With the Super Bowl opponents now decided, we take a whimsical look at the potential market and economic implications. This time of year will bring stories about the predictive power of the Super Bowl Indicator, which points to declines if a successor to the American Football League (now the AFC) wins the championship, and gains if a National Football League (now the NFC) team brings home the Lombardi Trophy. The indicator has been positively correlated with the Dow Jones Industrial Average annual moves on approximately eighty percent of occasions. With an original member of the AFL (New England Patriots), and the oldest existing member of the NFL (New York Giants) squaring off, potentially the amplitude of this correlation could be magnified. Market longs better pull for Eli Manning and the Giants come Super Bowl Sunday!
While the Super Bowl Indicator may be an example of spurious correlation, the economic impact on the host city, especially a mid-sized city like Indianapolis, is very real. A local Indianapolis business periodical puts the economic impact at $250-$450 million. Putting those figures into perspective against the state of Indiana's $275 billion gross domestic product, the week long party leading up to the Super Bowl would boost state gross product by 0.1% - 0.2%, and probably closer to 1% for the city of Indianapolis. Could such a healthy stimulus be a positive for Indianapolis-area stocks in 2012? Looking back at the stock returns of companies based in the host city over the last 12 years seems to point to a positive impact.
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The above returns for the host cities are a price weighted index constructed by Bloomberg to measure the performance of the respective local economies. The Greater Indianapolis index (BGIX Index) consists of 89 companies, notably including Cummins (CMI), Duke Realty (DRE), Eli Lilly (LLY), Finish Line (FINL), Simon Property (SPG), Wellpoint (WLP), and Zimmer Holdings (ZMH). While the sample size is limited by the somewhat truncated lifespan of these Bloomberg indices, a 764 bp outperformance of the price return of the S&P 500 over the smallish sample period is still noteworthy, albeit far from a meaningful buy signal on a global diesel engine manufacturer or an international shopping mall operator.
If the host city's economy and its local stocks benefit from the Super Bowl, what is the effect on the performance of the stocks of the winning city? The aforementioned economic impact of hosting one of the largest events in North America would not benefit the local economies of the traveling teams.
The winning team's local stocks also outperform the market (713bp). Does this seem anomalous? A 2002 academic paper by professors from the Univeristy of Missouri-Rolla and Xavier University would disagree, demonstrating that the success of an NFL franchise increases real per capita income in the local city, potentially due to the effect of increased productivity and consumption.
If there is truly a psychological boost to a winning franchise that increases worker productivity or drives local consumption benefiting real wages, wouldn't the winning team's local stocks outperform that of the losing team's stocks?
Excluding an unavailable index for the runner-up Oakland Raiders in 2003, the answer seems to be a resounding yes. Before you go long Boston-based equities of the favored Patriots and short NYC-based financials of the underdog Giants to capture this 471bp premium between the local stocks of this Sunday's Super Bowl winner and loser, please remember that this is a very limited sample size. Many of the companies listed in the respective indices are global in nature, muting local impacts. I hope this article is just another fun lead-up to one of the best days in American sports. Enjoy the Game!
Bloomberg indices used in the study:
|Atlanta: Bloomberg BGAX Index|
|Baltimore: Bloomberg BMDX Index|
|Carolina: Bloomberg BSTINC Index|
|Chicago: Bloomberg BCHX Index|
|Dallas: Bloomberg BDFX Index|
|Denver: Bloomberg BCOX Index|
|Detroit: Bloomberg BMIX Index|
|Glendale/Arizona: Bloomberg BAZX Index|
|Green Bay: Bloomberg BWIX Index|
|Houston: Bloomberg BHTX Index|
|Indianapolis: Bloomberg BGIX Index|
|Jacksonville: Bloomberg BJFX Index|
|Miami: Bloomberg BMHX Index|
|New England: Bloomberg BNENG Index|
|New Orleans: BLOUX Index|
|New York: Bloomberg BNYCM Index|
|Philadelphia: Bloomberg INQB Index|
|Pittsburgh: Bloomberg BPITT Index|
|Saint Louis: Bloomberg BSTIMO Index|
|San Diego: Bloomberg BSDX Index|
|Seattle: Bloomberg STIWA Index|
|Tampa Bay: Bloomberg BTBX Index|
|Tennessee: Bloomberg BTNX Index|