Ka-ching! You could see the dollar signs dancing in the eyes of Bay Area leaders when the National Football League announced that the region would host the 2016 Super Bowl.

The 49ers recent successes contributed to the NFL's decision to award the Super Bowl to the Bay Area (Jed Jacobsohn/Getty Images)
The 49ers recent successes contributed to the NFL’s decision to award the Super Bowl to the Bay Area (Jed Jacobsohn/Getty Images)

The championship game will take place at the 49ers’ stadium now under construction in Santa Clara. And no one sounded more jubilant than Santa Clara Mayor Jamie Matthews, who played a key role in getting the stadium project rolling. “I was not building a stadium, I was building an ATM machine,”  Matthews told Bay City News.

Matthews said the championship game will generate between $300 million to $500 million in economic activity for the Bay Area.

His spokesperson, Dan Beerman, said Matthews’ figures were from reports of the economic effects of previous Super Bowls.

But those reports are often flawed and the real gain is likely to be between $30 million and $120 million, said Victor Matheson, an economist at Holy Cross college in Worcester, Mass., who specializes in sports economics.

Claiming benefits of over $300 million for Super Bowls happens all the time, he said, but generally these studies are funded by football supporters, and they tend to make three false assumptions.

First, there is “substitution.” Bay Area fans who spend their money on football-related activity would have spent it on something else in the Bay Area, Matheson said, so the region isn’t really gaining anything.

Second, there is “crowding out.” To some extent, people coming into the Bay Area for the Super Bowl will displace other people who can’t make it because hotels are booked up.

Third, there is “leakage.” Even if Bay Area hotels can charge more during the Super Bowl, they won’t pay hotel workers more. Instead, the money will go to corporate headquarters in some other part of the country.

(Then, of course some Bay Area residents may even have reactions like this one … )

“The primary beneficiaries are the owners of the scarce hotel space rather than the community at large,” concluded Philip Porter, a University of South Florida economist, in looking at “mega-sports events.”

At least one economic assessment linked to Super Bowl supporters claims to have taken the first two problems into consideration. A report by the New Orleans Super Bowl Host Committee and the University of New Orleans found that the 2013 Super Bowl brought $480 million into the area.

That study states that it does not count local residents in making its estimate. And it says it subtracted income from hotel visitors who might have come to the region if the hotels weren’t booked for the event.

But the New Orleans study doesn’t say anything about “leakage.” We couldn’t reach the authors for comment.

The debate about Super Bowl economics has gone on for a while. In a 2002 study in the Journal of Sports Economics, researchers concluded that from 1969 to 1997, the Super Bowl put an average of about $140 in the pocket of each resident of the host city. But it concluded that “overall economic benefits flowing from future postseason appearances cannot justify public expenditures on professional sports franchises or facilities.”

“Nobody trusts the studies,” said Beerman. “There are going to be parties from Sonoma all the way down to Santa Clara. That’s why these economic activity numbers are always fudgey.” Still, he insists $300 million to $500 million is a reasonable estimate for the Super Bowl.

And the Super Bowl is only one event. Won’t the new stadium continue making money for the region for years?

Matheson doesn’t think so. “Almost certainly it is not going to be a net benefit to the Bay Area,” he said.

To start with, the 49ers are already in the Bay Area. So most of the economic activity the 49ers create for the region is already being generated, he said.

Also  there is a burden on the transportation system. (Think of all the hours Silicon Valley engineers will spend stuck in traffic instead of inventing the next iPhone.) That’s particularly true of a suburban stadium because most of the big hotels are in San Francisco, San Jose and the San Francisco airport.

Then there is the cost of police and sanitation.

“Of course the biggest cost is the fact that Santa Clara built a brand‑new stadium,” said Matheson.

The latest estimates show the stadium costing $1.2 billion to build.

It’s difficult to say how much money will come directly out of taxpayers’ pockets, if any. The financing arrangements are so complicated that Matheson plans to spend part of his summer trying to figure them out, he said.

But he says one thing is clear: “The 49ers got a huge tax break.”

The Santa Clara Stadium Authority, which is owned by the city of Santa Clara, cosigned an $850 million loan that pays the bulk of the cost for building the stadium. (The remainder is financed by the league and a few other sources.)

The city expects income from naming rights, season ticket license sales, and luxury box sales to repay the loan. (Levi Strauss just agreed to pay $220 million to name the new venue Levi’s Stadium, so that part is underway.)

But this income will technically accrue to the Santa Clara Stadium Authority. And as a public entity, it doesn’t have to pay taxes. So the state and federal government lose out on corporate income taxes that the 49ers would have had to pay, Matheson said. “So you have a large corporate entity generating a large number of revenues and not having to pay taxes.”

Taxpayers lose out because the state and federal government can’t afford services they might have paid if the 49ers were paying taxes the way other companies do.

It’s all perfectly legal, said Matheson, just not necessarily beneficial to taxpayers. “The 49ers have quite a sweetheart deal with Santa Clara,” he said. “You don’t see other firms getting this type of treatment.”

Beerman responds that Santa Clara has no regrets so far. “The city pushed for, and got, a better deal than any other city in the NFL,” he said.

Notably, it avoided the problem of some other cities, like Oakland, which was on the hook when ticket sales fell short of expectations. That was the reason for setting up a separate entity, the Santa Clara Stadium Authority, to finance the stadium, insulating the city’s general fund.

Whether or not Santa Clara or the Bay Area got a good deal may not be known for years.

But in the meantime, Matheson is willing to acknowledge one benefit to having the Super Bowl in town: “There is evidence that events like this make people happy.”

Economist Challenges Estimates on Bay Area Super Bowl Benefits 28 May,2013Laird Harrison

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