2016 Final Four Guide

Despite influx of visitors, Houston may not see significant economic impact from hosting Final Four

Houston is currently in an economic funk relative to much of the United States, and economists say that the men’s Final Four being held in the city won’t significantly help the burden.

Low oil prices have taken a broad toll on the city’s economy, and it’s unlikely that the local economy will grow much, if at all, in 2016, said Adam Perdue, an economist for the University of Houston’s Bauer Institute for Regional Forecasting.

And while it has been reported that the NCAA men’s Final Four will generate $300 million in revenue for Houston, economists say that number is misleading and overstated.

Victor Matheson, an economics professor at the College of the Holy Cross who specializes in the economic impact of big sporting events, said that Final Fours, for several reasons, generally have smaller economic impacts than what is projected.

One of those reasons, he said, is leakage, which occurs when money is spent in a city such as Houston, but doesn’t stick there.

“So for example, hotel rooms are probably double or triple their usual price this weekend,” he said. “But the big national chains, they’re not doubling or tripling the money they pay to their desk clerks or room cleaners. And so that money doesn’t stick in Houston, it just goes back to corporate headquarters.”

Another reason for the minimal economic impact is the “crowding-out effect,” Matheson said, which occurs when locals or people who would otherwise be spending money in an area are discouraged from doing so because of the number of tourists in the area.

“Let’s say a bunch of people from Syracuse, for example, go down (to Houston) and they spend money there,” Matheson said. “That crowds out other people who would’ve been there anyway. It’s a pretty good week for basketball fans, but it’s a bad week for regulars.”

Justin Yu, the owner of Oxheart Houston, a contemporary American restaurant in the Texas city, said he’s already seeing that type of effect take place at his restaurant. Oxheart is a higher-end, reservation-type restaurant, Yu said, which he said doesn’t tend to appeal to the type of people visiting Houston for the Final Four.

At the same time, Yu said, many of the locals who are drawn to Oxheart are making an effort to avoid the downtown area — where Oxheart is located and where the Final Four games will be played at NRG Stadium — during the Final Four. As a result, reservations are actually down for this weekend.

Media outlets such as Athlon Sports and Forbes have reported that $300 million will be generated for Houston from the Final Four, but Matheson credited that to a manipulation of numbers and said it’s more likely that the total revenue will be somewhere around $30 million. And that’s without taking into account the $8.4 million the state of Texas paid in subsidies to host the Final Four.

Perdue, the University of Houston economist, said that while he couldn’t estimate an exact amount for total revenue, it won’t be an overly significant figure.

“It’s just one week and a few thousand people,” he said. “… It’s a drop in the bucket compared to the greater economy.”

Matheson did say, though, that this year’s Final Four field — consisting of North Carolina, Oklahoma, Syracuse and Villanova — could lead to an impact more positive than usual, since all are big-name programs with large fan bases that could potentially travel to Houston in swarms.

“If you’re Houston … you’re more than happy that Gonzaga goes down, that you don’t have a George Mason or a Butler type thing,” he said, referring to mid-major schools that have made the Final Four in recent years. “Those teams might be good for ratings, but they just don’t have a good enough fan base to generate much.”

Matheson also said he understands why cities are eager to host events such as the Final Four. Quite simply, it’s fun, he said, and it’s also an opportunity for the host city to show itself off on a national stage.

He added that, for those reasons, no economist would “begrudge” a city for seeking to host a Final Four.

“But what we would say is, if you’re going to throw around the $300 million figure, it’s almost certainly not true,” Matheson said. “All of these things may make you happy, but there’s very little evidence that they’ll make you rich.”

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