The NFL Draft could bring Philly $80 million — but one economist told Billy Penn the real impact could be much less. How much less? More like $8 million.
“The rule of thumb I’ve had,” said University of Chicago sports economist Allen Sanderson, “is taking any number the Chamber of Commerce says the economic impact will be, move the decimal point one to the left and it’s probably pretty close.”
Every time a massive event comes to a city, the boosters charged with raising funds and drumming up attention tout its economic impact in advance — as it was in Philly for the papal visit and the Democratic National Convention. This hype has been debunked in study after study. So why do we keep falling for it?
Think of the NFL Draft like a medical convention
Big events like the DNC, and especially the papal visit, led to underwhelming results for local business owners. After the city and the Philadelphia Convention and Visitor’s Bureau touted economic impact projections of up to $400 million in the months leading up to the latter event, the group hasn’t publicly released post-event details studying that impact. The CVB said it’s not studying the economic impact of the papal visit, and a report on the DNC released last week showed that big event generated $120 million less than originally projected.
Ed Grose, executive director of the Greater Philadelphia Hotel Association, said while hotels are seeing a significant demand created by the upcoming NFL Draft, “this isn’t DNC rates.” Instead, he compared it to “a large medical convention that doesn’t quite sell out the city, but does well.”
The $80 million “economic impact” figure projected for Philly’s NFL Draft — being held on the Parkway April 27-29 — has been referenced by numerous groups (and for the record would be a little ahead of the $61 million the Flower Show supposedly brings in every year). So who actually came up with this projection, and what’s it mean?
The NFL, which has routinely cited both the $80-million financial projection as well as that 26,000 jobs would be supported, declined comment and referred questions to The Philadelphia Convention and Visitor’s Bureau, a group that receives 80 percent of its funding from public sources like city tax dollars and state grants.
Representatives from the CVB said when the organization calculates “total economic impact,” it’s a combination of three things:
- Direct spending, or the sum of visitor, meeting planner and exhibitor spending.
- Indirect spending, or the business-to-business transactions required to satisfy the direct spend (for example, if the organizer plans an opening reception and, as a result, the venue needs to purchase food and beverages from their vendors to host the event).
- Induced spending, or secondary and third-level impacts of the direct spend and a result of increased personal income caused by the direct and indirect effects (for example, a server gets hired by a catering company to work at the event — the person gets paid and will, in turn, increase spending at local businesses).
In the case of the NFL Draft, specifically, the CVB came up with its projection using a Temple University study that suggested the draft had an $80 million “economic impact” on Chicago each year the event was held there. The CVB adjusted estimates by using an industry standard event calculator that takes into account data like how many hotel nights would be taken up by draft attendees (39,000), how many people would attend (200,000), Philly taxes and other metrics.
Following the initial estimates, more data was made available in terms of crowd size projections and how much money the NFL is kicking in to finance the event ($20 million). That gave them the economic impact estimate of more than $80 million, including more than $6.8 million in state and local taxes and the $20 million in direct spending by the NFL.
So of the $80 million-plus estimate of economic impact, more than a quarter is made up of the cash from the NFL combined with state and local taxes.
[pullquote content=”It’s getting rates that are on par with a major convention.” align=”right” credit=”Ed Grose, Exec. Director – Greater Philadelphia Hotel Association”]
Erik Evjen, director of research at the CVB, said the $80 million projection might be a low estimate. He said the group conservatively estimated the average daily rates of hotels and noted the city is within visiting range of up to 10 NFL teams. That proximity, he said, could drive hotel rates higher.
Grose said the last weekend in April is usually a busy weekend for hotels in the city anyway — that’s when the annual Penn Relays take place, too. He said the draft is creating a significant demand though, and he expects occupancy rates in the city to reach near 100 percent by the time the event rolls around.
“The draft is going to be great exposure for Philadelphia,” Grose said, “and the fact that it’s getting rates that are on par with a major convention is a positive for our hotels.”
The Chamber of Commerce has touted the longterm impact of hosting the draft, as well as anecdotal evidence of a bump in the local hospitality sector.
