Butler's march could cost city businesses $7.5 million

There’s lots to celebrate about Butler’s improbable run to this year’s Final Four at Lucas Oil Stadium.

It’s the first time a team will play a Final Four in its home city since UCLA played in Los Angeles in the early 1970s. The Bulldog nation is going hysterical, and for good reason.

Not only is this Butler’s first trip to the Final Four, it is already having a massive positive impact on the tiny, private liberal arts college nestled near Broad Ripple. Last week, Butler officials told IBJ that merchandise sales at the school’s book store is up 500 percent. Can you imagine the sales hike Butler will see this week?  And there are already indications that enrollment interest is up.

There’s no denying that the men’s NCAA basketball tournament is a powerful marketing tool. That’s one reason why even small schools like Butler pay out healthy six-figure salaries to their men’s basketball coaches.

But there’s also one other fact that can’t be denied. Butler’s mad march through this tournament likely will cost city businesses $5 million or more in direct visitor spending.

The economic impact for most tourism events and conventions is easy to calculate. Take the number of visitors, figure how many will be flying in versus driving, consider the demographics of the congregation and the history of the event and basically multiply the number of attendees against the computed X factor. OK, it’s a little more complicated than that, but not much.

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With an event like the NCAA basketball tournament, it’s a lot more complicated and unpredictable. (Same goes for an event like the Big Ten basketball tournament, as I pointed out earlier this month).

Yes, it’s better to have the event than not have it—in most cases. But it’s still a big gamble—when you consider the resources to host such an event.

The economic impact depends on which teams win and lose. Because you never know which teams will make the Final Four when you start out with 65 teams, it’s impossible to calculate (in advance) how those teams’ fan bases will travel, what the demographics will be and so on.

We know this, the economic impact for Indianapolis will be big. We just don’t know how big. In 2006, the city reaped $39.3 million in visitor spending from the men’s Final Four at the RCA Dome, which seated about 24,000 fewer people than Lucas Oil Stadium.

Sports economists have told me (prior to Butler’s run) visitor spending will likely swell to $50 million given the additional capacity. And yes, the event is already a virtual sell-out.

But when one-fourth of the field is from the city where the tournament takes place, a significant number of fans coming to the event suddenly don’t need transportation to and from the city and hotels rooms and are much less likely to eat meals out as those traveling from out of town. Butler fans will buy Final Four memorabilia, but they certainly won’t buy Indianapolis-centric souvenirs.

A conservative estimate is that direct visitor spending will decline 10 percent to 15 percent for the city due to Butler’s inclusion. That’s $5 million to $7.5 million. In any economy, that’s a lot of jack.

To compound matters, Butler eliminated Syracuse, which has a strong (both in terms of numbers and demographic profile) traveling fan base. Butler also eliminated Kansas State, which due to its proximity to Indianapolis and the fact that K-State hasn’t seen a Final Four in a blue moon, likely would have pushed a big traveling fan base to Indy.

Butler or no, downtown hotels and restaurants will still be packed. Local businesses feeling the hit the hardest from Butler’s triumph will be those on the periphery of the economic impact zone.

When visitor numbers swell, two things happen: restaurants and stores stay busier longer (lots longer) and visitor spending is pushed out farther from the center of the event. Suburban hotels, restaurants, drug stores, etc. simply won’t see the volumes of dollars flowing in that they would have with an all-out-of-town Final Four.

All that said, don’t expect to hear any city officials or business owners crying too loudly. First, if you root against the Dawgs, you’re going to be seen as a heretic. And that’s bad for business.

I mean, come on! Who could root against the Baby Faced Assassin anyway (for the uninitiated, that’s Brownsburg’s Gordon Hayward, a Butler player)? Besides, there's no price you can put on such a Cinderella story.

Secondly, the Final Four is a huge corporate event. And rebounding corporate spending, which for this year’s Final Four is running much stronger than anticipated, could off-set a chunk of what Butler’s run costs.

In a year where economists are predicting a 3 percent increase in corporate hospitality spending, the Final Four is seeing a much bigger rebound.

Officials for RazorGator, the NCAA's corporate hospitality partner, said demand for corporate tickets is up 60 percent this year over last, and corporate spending on hospitality packages is up 121 percent.

New NCAA sponsors like UPS and Capitol One are spending big this year, while existing NCAA sponsors such as AT&T, Coke and LG are ratcheting up their spending.

So is the Final Four a score for Indy no matter which schools make the show? Absolutely. And with the event now coming every five years through 2039, we can all let the madness begin.