Super Bowl Impact to Host City? Traffic!!

Now that the Super Bowl is gone and New Orleans continues to celebrate well past Mardi Gras, South Florida can count the income generated by the increase in economic activity brought by the event. But will we need a calculator or can we figure it out with our fingers?

Well, it really depends on who you ask. The National Football League, Super Bowl Host Committees, and the third party consultants they hire to estimate the economic impact to the host city will say that the benefit can be $400 million to $500 million. But ask an unbiased third party, the likes of which are academics or economists, and the estimated economic benefit to the host city differs dramatically, and can be negative in some cases. In an article written by Craig Depken and Dennis Wilson, as well as a study conducted by Professors Robert Baade and Victor Matheson, they point to a few well argued reasons why the estimates are exaggerated.

Practitioner Bias – as I mentioned in the opening paragraph, it depends on who you ask. There are stakeholders who benefit as the economic impact increases for the host city. Politicians, restaurant owners, local hotel owners, the NFL, and businesses that will directly benefit from the increase in awareness and cash inflows during the week leading up to the Super Bowl. But as I will mention in the following paragraphs, the benefit to the economy, and the individual taxpayers, are much lower than ‘official’ estimates claim. Particularly when you factor in the NFL’s requirement to either build new facilities or renovate existing ones in order to be considered a host city. Not complying with the NFL’s request risks losing the Super Bowl in future years, as is currently the case in Miami, where the NFL has threatened to eliminate Miami as a future host to the Super Bowl unless the stadium gets a $250 million makeover. When you consider the estimates of actual economic benefit discussed below, it would take 4-5 Super Bowls for that investment to break even. That’s the equivalent of 12-15 years if the Super Bowl is held in Miami every 3 years.

Measurement Methodologies – The NFL sources estimate the economic impact by adding up the gross impact of higher hotel rates and occupancies, higher turnover at restaurants, increase demand for transportation (rental cars, charter buses, etc.), but the unbiased economists point out that this assumes initial economic activity of zero. In a city like Miami, where tourism is already high in January and February, the proper way to calculate the economic impact of the Super Bowl would be to determine the difference between what the economic activities would have been if the Super Bowl were not played there, and subtract it from the gross economic activity of having the Super Bowl. The $400-$500 million estimates fail to do this. In fact, in order to get an accurate measure of non-Super Bowl expected economic activity, we would have to know how many tourists intentionally avoided the host city during Super Bowl week and either went somewhere else altogether or planned their trip before or after Super Bowl week. It would be impossible to calculate that metric, which obviously would make the net economic impact of the Super Bowl even lower still. And there are additional metrics that are practically impossible to measure but are certainly not in the hundreds of millions. The estimates of economic impact according to several studies is actually 10%-25% of the NFL estimates. That's only $40 million to $100 million.

Leakage – We can agree that cash flows into the host city can be substantially large. And if we assume that the host city receives over 100,000 high income visitors (average income: $144,500) each spending approximately $400/day, they would generate $280 million dollars in spending if they were to stay for seven days. Besides the fact that the average tourist to South Florida spends $150/day, making the net impact only $175 million, we can also look at where that cash is spent and who benefits: Marriott Hotels (Bethesda, MD), Hyatt (Chicago, IL), Coca Cola (Atlanta, GA), and Anheuser Busch (St Louis, MO), to name a few. So really, the beneficiaries are the shareholders of those corporations, whose profits don’t necessarily stay in South Florida, even though some of them may hire temporary employees for a week.

I was one of those individuals who assumed that the economic impact to my home town was as magnificent as the NFL stated. But the economic studies make a great argument and one which I think is hard to refute. The estimates are overstated, sometimes dramatically, and for ulterior motives. If the host city were a place where tourism was low in the middle of winter, such as Minnesota, Detroit, Chicago, Philadelphia, and several others, perhaps the economic impact would be higher and well worth building a new stadium or spending hundreds of millions of dollars in taxpayer money to renovate old ones. But in cities like Los Angeles, Miami, and New Orleans, the benefit is questionable, at best.

The Tail May Begin to Wag the Dog

After the jobs report today showed better than expected results in both initial claims and continuing claims, the labor tail may finally be wagging the stock market dog. It’s common knowledge that the labor market data is a lagging indicator, typically showing improvement only after 9-12 months AFTER the economy starts to grow. And there is no doubt that we need much higher job growth to keep the unemployment rate down, or even reduce it. But today’s news was good news and I for one will celebrate, at least for one night.

The Emergence of China

This week, Germany released economic data that confirmed what many thought was inevitable, but which no one knew exactly when it would happen. China is now the world's largest exporter, surpassing Germany with $1.2 trillion for 2009. Although it was lower than the $1.4 trillion exported in 2008, Germany's export decline was dramatic enough to catapult China into the top spot.

It's no wonder China is throwing their weight around and elbowing their way onto the scene once reserved for the world's powerhouses. Their recent spats with the U.S. are not uncommon, but China’s economic emergence seems to have given them more confidence in their dealings with the U.S. and others.

Part of the reason for the growth in exports is the intentional manipulation of the Chinese renminbi in order to make Chinese goods cheaper abroad. But doing so for a prolonged period of time has implications for inflation, foreign reserves, and not to mention political pressures from their trading partners. Their largest trading partner, the U.S., has been calling for a free-floating currency for quite awhile. And although China has allowed their currency to appreciate somewhat, the consensus, outside of China, is that it is extremely undervalued.

China will continue to grow and their exports will continue to expand. But surprisingly, their domestic consumption has increased and muted the decline in worldwide demand. While the world was in a recession, China kept growing. And although currency appreciation will make their goods more expensive eventually, global demand will reach a point where it is strong enough to drive continued growth in their exports.

What is the point of all this? The Hang Seng Index was one of the best performing indexes over the last 5 years, and if one can withstand the volatility, it may very well be one of the best performing indexes over the next 3 to 5 years, particularly in U.S. dollar terms.

The Fed as Giant Counterfeiter

This is a great article that explains the FED's monetary policy mechanism.

http://mises.org/daily/4029