Here is an interesting question I think. I live in Indianapolis and the city/state government as well as various private (mostly hotel) companies have been building, building, building, in preparation for the Super Bowl in 2012. Highways are getting redone, hotels are popping up everywhere (including a very expensive, very fancy new JW Marriott), even the hotel I work at is adding on to the existing building to make it more attractive.
My question is, would I be incorrect if I looked at all of this investment (and government spending) as unwise. The way I’ve been looking at it, if businesses could afford to build new buildings before a boon to the city was expected, then why weren’t new skyscraper hotels popping up before we got to host the Super Bowl? I’m thinking that all of these businesses (and the state) are banking on super bowl revenues and not exactly planning long term. If no one could afford to keep these things afloat (which is what I assume given that they didn’t start popping up until after the bid was announced) then how are they going to be able to afford it after the super bowl is gone?
Essentially, I’m asking if I’m looking at a situation as this in the wrong way…should I be expecting a mini “boom-bust” of sorts in the Indianapolis area? Where employment and such is going up to accomodate all the new business whereas it isn’t sustainable after the Super Bowl is gone?
There is no way to say. All you have is a huge intervention in the construction and hotel markets mostly done by the state. So the unseen effects could be experienced anywhere in the state. For example, a company may in an effort to pay less in taxes may move across the Ohio River into Louisville. No one would never know why nor care. What if that company turns into Facebook or becomes the next Berkshire Hathaway?
I guess I’m also thinking that if we built all these hotels in order to accomodate super bowl business, then would, after the super bowl is gone and business returns to normal, there be a bunch of vacant buildings?
Take a look at South Africa after the soccer World Cup in 2010:
The government-connected contractors made a killing building giant stadiums that are redundant in this small country following the tournament.
Roads and airports were upgraded (but tolls and tax increases are on the way to pay for this privilege which was supposed to be a perk of hosting) .
After all is said and done the FIFA fascists swooped in, had legislated authority to command-and-control the judiciary and economy for the period of the tournament and then disappeared back to from whence they came with the bulk of the loot and the S.A. government in debt. What a boondoggle.
I’m pretty sure I get the government spending side, but I’m wondering if I’m committing the a “broken-window” fallacy of sorts if I think that private companies building/adding new construction will either be hurt after the super bowl or other, now sub-marginal, hotels will be hurt.
Would there be a bunch of bankrupt businesses after the super bowl due to poor investment decisions?
Not necessarily. The expected revenue could outweigh the costs and then they close down operations after. They could be prepared to expand but not be certain of future revenues and use the boost to grow with more security. They could be prepared to expand anyway but rush already planned projects so they contribute to the sudden glut of projects finishing just prior to the Super Bowl.
Some businesses will make poor decisions, but that happens every day. If you’re looking at purely private investment resulting from the presence of the Super Bowl then it’s pretty much business as usual.
Say that there are a bunch of businesses that are juuuuust on the brink of wanting to expand, but can’t quite justify it on the numbers. If these businesses are in markets that will be greatly benefitted by the Super Bowl, the event could help them recover some of their investments in a timely-enough manner that the expenditures cross that line of being beneficial. The government may or may not (though likely not) be doing this same cost/benefit analysis to a more or less similar effect.
Same thing is happening in the UK with regards to the 2012 olympics. Talk about a mal investment. What a waste of tax payers money.
It reminds me of a father that maxes out his credit cards to please his daugther for her birthday only for it all to get taken away from her a few months later.
In the UK they were even considering knocking down a multi-million £ stadium completely to rebuild it as a football stadium because they were aware of the fact that prior to building the stadium that after the olympics it won’t make any money.
One reason could be local banks have special loan condition for customers working in the tourism sector and/or the local government is somehow encouraging the activity with tax breaks, subsidies etc. For example the Marriott hotel chain may have simply “jumped aboard”, using these favorable conditions to start a project they had already planned. Never look a gift horse in the mouth.
But it’s absolutely true the Olympics, the football (soccer to US residents) world cup, the World Fair etc are colossal malinvestment/speculation occasions. Money gets squandered in colossal amounts and shrewd speculators can make a fortune by playing their cards right. Just look at the 2015 EXPO (World Fair). Data from the previous editions in Aichi, Zaragoza and Shanghai indicate this exhibition brings nowhere near as much money to the local economy as the organizers promised. In fact the 2008 EXPO in Zaragoza is a textbook example of reality clashing with wishful thinking. Yet The City of Milan is going ahead with grandiose engineering projects (the butter of every government) they cannot afford. The words “Athens 2004” come to mind. Milan spared no expenses for the 2015 EXPO, going as far as paying Al Gore (yes, that Al Gore), a huge favorite of the Lombard elite, half a million to lobby on their behalf. Of course the main primer is old fashioned building speculation: there are already 164 high-rise (if not real skyscrapers) new buildings planned and politically connected building groups are moving in like crows after a battle. The good people of Milan had no saying in this, of course. The infrastructures are crumbling but there are only scraps for those “ancillaries”. It looks like it will be repetition of the 2008 Giro d’Italia (the second cycling race for importance immediately after the world famous Tour de France), when the city lobbied to be an arrival for the race but had roads in such paltrous conditions the racers enacted a “white strike” (ie they just pedalled around at leisurely pace) in protest.