I was harsh on the politicians of Glendale, Az. who supported the bid for the 2008 Super Bowl. A recent Arizona Republic article noted a study by the Elliott D. Pollack consultancy that found that Glendale lost an estimated $2.2 million in taxes because of the Super Bowl. Joining a long list of mega-events that didn't turn out as they were billed economically, why do politicians keep throwing public resources at these mega events?
1. Long run effects: the study was a short-term study, and when all is said and done Glendale could see at least a break even scenario when people return to Glendale after having first experienced it in February. I doubt that this scenario will play out since the bulk of the positive economic impacts from mega-events occur in the short run. I just don't see how the city sees how it will make up the estimated $2.2 million shortfall in taxes from the present value of uncertain future tax returns.
2. External effects inside Glendale: when it comes to income, jobs, wages, etc. the economic research is clear. More-or-less permanent sporting events (like Diamondbacks games or ASU football games) and mega events don't do much, if anything, to generate tangible economic activity. Moreover, the ex-post realizations fall way short of the ex-ante claims of promoters and supporting politicians.
But some research has shown that there are external benefits associated with sports. In a 2001 Journal of Sports Economics article, Bruce Johnson, Peter Groothuis, and John Whitehead estimated the use and non-use value of Pittsburgh Penguins to its residents of Pittsburgh. They found that aside from the value they get from going to games, following them on radio, etc. Pittsburgh residents got non-use value of about $4.00 per person per year from the Penguins. If we use that figure as a measure of the external benefits obtained from Glendale's hosting of the Super Bowl, then we get approximately $1,000,000 in external benefits (Glendale population = 250,000, roughly). You can't tax external benefits, but at least that makes up for some of the shortfall. My assumption is that the external benefits of the Super Bowl are felt in the short term and are gone within a year.
Here is another study examining Londoners' willingness to pay for the 2012 Olympics.
3. External effects outside of Glendale: there is some new research that suggests that residents outside the city holding a mega event receive external benefits from the event. From the current Journal of Sports Economics:
Major sporting events such as the Olympics are usually assessed in terms of economic impacts. Recently, policy makers have begun to place greater emphasis on possible intangible effects (such as civic pride, legacy of sporting facilities) associated with such events. To date, little work has been carried out on quantifying these effects in a meaningful way. This study uses contingent valuation methodology to assess the value of the proposed 2012 London Olympic Games. The survey is carried out on the provincial city of Bath, approximately 2 hours west of London. Conducting the survey outside of London is justified on the basis that the organizers of London 2012 have emphasized the value of the event to the United Kingdom as a whole. The results suggest that positive intangible effects are associated with the event and residents outside of London are willing to pay toward funding.
I don't have my copy of the JSE handy, so I don't have their estimates at hand. But for the 2008 Super Bowl, this is closing the barn door after the cattle have left. Still, I would hope that the politicians from Glendale would have at least thought of talking with politicians from surrounding areas to help support a bid for the Super Bowl, and not just in neighboring cities. The Arizona Republic article mentions that surrounding areas collected $11.3 million in taxes from the Super Bowl. Surely Glendale had a threat point in negotiations with neighboring municipalities.
4. Public choice approach: Hosting the Super Bowl is a way to help politicians get re-elected or otherwise get ahead in life. The costs are spread across Glendale and the benefits go to a small group within Glendale. If that small group is politically powerful or active, and if the costs felt by individual Glendale residents is spread thinly, then hosting the Super Bowl can be a net gain for the politicians personally.
Lastly, if you are going to do a cost-benefit analysis of mega-events, you need to account for all opportunity costs, and that includes any forgone external benefits that could have arisen from spending public money on some other public project. Not doing so will result in an overestimation of the positive impact mega-events, or any sporting event supported by the public, have on the local economy.