Sports Economics

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The Phoenix Metro Area has become a sports mecca, and that is only enhanced by the Super Bowl and the Phoenix Open. Do sports events help our economy bring in new dollars, or does it shuffle money that’s already here? Dennis Hoffman, an economist with Arizona State University’s W.P. Carey School of Business, Jim Rounds, an economist with the Elliott D. Pollack and Company, and economist Byron Schlomach of the Goldwater Institute, will discuss that question from their own perspectives.

Ted Simons: In case you hadn't noticed, the Super Bowl is being played this Sunday in Glendale. With major sporting events like the Super Bowl - Glendale is trying to figure out as they're being sold as economic positives for hosts and regions. The study the last time the Super Bowl was here, showing the big game responsible for half a billion dollars in direct and indirect spending. Michael Bidwell expects even more this go round.

Michael Bidwell: It is the number one television event in the United States. It is an international television show that is going to be broadcast to 195 different countries in 26 different languages. We have this week, NFL credentialed 6,000 members of the media to come and cover this. And it is a great opportunity for Arizona to showcase itself. This is just a tremendous platform for us to showcase Arizona. The positive things about Arizona. Our beautiful environment that we have. The world-class destination, and the unbelievable economic opportunities that are here in the Phoenix area and throughout the state.

Ted Simons: Here to discuss the impact of the Super Bowl on the valley and state economies Dennis Hoffman, economist, W.P. Carey School of Business. Jim Rounds, and Byron Schlomach --

Ted Simons: Super Bowl is an economic positive for the region. Yay or nay.

Dennis Hoffman: Yes.

Ted Simons: Explain.

Dennis Hoffman: The numbers that Mr. Bidwell -- excuse me, the numbers that Mr. Bidwell quoted come from a very careful study done by a group at W.P. Carey. It is not dreamed up data. It is carefully surveyed and counted data. The expenditures that take place by all of these people for the better part of a week or more in the state are absolutely huge. So we carefully tabulate them. We use state of the art economic models for them to measure indirect effects and they are very, very real numbers. If I can say critics, when they talk about over-blown or high estimates for events like this, they're really talking, Ted, about time and place, really. It is all about geography. So, the argument is a big event like this crowds out other economic activities. I would argue that in a venue like Phoenix, what it does is it may postpone some of those other activities. It doesn't completely displace them. Now, if I -- if I narrow myself to just this week, absolutely. Super Bowl crowds out some activities this week. But I think that would be foolish to do. Folks will come next week or next month.

Ted Simons: Net positive for the valley and the region or when you add all of the things together, not so much?

Jim Rounds: It is still a net positive. The economic impact, about a half a billion dollars is right. That's what a lot of estimates from other Super Bowls. Always in that range. Tax revenues about 1-10th of the economic activity. You are looking at $45 to $50 million. Let's say we have to pay the NFL $30 million. Additional expenses are incurred. Advancing infrastructure investment that we are going to have to put in anyway, some might be specific to the event. If we are bringing in more money than we are putting out in return, is this any different than an economic development type project. Net positive if you look at the math but we first have to decide if we want to be involved in these kinds of things and we have to make sure that we are not giving away what we are getting in return. But at least on our calculations it's still a net positive.

Ted Simons: Are we giving away more than we are getting?

Byron Schlomach: I think it is close. First of all, think about the $500 million that people talk about from the last Super Bowl or maybe it will be around $600 million this time. Let's put that in perspective. That's about one-quarter of one percent of the GDP in Phoenix, Mesa, Glendale. So, just the Phoenix valley. So, it is not -- it's not as if you can expect a huge economic bump for the Phoenix valley. Part of the problem is when we talk about the crowding out issue, is the seen and unseen. I think Dennis is correct to a certain extent about the timing issue. I can tell you living near the Super Bowl, I'm avoiding certain places. That doesn't mean I will never shop there again. But I can also tell you that we spent a lot of money on infrastructure around there. Resurfacing streets. Adding ramps to 101. And there was a lot of disruption that occurred from that. My issue is though the economic activity that is avoided, for instance, maybe there is a convention that doesn't come here because -- and they go to Las Vegas or something, because they're avoiding the Super Bowl, and that's -- that's when their calendar -- when it works for them. That sort of thing ameliorates some of the positives we have been measuring from this.

