“I totally believe we will lose money on this.” That’s what Mayor Jerry Weiers of Glendale, Arizona—the city that will host this year’s Super Bowl—candidly revealed to ESPN last week.
Last time Glendale’s University of Phoenix Stadium hosted the Super Bowl, back in 2008, it reportedly incurred $3.4 million in costs and received just $1.2 million back in tax revenue from direct spending. And it's not as if Glendale has seen its stock go up in the meantime. "There has not been any corporation that moved to Glendale because the CEO came to the Super Bowl," a former city council member told ESPN last week.
None of this is any surprise to Andrew Zimbalist, America’s leading sports’ economist and author of the powerful new book, Circus Maximus. (Full disclosure: I liked this book so much I agreed to blurb it). Zimbalist, who has studied the economics of stadiums and sports events for the past couple of decades, takes a clear-eyed look at the effects of much-hyped mega-events like the Olympics and the World Cup on the cities that host them. His book, subtitled The Economic Gamble Behind Hosting the Olympics and the World Cup, shows in precise detail how these events have become such bad deals.
I recently had the chance to chat with Zimbalist about mega-events in general and this Sunday’s Super Bowl in particular. The conversation that follows has been edited and condensed.
Your previous research looked at issues surrounding publicly subsidized stadiums. But in your new book, you turn your attention to “mega-events” like the Olympics, World Cup and Super Bowl. How are mega-events similar to or different from the ways U.S. cities subsidize sports teams?
In economic terms, mega-events tend to bring in more outside money, whereas spending on a local sports team tends to recirculate economic activity rather than create new economic activity. A principal problem with mega-events, however, is that the new spending they bring in tends to merely replace* the spending of traditional tourists, leaving little, if any, net increase in demand for local goods and services. Both local sports teams and mega-events involve large leakages of demand outside the local economy.
There are two other crucial differences. First, facilities for mega-events tend to find only minimal use after the short period of the competition, yet require substantial maintenance expenditures to keep them viable. They also take up dozens of acres of valuable real state for years or decades. Second, sports teams provide a city with an enduring source of engagement and identity, and, when run properly, offer a community strengthening experience. Other than the possibility of some evanescent pride during the competition, mega-events do not build a sense of community. Rather, they usually leave behind enormous debt, which drains city resources for years or decades.
You chronicle the unbelievable growth in the price-tag of the Olympics from what you term the early “era of amateurism” to its current form as a big ticket item that costs hosting nations and cities tens of billions of dollars. Why did this happen? How does it affect the games and the cities that host them?
Sports have grown in importance culturally throughout the world. I believe one of the reasons for this is the increasing fragmentation of modern life. People can easily pass most of their days with a minimum amount of human interaction as they watch television, look at their smartphones, work on their computers, or drive in their cars. Sports provide an easy opportunity for people to relate to each other and to share a common experience. So, on the one hand, sports is an antidote to individuation and this pattern supports the growing popularity of sports.
On the other hand, the economic structure of the Olympics and the World Cup encourages excess and extravagance. In both cases, there is one seller (the International Olympic Committee, or the IOC, or Fédération Internationale de Football Association, or FIFA) and multiple potential buyers (the competing, would-be host cities or countries) from around the world. The competing cities/countries have to outbid their rivals to be anointed. This is a standard winner’s curse situation that is only exacerbated by the fact that the bidding interests (e.g., construction company executives) in each city/country usually are the ones that stand to gain the most from hosting. These interests primarily represent their own private concerns rather than those of the city, creating a typical principal-agent problem.
People often talk about the great success of the 1992 Barcelona Olympics, which helped spur the revitalization of that city. Is it an outlier? Can cities learn from that experience?
In my view, both Los Angeles 1984 and Barcelona 1992 are the two significant outliers. Because the 1968 Games in Mexico City, those in Munich in 1972 and those in Montreal in 1976 were associated with negative publicity, Los Angeles was the only city in the world willing to host the 1984 Games. Los Angeles refused to back the Games up with public funding and demanded that the IOC backstop the Games financially and allow the city to use venues built when it hosted the 1932 Olympics. Together with innovative and effective management by Peter Ueberroth, the Los Angeles Olympics in 1984 generated a $215 million operating surplus.
The Barcelona story is more complicated. The basic distinguishing element was that the city began to develop a plan for its renovation after Franco's death in 1975. The plan had several components, including the opening of the city to the sea. Crucially, the plan existed before the bid to host the Olympics and the Olympics were fit into the plan, reversing the typical sequence. And similar to Los Angeles, a large majority of the sports venues in Barcelona were already built.
The lessons from Los Angeles and Barcelona are twofold. First, beware the leverage of the IOC and bargain tough. Second, the city needs to have a vision and a plan before it bids for the Olympics. If it doesn't, then attempting to shoehorn a city plan into a scheme subordinated to the demands of the IOC is bound for economic failure.
The Super Bowl is this coming Sunday. Your book focuses on the Olympics and World Cup, but the Super Bowl is also a mega-event. Tell us more about the effect of hosting Super Bowls on cities.
Similar to the Olympics, Super Bowl economics depend on the ability to bring new spending from outsiders into the host city. The good news for the Super Bowl is that the football stadium is already built and services a local team. The bad news is that when the stadium was built, with a few exceptions (such as MetLife Stadium for the Giants and Jets and Gillette Stadium for the Patriots), it was paid for overwhelmingly with public funds, just like the 30-plus venues for the Olympic Games. Also similar to the Olympics, the hosting of a Super Bowl can drive people away from the city for fear of congestion, high prices and heightened security. Hosting also imposes additional security and hospitality costs on a host city. When Super Bowls are hosted in warm climate cities, the likelihood that football fans are simply replacing sun lovers, golfers, tennis players and recreational fishermen is all the greater.
What can be done to reform and realign the “Circus Maximus” that sporting mega-events and so much of professional sports in cities have become?
Not dissimilar to most of our social and economic problems, there are no easy answers. I do make some suggestions in the concluding chapter of Circus Maximus, [which are]:
1) Introduce more competition to the Olympics and World Cup to break the monopoly of power held by organizing committees like IOC and FIFA.
[Though as Zimbalist points out, this has been tried before and failed. Ted Turner’s Goodwill Games grew out of the Olympic boycott controversy of 1984, but Turner lost $26 million on the first games of 1986 and another $40 million in 1990.]
2) Control the number of bidders for each mega-event.
[FIFA tried this in the early 2000s by rotating its World Cup hosts by continent, though the organization quickly abandoned the scheme when it realized it had lost leverage by limiting the number of bidders.]
3) Allow the use of older stadiums and encourage repeat hosting to keep down costs.
4) Make a “more serious and professional effort” to determine how hosting would actually affect a city’s development and long-term sustainability.
5) Make sure mayors and city leaders understand the pitfalls of hosting mega-events.
*CORRECTION: An earlier version of this story misquoted Professor Zimbalist. He said that spending by mega-events fans replaces traditional tourist spending, not that traditional tourists spend on mega-events.