The Economics of the NCAA Tournament

Over spring break, I attended the second and third rounds of the NCAA Tournament in Seattle. Thousands of people from all over the country travelled to Seattle to cheer on their favorite teams. This made me wonder what kind of impact hosting the NCAA Tournament had on a city’s economy. Over the course of the 3 week NCAA Tournament, billions of dollars are spent. It all starts with the television and media rights deal. In 2010, CBS Sports and Turner Broadcasting Group signed a $10.8 billion deal to broadcast every NCAA Tournament game for the next 14 years. This means that the NCAA is paid more than $770 million for the broadcasting rights of the NCAA Tournament each year.

march-madness

There are a number of factors that determine whether a city gets a massive economic boost or a possible loss from hosting the NCAA Tournament. The most significant factor is the location of the participating schools. This is the reason I attended the NCAA Tournament in Seattle. I am a huge Gonzaga basketball fan, so I travelled from Spokane to Seattle to watch them play. Gonzaga fans were all over Seattle. There was a big alumni reception at Safeco field and a big ballroom at the Washington Athletic Club turned into the Gonzaga fan headquarters. All of these fans occupy hotel rooms and fill up restaurants which has a positive effect on Seattle’s economy. The second factor is brand appeal. Some teams have bigger fan bases or simply travel in bigger masses than others. It helps when fans are excited about a schools current team and they are optimistic about potential success in the tournament. For example, the Northern Iowa fan base travelled really well because they had one of their best seasons in program history and were anticipating a deep tournament run. On the other hand, their third round opponent who beat them, Louisville, is a perennial power. This prompted their fans to figure it was not worth the travel expense to go all the way to Seattle because they make the tournament every year. Another factor is the intrigue of matchups. Rivalries bring in the most appeal, which prompts more people to travel and spend money supporting their team.

final 4

Based on the masses of people visiting Seattle for the NCAA Tournament, I assumed that all of the full hotel rooms and restaurants would produce a surefire economic boost for every host city. However, it is not always the case. When New Orleans hosted the Final Four in 2012, they only expected a small economic benefit. Allen Sanderson, a sports economist at the University of Chicago stated, “A lot of the activity is just substitution of one thing for another. The tournament may affect where people drink beer, but not how much beer they drink.” Sanderson raises an intriguing correlation between increased economic activity in one part of the city and decreased economic activity in other parts. For example, there is probably less economic activity at malls and movie theaters during this time, which reduces the economic benefit of hosting the Final Four. Also people who would otherwise visit the city and spend money will steer clear because they do not want to deal with the masses of people. The recipe for maximizing a host cities economic profit is to attract lots of visitors, who will spend money that would not have otherwise been spent.

bracket

Another significant economic aspect of the NCAA Tournament is the tendency of employees to either take sick days to watch the games at home or to watch the games at work. Considering how many people do this, it can have a huge economic impact on the national scale. According to a 2009 Microsoft survey, 50 million Americans plan to watch games at work during the NCAA Tournament. On top of that, a 2013 msn.com survey found that 86% of workers will check scores intermittingly throughout the day. If you calculate the economic loss based on the 50 million workers not doing their job and an average hourly wage of $24.31 according to the Bureau of Labor Statistics, $1.2 billion would be lost every hour. Since workers are likely to check scores regardless of management intervention, it is best for managers to let employees take short breaks to catch glimpses of the games that they are most interested in. Letting employees watch March Madness in the workplace builds camaraderie and morale, which could increase productivity in the following weeks.

Sources:

http://www.forbes.com/sites/leighsteinberg/2013/03/20/march-madness-packs-economic-whallop/

http://www.newrepublic.com/article/117045/economic-costs-and-benefits-college-basketball-ncaa-tournament

http://www.nationaljournal.com/daily/the-economics-of-march-madness-20120311

http://www.forbes.com/sites/prishe/2015/03/19/march-madness-economic-impact-on-host-cities-rests-on-luck-of-the-draw/3/

http://assets.nydailynews.com/polopoly_fs/1.165890.1314025273!/img/httpImage/image.jpg_gen/derivatives/landscape_635/alg-duke-blue-devils-jpg.jpg

https://nbccollegebasketballtalk.files.wordpress.com/2015/03/ncaa-tournament-printable-bracket-2015.png

http://blog.owu.edu/transcript/files/2015/03/march-madness.jpg

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