFL, the organizer of the league), the businesses. The losers, evidently, the taxpayers. However, the NFL and state politicians promised that all of the expenses for the event would be repatriated from the income during the course of the 10-day event which can be distributed in the long term. So, in the end, is the hosting of Super Bowl beneficial for the city?

What needs to be done to host the Super Bowl?

Cities will usually be selected three to five years in advance to make an adequate preparation for the event. In order to be considered as the potential candidate for organizing the week-long event, the cities have to fulfill a set of strict (and excessive) qualifications in order to be considered the host venue. These include ensuring an adequate market, attendance and viewership for the entirety of the event, appropriate infrastructure for the visiting teams, NFL working personnel and the attendees. Cities must of course firstly build a football stadium, in which both the indoor and outdoor facilities should meet the majority of the criteria set by the administration committee. The US Bank Stadium in Minneapolis was only finished last year which cost around $1.06 billion, in which the taxpayers’ contribution (the income tax, that is) to the facility amounted to $350 million, per estimation. After these conditions are satisfied, the National Football League (NFL) will guarantee that in a predetermined year, the hosting of the Super Bowl in that city would take place. For Minneapolis, a financial analysis conducted by the NFL estimate the benefits of the event to be around the vicinity of $350 million to $400 million as incomes for the states. This can be seen as a moderate gain if public finance is only taken into account. All seems well enough, isn’t it? Sports economists do not think so.

Is it good or bad to the local economy?

In one of the rare studies of sport economics, Baade and Matheson (2010) attempt to investigate the significance of this premier sport event on a city and thus attempting to clarify the controversy surrounding this issue. In order to do that, he investigates the impact of Super Bowl on the economy of a region, from the period of 1970-2000 by deciphering the economic growth into numerous factors by aiming to do a regression analysis. This model also takes into account the changes in population, wages and taxes of individuals in each city, as well as other cyclical growth factors such as the oil crisis and the dot-com bubble.

Their main findings suggest that despite positive economic growth is observed across cities who have hosted the Super Bowl, its effects are hugely exaggerated by the NFL executives. The results show that only a fraction of the number that the NFL studies suggest, and in fact, only one-quarter (about $92 million) of the estimated benefits are collected by the host cities during the period of 1970 to 2001. The probability that the economic benefits that a city receive that exceeds $300 million is only 5 percent. Since the NFL is a private and commercial business, it would want to persuade skeptical cities that hosting such an event (and building an NFL franchise) will make economic sense.

So, why is there a discrepancy between the reports made by independent scholars and the NFL publications? If we consider the feasibility of a certain financial project, not only should we analyze the absolute returns from the investment, it is also required of us that we take into account the opportunity costs that are yielded from the alternative options. As such, the figures should have indicated the deviation from the normal daily economic activities in the cities. For example, if it were not due to the event, hotel accommodations would still be booked by business travelers, restaurants would still be reserved by casual tourists. Of course, there would definitely be price hikes of these services due to the event, but these are only marginal contributions to the income of the states as a whole. Furthermore, while the regression model by independent scholars take into account those factors, the reports by the NFL do not. The figures by the NFL are thus highly exaggerated and should have been treated with caution.

So, why is it still strongly endorsed by state politicians?

While the net benefits might not be justified based on academic studies, politicians still have the incentives to push for hosting an event of such scale. It is, of course, all about the intangible effects that are associated with the event. The city will have a majestic type of an architectural building to be treasured for generations. Because of the stadium, the city might have a future football franchise on the way that our local people could cheer for every week. Because of the Super Bowl, more businesses, more household names or superstars coming to the city. And of course, it has always been the artificial hype that the media builds up with the event and the city, although it only lasts for a short period of time.

Most importantly, the tenure of a politician in the United States typically last only a handful of years (and maybe a reelection of a second term). Many projects with short-term benefits will be much more attractive to politicians, as they are usually considered as the benchmark to evaluate their accomplishment in the eyes of the public. As such, alternative investments in other projects such as education and public infrastructure will thus be overlooked.

It is still, nevertheless, difficult to estimate how much of the effects of such an event on the entirety of the local economy. In this instance, the deal that is agreed upon between the state of Minnesota and the NFL is more than just football. The standing Mayor of the state of Minnesota, R.T. Rybak, asserted that his deal also supports more funds to other facilities in the cities, which will not be attributed to. The expansion of these facilities is expected to encourage the development of the downtown area. Even if there is economic development in the metropolitan area, whether the causes of this growth depends on the construction of the new stadium remain unclear. Furthermore, hosting the Super Bowl, a one-off event, only contributes marginally (about 0.15%) to the annual economy as a whole. Therefore, instigating an investigation into the impact of the Super Bowl is more difficult than just a mere regression analysis, especially if the contractual agreements go beyond than just the hosting of a sporting event.

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