The Super Bowl Economy

wide right · Jan 27, 2008

The Super Bowl Economy

Super Sunday generates major bucks for all involved, from its host network to snackmakers, HDTV sellers, and especially the game's host city

Source: Business Week

For entrepreneur Steve Sodell, the Super Bowl started in late October. That's when he and his staff of 12 began renting retail space in shopping malls and hotels across the Phoenix metro areastuffing shelves with NFL-licensed T-shirts, hats, and other collectibles emblazoned with this year's Super Bowl XLII logo. By the day of the big game on Feb. 3, his makeshift merchandise empire will comprise 24 stores and 42 employees. Ten days later, business shuts down and Sodell starts planning for next year's Super Bowl in Tampa. "We have a very short window of opportunity to make our money," he says.

The race for Super Bowl profits is on. While the New England Patriots attempt to become the first team in the National Football League to reach a perfect 19-0 record, businesses across the country are banking on this game to be a bigger economic driver than any single sporting event in history.

Some records have already been set: The cost of a 30-second commercial during Fox's broadcast, $2.7 million, is the highest ever. So is the price tailgaters will pay to get inside University of Phoenix Stadium, between $700 and $900. But the cavalcade of businesses and entrepreneurs that have come to surround the Super Bowlfrom snackmakers and electronics retailers to the bookies in Vegas and the hotel operators in Phoenixare gearing up and holding onto hope that consumers will put aside concerns of a tightening economy and indulge in this Super Sunday with extravagant parties, big-ticket purchases, and vacations to Arizona.

Surprisingly, the NFL and the athletes on the field are not the richest beneficiaries of the big game. Players on the winning team each take home $78,000; on the losing team, each player gets $40,000. The league's biggest take is from merchandise hawked at the game venue, at the online NFL shop, as well as at retail stores across the country. The sales record for such merchandise was set in 1997, at around $125 million, and sales have hovered just below that amount in the years since.

The league also reaps a majority of the proceeds from ticket sales, which will amount to around $57.6 million this year, given a sellout crowd of 72,000 and an average ticket price of $800.

Super Ad Sunday

That's peanuts compared with what's at stake for some companies. Advertising revenues account for about half of the NFL's revenue during the regular season, but come Super Bowl time, those dollars go directly to the host broadcasting network. This year, that's News Corp.'s (NWS) Fox. The Super Bowl has become one of the few remaining must-see TV events for tens of millions of U.S. viewers. For many fans, the high-budget ads are part of the draw: According to a survey recently conducted by the Retail Advertising & Marketing Assn., 36.3% of consumers will tune in primarily to watch the commercials.

Last year, host network CBS (CBS) charged Super Bowl advertisers an average of $2.4 million per 30-second commercial, contributing to total ad revenue of $243.6 million, including the network's pre-game and post-game coverage, according to marketing researcher TNS Media Intelligence. Fox has reportedly ratcheted up the cost of a 30-second commercial to $2.7 million. Total ad spending on the game and surrounding coverage could reach $275 million.

The Big TV Huddle

Electronics retailers may even be able to top that. According to a recent survey conducted by Arlington (Va.)-based Consumer Electronics Assn., 48% of high-definition TV owners who call themselves sports fans purchased their set to watch a specific sporting event. Not surprisingly, the Super Bowl was cited most frequently. Last year, CEA estimates the Super Bowl drove some $2.2 billion in sales of HDTVs.

"There are very few events that lend themselves to parties in front of the TV, and this is one of them," says Brian Lucas, spokesman for Best Buy (BBY). In recent years, Best Buy has played up Super Bowl season by bundling discounts on HDTVs, digital cable subscriptions, audio equipment, and next-generation DVD players. Others, including Circuit City (CC), guarantee delivery and installation before the big game on sets purchased by Jan. 30.

An HDTV is a Super Bowl party plus, but snacks and beverages are a must. For years, makers of snacks, soda, and beer have marked the Super Bowl on their calendars as one of the strongest sales periods of the year. In the week leading up to the big game last year, 73 popular categories of food and beverage saw a combined $261 million boost in sales over an average week, according to research by ACNielsen. Tortilla chips were the single most popular snack among party-throwers, receiving a boost of 29%, or $13.4 million, over a normal week of sales.

Crunch Time

Frito-Lay, the PepsiCo-owned (PEP) snackmaker that leads the tortilla chip category with its Tostitos brand, is gearing up. "The Super Bowl is the No. 1 snack food consumption day of the year," says Frito-Lay spokeswoman Aurora Gonzalez. "Leading up to the Super Bowl we increase production of potato and tortilla chips by more than 10 million pounds."

Perhaps no business has greater hopes for this year's game than the host city of Phoenix. When Tempe, Ariz., hosted the Super Bowl in 1996, economists at the Arizona State University College of Business estimated the game to have an economic impact of $306 million spread across local industries, from food and beverage to hotels and outdoor recreation. The event generated 6,100 jobs for local staff, and state and local tax revenues were up $27 million.

Seven years later, Arizona went after the Super Bowl again. Shortly after the opening of the new University of Phoenix Stadium in 2003, Phoenix put in a bid to host the Super Bowl that included $20 million worth of incentives, such as providing 20,000 top-quality hotel rooms and increased public safety measures. The investment could be well worth it: the Arizona Super Bowl Host Committee is projecting an economic impact between $400 and $500 million on the local economy.

The crowds have already started to gather in and around Phoenix, and they look intent on spending. During a phone interview, merchant Sodell continually pauses to help out customers. After a woman asks about a certain jersey that he doesn't have on the shelf, Sodell responds: "Give us your name and your size, and we'll hold one for you. They'll sell out in no time." He's hardly the only business hoping for a sellout.
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The Super Bowl Economy

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The Super Bowl Economy

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