Stripper Economics and Mega-Event Hype

Strip club owners in Tampa, FL and Charlotte, NC, where the two major political party conventions were held recently, revealed a lesson in economic impact in a piece I heard my NPR affiliate recently that alluded to a rule of economic impact that would be instructive for powerful political and business interests bent on ego-driven pursuit of mega-events, aka “Big Game Hunting.”

Mega-events displace as much or more in resident and visitor consumption as they generate.

In fact, according to strip club economics they definitely generate a loss due both to misguided renovations fueled by absurdly unrealistic expectations and even more so from the loss of regulars who stay home rather than navigate the hassles (in these two cases, it was not only increased traffic but elaborate security) created by the event and felt as much as seven miles away from any venue.

I saw this with my own eyes during the 1984 Summer Olympics in Los Angeles, when I was doing some preliminary scouting on behalf of Alaska, where I then worked in destination marketing, for what eventually became a successful effort to win the nomination as America’s choice for the 1992 Winter Games before losing out to Albertville, France and probably dodging the proverbial bullet.

The seed of my suspicion about mega-events was planted when it was so easy to find last minute hotel rooms and restaurant reservations in LA during an otherwise extremely successful Olympics.  This was confirmed by reports from Atlanta in 1996 and comments from bewildered retailers during a 1999 mega-event that, even though this was inconvenient to the participants, was spread over dozens of cities and towns and three counties including Durham, where I live.

I am not exactly sure when during my now-concluded forty-year career in community-destination marketing that I began to collect studies and clippings about the real impact of mega-events.

I also attribute much of my informal education about the vagaries of mega-events to generous tutoring from researchers and economists such as Dave Dittman in Anchorage as well as Mike Walden, Larry Gustke, Gene Brothers, Larry Long and Mitch Javidi both during and after their tenures at NC State University.

Ultimately, though, beginning in 1999, the economist who really helped me drill down into mega-events using very reliable input-output economic impact methodology was Ken McGill, then with Global Insight and now managing director of Rockport Analytics where a few months ago he performed an incredibly, in-depth analysis of the Super Bowl held last February in Indianapolis, which was the best by far that I’ve ever read.

It is best for host cities (and states) as well as the NFL to commission independent impact analysis.  Indianapolis is wisely using the post-event report as the basis for future decisions.

Unfortunately, most communities that are addicted to “Big Game Hunting” usually let far too many egos get attached before they seek economic impact estimates and then, instead of using them to inform open-minded decisions, these estimates are almost always sought purely as justification.

I was fortunate that the last decade of my career overlapped with Ken’s 30 years in economic and market research.  He was always patient in explaining the answers to my barrage of questions and he shared with me a 2001 op-ed piece in which Dr. Philip Porter, an economics professor at the University of South Florida, unwrapped how and why the impact promoted by organizers for the Super Bowl that year didn’t make any sense.

Porter pointed out the pitfalls involved with “using long-run models to predict the impact of a short-duration event.”  Because of how sales tax reporting is done, it is also very difficult to look at sales over the specific days of the event and compare them to the same days the year before and after.

It is now further complicated because the NFL asks for many expenditures to be tax free during the Super Bowl period.  Porter did his analysis by looking at sales reported for the month previous to when other Super Bowls were held and compared these to the collections for that month, the year prior and the year after hosting a Super Bowl.

The impact was nil.  Like the political conventions just held, events this big literally displace as much visitor and resident impact as they generate.  There may be a lot of reasons to host such an event, but if communities want to be assured of the economic value-added necessary to recoup the tax dollars required, they are best advised to eschew “Big Game Hunting” in favor of smaller events and visitor segments that augment rather than displace.

Even the vaunted “halo” effect that is used to justify hosting mega-events is over-hyped and must be weighed against the exposure the underwriting required could generate in more sustainable promotions.  A classic study in Sweden after a decade of hosting mega-events showed negligible impact on community image.

This may not assuage egos, but the safer alternative of focusing on smaller events and other visitor segments is always far better for the bottom line while greatly minimizing any risk of tax dollars.  While the Rockport report for Indianapolis is a “best practice” and documents any displacement of tourism, economists are still trying to find ways to fully account for displacement of resident spending and retained tourism.

Clearly though, Rockport’s report for Indianapolis illustrates that both the NFL and host cities are much better served when the Super Bowl is held in regions where it will occur during low season, a lesson that applies as well for other mega-events.