Dennis Hoffman: Let me talk about things that are not captured by the $5 or $6 hundred million. One could argue the benefits extend far beyond the bean counting -- we do a lot of bean counting in our businesses. I think that the exposure that events like this can bring. The opportunity to bring hundreds and hundreds, if not thousands of corporate clients to this area, to see this area, is a very, very positive effect, especially in an era where we're downsizing expenditures on travel and tourism. Last on here, we were talking about promoting Arizona. This is free promotion by and large. I'm on the radio in Boston tomorrow morning. I'm sorry, next week they're not going to call me just out of the blue to be on the radio in Boston. And W.P. Carey and ASU will be part of that message tomorrow.

Ted Simons: Can you not say that without the Super Bowl, the Phoenix open, you name it, the big sporting event, people back in New England right now who can't even get out of their house -- maybe we should try Phoenix. Maybe -- did you think a business might consider relocating here because of what they see?

Byron Schlomach: I'm not so sure. I think there might be some effects like that. I think people are figuring out that Arizona is a warm climate during this time of the year regardless of whether we have the Super Bowl here or not. I think the bigger picture we have to think about is whether or not it's worthwhile to tax car rentals and hotel rooms for the sake of a big stadium so that we can have an occasional Super Bowl weekend.

Ted Simons: Again, without the big stadium, you don't have the Super Bowl weekend.

Jim Rounds: Right. And so a couple of things were discussed and Dennis brought up some of these intangibles and you can put some numbers to the intangibles. Let's say with everybody that is out there promoting the state over this two-week period that we lure one company that has 100 decently-paid workers. That is an extra million dollars in tax revenue. Do you think we might be able to get ten times that amount? Different opinions from different people. You can see the economic benefits of if we expand our employment base, but it gets back to, are we doing a good job promoting the state while everybody is here, or is everybody going around and having drinks and parties and not interested in coming back? To me, it gets to are we doing a good job with the marketing while -- I don't want to say we have free advertising, but additional advertising on the area that we normally wouldn't get and are we taking full advantage of that? And we also brought up the displacement of some of the visitors. Some visitors aren't going to come back. Some might come back the following month. How many of the visitors to the Super Bowl are also going to want to come back in later months? It is difficult to put numbers to those. If you try to look at these in the margin, marginally some additional visitors, marginally we might get a couple of businesses locate here. Those numbers can add up. It all gets back to are we going to end up giving away more than we are getting in return. I don't think we are right now. What if the cost of the Super Bowl to the NFL goes from $30 to $50 million.

Dennis Hoffman: We don't always agree on everything, right, but I think in this particular case he is making some points. So, if you are a city out there thinking about, hey, I want to go in the Super Bowl business or think about Glendale, Arizona. Glendale is challenged because they have the venue, they have a number of the costs, and much of the benefit of this particular activity is accruing to the east valley. So, I think personally, been here 36 years and seeing the way that stadium location deal got done back in the late '90s and thinking about the way it was financed, I think it could have been done much more efficiently. Certainly -- maybe we should have rethought that.

Byron Schlomach: It would have been most efficient if it would have been privately funded --

Ted Simons: But, again, would it have been done if it were privately funded?

Dennis Hoffman: We can't redo that. We are stuck in a situation where the costs are --

Byron Schlomach: For the future, we have the Arizona sports and tourism authority still collecting taxes. They are helping to promote the Cactus League, for example. Goodyear is out there with financial troubles because of their Cactus League stadium. So, this is an ongoing issue here in Arizona.

Dennis Hoffman: It's largely an allocation issue -- there is dollars come in, and spring training dollars are absolutely huge for this valley. They come in to the valley, and where I would agree with you is they don't always get redistributed back to the cities and the localities that are bearing all of the expenses. You have this mismatch between benefits and costs.

Byron Schlomach: I would simply say that economic studies have been done regarding stadiums, and the findings have been -- one economist studied 32 different cities. He found that in 30 cities, there was no affect that you could discern from having a stadium on people's incomes. And another city found a positive effect and in another city he found a negative effect. When you look at these sports venues around the world in other situations, for example, Sydney, China, Olympics and such, at best, at best you can say they had very temporary positives. And, in fact, in China during the Olympics, they didn't have any more travel to China than they did at any other time of the year because of the crowding out effect.