“While we have not completed formal economic research on this topic, yes, economic impact as a result of Philadelphia hosting the NFL draft is expected to be significant,” Matt Cabrey, executive director of Select Greater Philadelphia, a council of the Chamber of Commerce, told Billy Penn. “Short term, this impact will center on dining, hotel and cultural attractions seeing a bump in business.”
Why economists are skeptical
The study the CVB’s estimate was “highly based on” was performed by Jeremy Jordan, director of the Sports Industry Research Center at Temple University, and paid for by Choose Chicago, that city’s version of the Philadelphia CVB. Jordan performed the study after the 2015 NFL Draft and used survey information based on a sample of attendees built by him, the NFL and Choose Chicago. (In September, when the NFL Draft was announced in Philadelphia, we looked at the Choose Chicago report to determine why their numbers didn’t add up.)
When reached by phone, Jordan said he understands skepticism at the involvement of tourism groups and the NFL but said the actual work was done independently.
“We’re going to do the work and give the information,” he said, “and what you do with it is up to you. We don’t alter findings.”
In revising the Chicago information for Philly, the CVB said it didn’t take into account any potential loss of revenue from people avoiding the Parkway or the city entirely because of draft-related festivities, or traffic problems and other headaches caused by the construction and traffic closures during the weeks before the draft. Economists expect these things to occur, and if they do, the 200,000 money-spending NFL fans could merely be replacing money that would have been spent by others.
Robert Baumann, an economist who has studied the economics of big events, told Billy Penn in 2015 disruptions are “real costs,” because, “less business is getting done.”
Evjen said while “some displacement likely occurs,” it’s “fairly small” compared to visitor spending in total.
“There’s the question of: ‘Is it really displaced? Or is it just shifting?’” he said. “Instead of coming this weekend, you might come next weekend. Visitors stayed away during the papal visit during the weekend, then October turned into one of the best months we’ve ever had.”
Jordan said he did account for these disruptions in his Chicago study.
[pullquote content=”If some NFL executive gets in a cab, that’s a job.” align=”left” credit=”Allen Sanderson, Univ. of Chicago sports economist”]
Sanderson takes particular exception to the NFL’s claim it is supporting “26,000 jobs.” Both the CVB and the NFL have touted the figure, but the organizations don’t actually believe the Draft will create those jobs. The CVB says the figure also came from the event impact calculator, but it notably includes all jobs supported — including in hotels, restaurants, transportation, retail and security — but not the “full-time equivalent.”
So what does supported jobs mean? Sanderson said, “If some NFL executive gets in a cab, that’s a job.” He would count, for instance, a 20-hour part-time job for two weeks of construction on the Parkway as 1/50th of a job because an actual job should consist of about 40 hours a week, 50 weeks a year, and he suspects most economic impact reports round up job numbers too high.
Fuzzy football math
For Philadelphia, the worst case scenario is the NFL Draft doesn’t have as large an economic impact on the city as tourism groups say it might. Some local business owners in Chicago who weren’t close to the action around Grant Park said the event was a total bust, according to reports in 2015. Others reported even losing business that weekend.
But city officials in Philadelphia are ensuring taxpayers that — unlike after the papal visit when they were saddled with an unexpected $8 million bill, largely to cover services used during event set-up and clean-up — they’ll only be responsible for kicking in $500,000 in tax dollars for the draft.
The total cost of the event is about $25 million, and the NFL is covering the majority of that. The Philadelphia Draft Host Committee has committed to raising $5 million in private funds — which a spokeswoman said is 90 percent raised — and the city’s kicking in a $500,000 grant from the Philadelphia Industrial Development Corp, plus $500,000 in tax dollars to cover city services. Lauren Hitt, a spokeswoman for Mayor Jim Kenney, said the city will be reimbursed for any services that exceed $500,000 in in-kind services, regardless of when those services are used.
Sanderson is perhaps most skeptical of $80 million estimates of economic impact because he believes if the NFL Draft actually produced such an effect, the league would find a way to wring every last dime out of the city, either by seeking greater breaks on its $25 million cost to produce the event or extracting from the city a cut of hotel and food revenue.
“Why on earth if that’s true would they leave that much on the table?” he said. “The answer is they wouldn’t. They’re not leaving that much on the table.”
