Are big events a really big bucks for host cities?(revised under new title)

Given Michigan’s run to the elite 8 in the NCAA Tournament, I couldn’t help but check out ticket prices to the Final Four.  With a parking pass costing almost $75/game, I think I might be better off saving my money.  But it got me thinking about the economic consequences of events like march madness.  I’m not talking about the billion dollar bounty Warren Buffet placed on a perfect bracket, or to the more then half a billion dollars the tournament generates for the NCAA, or the revenue for the schools themselves, but rather the economic boost for the cities that host these events. Reports put the amount that the Final Four host city can expect at around 70 million.  However, there is research that says these numbers need to be reduced by as much as 90%. It is argued that due to the events size, a great deal of economic activity is displaced, and it must be replaced before actual gains can be realized.  I believe the effects of this “tourism displacement” have been exaggerated.

In order to better study the economic effects of a large sporting event on the host city, data for the Super Bowl will be used.  This is for a few reasons.  Even though the Super Bowl is an order of magnitude larger, since more teams attend the NCAA Tournament, as well as it occupying more nights gives reason to believe that there should be similar levels of displacement.  It is also permissible since we are examining a percentage as opposed to an actual number.  Finally, statistics are much more readily available for the Super Bowl due to its size and the spectacle it has become.

Research by Baade and Matheson argue that the benefit of hosting such a mega event is actually between 0 and 25% of what is reported.  They cited displaced tourism as the main cause.  In a report on the Super Bowl held in Indianapolis in 2012, displaced tourism wasn’t neat the drain Baade has made it out to be.  They found that after adjusting for displaced spending of 46.9 million, the super bowl only accounted for 337.2 million.  This is not the large share that was predicted.  However, tourism is not big business in Indiana in February, so lets look at some actual numbers for Scottsdale.  Instead of using the reported numbers from 2008, which are considered too generous by some, we will compare data generated in Scottsdale itself.

In order to estimate the possible effect of displaced tourism in Scottsdale, the host of this year’s Super Bowl, I will consider spending per-person, per-day for each type of consumer.  According to data from Scottsdale, the average visitor staying in a hotel spends about $206 dollars per person per day, and the average day visitor spends just over $41 per person per day.  Similarly, using data from the Bureau of Labor and Statistics on consumer spending in the Phoenix area that could be displaced by a Super Bowl sized event (based on annual Food away from home, alcohol, apparel and services, and entertainment expenses) show residents spend about $24.50 per person per day.  According to data from the 2012 Super Bowl in Indianapolis there was spending of $571 per person per day.  Even though the previous super bowl in Scottsdale made almost $200 million more then the Indianapolis Super Bowl, we will chalk that up to host city being larger and able to accommodate more people.  Because of this, as well as the economy being in the bottom of a recession in 2008, I will consider the Indianapolis spending level as a lower bound. Using these numbers, we see that displaced tourism only eats away at most 36% (206/571) of the Super Bowl spending, assuming all tourism was done at a rate of 206, the scenario where the most local activity could be displaced, since all visitors would be staying in hotels, eating out for every meal, etc.  By assuming full occupancy in both cases, we can compare the per-person, per-day amounts directly.  This assumption is not trivial, as there is no guarantee that the city would be fully occupied with out the Super Bowl. Even with these generous assumptions, the Super Bowl resulted in attracting tourists spending 2.77 times what their local counterparts would.  This is a far cry from the predicted drop off of 75% or more.

This rough analysis has shown that the benefits of hosting a large, high profile event can provide a tangible increase in economic activity.  This is before any hard to quantify benefits like marketing from having such events are accounted for.  The strength of the effect is dependent on the amount by which the fans attending the game(s) spend per day verses the amount spent by the locals per day, which can be most logically attributed to lodging and increased food costs, as ticket revenue isn’t shared with host cities.  Even though tourism displacement is not the over powering force it was made out to be, the boost in activity is temporary, and as such is maybe a questionable use of public dollars.