Ted Simons: How do you measure that kind of a thing, whereas, you know, Joe and Jane Smith from the Midwest come out and want to go to the Grand Canyon and Sedona as opposed from Joe football fan from New England, Seattle comes out and he wants to go drink beer and have a party or two.

Jim Rounds: The football fan is going to spend a lot more money. You have to look at the finely tuned numbers. Is that person that is getting displaced going to come back? That person here this week is spending a whole lot more than the normal visitor. But we don't know who is going to be more likely to come back. And this gets back to people doing the job that they are assigned to do. If they are doing a good job promoting the area during this opportunity. CEOs are coming to us, we don't have to fly across the country to them and we can sell the best Arizona has to offer maybe there could be some economic benefits. You have to go through and I agree with everything that has been said but you have to make a couple of decisions. Same with sports economics or economic development. First have to say ideally this might not be the ideal situation to have publicly-funded a lot of these things that we talked about, but if we live in a world that has these, do we want to be a player or do we not want to be a player? If it is a world where they have publicly funded stadiums to some extent, we made that decision to go ahead and do that so how do we maximize a return on that investment. To me it gets back to are we getting a positive return on the investment? As long as people are doing what I hear they are doing this time, heavy focus on return visitors later, business connections, I think we will still have positive benefits even when we look back at it afterwards.

Ted Simons: Can it be argued that it would be hard to attract a better demographic than what is coming out here for this Super Bowl?

Byron Schlomach: I don't know that that is true. I think -- I think what we really -- what we need to do is attract long-term economic growth and prosperity.

Dennis Hoffman: Absolutely.

Byron Schlomach: And I see this as a one-time benefit, and we're getting this one-time benefit, yes, with the stadium that we spent a huge amount of money on. Increased the cost of tourism to our state and that matters with the taxes --

Dennis Hoffman: People -- People will move capital when they see opportunity when they can envision themselves doing business, living in a particular area.

Byron Schlomach: And people haven't seen a whole bunch of opportunity around that stadium. I know there --

Dennis Hoffman: You're talking about the geography of Glendale, Arizona. I'm talking about Phoenix and Arizona, the entire state.

Byron Schlomach: Evidence is that stadiums --

Dennis Hoffman: Tens of millions of eyes on this valley, on this day, throughout this week, and on Sunday. I think it is undeniable that it is -- it has huge potential in corporate America to get jobs moving here. To get businesses moving here. You've got to see it. You've got to experience this place before you fall in love with it.

Ben Giles: Would the valley be better off if we had said no and all of the Super Bowl hubbub were not going on?

Byron Schlomach: I wouldn't say certainly at this point no to the Super Bowl because of the sunk cost -- I'm looking at this down the road. What happens when the Cardinals threaten to move and we have to build them an even bigger stadium with more high-tech stuff? And that's already happening in some cities.

Ted Simons: Quick, about a minute left. If the Cardinals say I'm tired of Glendale and I want to move to Phoenix, Scottsdale, Tempe, whatever, is it worth it when you have this going on for these couple of weeks?

Jim Rounds: What's the record that year --

Ted Simons: I know what the average could work out to be.

Jim Rounds: Right now, the economic benefits in my opinion still outweigh the costs. That could change over time. As of right now I think we're getting a net benefit but down the road we will have to evaluate these things and make sure we are not paying too much for the Super Bowl --

Dennis Hoffman: Some cities say no and teams move on. That does happen. Folks can make choices.

Byron Schlomach: Happening increasingly, because some of these deals -- we are giving away services to billionaires. They are demanding free services. Oh, my gosh.

Ted Simons: The OMG will end the conversation. Good to have you all here. Thank you for joining us. Thursday, former ambassador Kurt Volker makes his regular appearance to discuss foreign affairs. And we'll talk about why and how the valley is able to grab so many sporting events. That is it for now. I'm Ted Simons. Thank you so much for joining us. You have a great evening.

Dennis Hoffman:Economist, W.P. Carey School of Business at Arizona State University; Jim Rounds:Economist, Elliott D. Pollack and Company; Byron Schlomach:Economist, Goldwater Institute;

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