Eight cities across the country are hosting the NCAA Tournament, college basketball’s penultimate event, this weekend, and five more cities will host tournament games before March Madness ends at the Final Four in New Orleans. To hear those cities tell it, their economies will be boosted by millions of dollars thanks to sold out hotels, crowded restaurants, and other tourist-related sales.
But while cities love to tout the economic benefits the tournament supposedly brings, the reality is that those gains are rarely realized. The economic impact of mega-events like the NCAA Tournament is almost never in the millions of dollars, and there is often little if any impact at all, according to various economists.
In their analysis of Final Fours from 1970 to 1999, for instance, professors Victor A. Matheson and Robert A. Baade found that the average economic impact of hosting the NCAA Tournament was actually negative:
Using this model the average real economic impact (in 1999 dollars) from the [men’s Final Four] over the period 1970 through 1999 is estimated at -$44.28 million, or the model indicates that the average host city experienced a reduction in real income of $44.28 million as a consequence of the event. This compares to typical booster estimates predicting gains ranging from $25 million to $110 million. The median estimated economic impact equaled a loss of $6.44 million.
Over that 30-year period, 15 host cities experienced economic gains, while 17 experienced losses. And though Matheson and Baade are among the few to analyze the impact of the NCAA Tournament, they aren’t alone in their assessment of the economic impact of sports’ “mega-events.” A later study by Matheson into other large sporting events found that “most researchers find no correlation between economic growth and the presence” of events like the NCAA Tournament, suggesting that they tend “not to translate into any measurable benefits to the host cities.”
Matheson and Baade cite various reasons for the inflated economic estimates. For one, cities estimate the money spent by attendees at the events without accounting for money that goes unspent in that area. NCAA Tournament games surely attract fans to certain locations, but they can also prevent local residents from spending money at the same time, as they seek to avoid the crowd. And the estimates rarely account for the cost of putting on the events, so while a city may gross millions in new economic activity, the net gain is much more often closer to zero.
Event supporters also tend to overestimate both crowd sizes and multiplier effects (the idea that direct spending on the event increases additional levels of spending), while underestimating the amount of money that would have been spent in the local economy otherwise. And money spent at mega-events like the NCAA Tournament often doesn’t remain in local economies, even though taxpayers generally subsidize the costs of holding the event — another instance in which the negative impact of the event is overlooked.
That’s not to say the NCAA Tournament doesn’t make any money. It’s just that the cities that host it, no matter what they say or believe, usually don’t get to join in the riches.