Why Hosting the Super Bowl Might Not Be Worth It

The Super Bowl isn’t just the biggest day in US sports: it’s the most-watched annual event in American television, with around 100 million Americans tuning in. The ads bring in billions of dollars in revenue, and that’s not even counting tickets and merchandise. With money like that at stake, cities make a big effort to get the Super Bowl to their field. But how much of that revenue actually benefits the city?

In short, not that much.

One important principle in economics is that in situations where there’s a big moneymaker like the Super Bowl, and lots of people coming together to make it happen, compensation tends to be based on what’s called marginal product. In other words, what are you bringing to the table that’s better than the next best alternative to you?

Now the biggest marginal product, of course, is the NFL itself, just because there’s not really an alternative to the NFL if you want a superbowl. So when it comes to the revenue, it’s a game of inches, and the NFL is the quarterback calling the shots. Ticket and merchandise sales – 100% of that goes to the NFL. Not only that, they’re able to use their position to bargain for even more from the other parties. The TV network gets the ad revenue, but they pay the NFL $2.1 billion a year for the privilege of broadcasting. The NFL even demands a tax exemption from the city before agreeing to come, meaning the city government is already losing out on any tax revenue from direct expenses.

The NFL, of course, uses a lot of that money to pay its players, since the players are, after all, what makes the game fun to watch.

So there’s a big chunk of revenue that just never touches the city. But think about who else pitches in logistically. With as many people as come to the city, the marginal product of hotels is pretty high. And some of that gets used to pay local workers. But a lot of it also goes to investors who put up the money to build a big hotel in the first place, knowing that the Super Bowl might end up there. Same for restaurants, and any other local businesses. The only way you can make money from the Super Bowl as a local business is if you’re able to massively scale up on short notice. And that’s mostly not your average resident.

Now how about the city government itself? In some ways, the city’s bargaining position is the worst of all the parties, since the NFL can just play anywhere there’s a stadium. So cities sweeten the deal with tax breaks, subsidized stadiums, ramped up public services, and other expensive perks. By the time it’s all said and done, the city government is often in the hole. They didn’t make money, they lost it! In fact, one of the clearest findings in sports economics is that stadium subsidies are one of the worst ways you can spend taxpayer money.

So what are we left with? At the end of the day, hosting the superbowl commits a city to major investments, for not a lot of local benefit.

And in fact, one of the reasons the NFL is able to negotiate for such a large chunk of the revenue, is because they convince cities it’s an economic magic bullet.

So just like how you get a better deal when buying a car if you don’t act desperate, one way to make sure cities do benefit from hosting the Super Bowl is to recognize that right now it’s not a great deal, and to just be a little less eager to give taxpayer money away to the NFL. If cities play smarter, they can avoid being sacked by bad deals, and who knows — maybe even score a profit.