College Football Timeout Penalizes Small-Town Merchants

September 3, 2020

Ken Riggs, Vice Chair
Charles Ellis, Associate
RERC

Takeaways

  • Shutdown in March devastated merchants in small college towns
  • If football fans don’t visit in the fall, economic pain will grow
  • Retail and hotel sectors will get tackled
  • So far, 54 of the top 130 college football programs have opted out of playing
  • Major college football programs can make some money even with empty stadiums

In many small towns across America, universities are the largest employer, and often the biggest economic driver is college football. Those towns were already devastated by the pandemic and its collateral economic damage when the schools shut down in the spring and sent their students home.

As the pandemic continues, 54 of the top 130 college football programs so far have decided not to play in the fall, and even the ones that are vowing to forge ahead will do so in empty or nearly empty stadiums. This will continue to have a ripple effect throughout the economy. For commercial real estate, the retail and hotel sectors have already felt the crunch and will continue to feel it, but other sectors aren’t immune.

The effect will presumably be felt the most in the smallest towns with the biggest stadiums. Many merchants rely on seven weekends a year of customers coming back to their alma mater to patronize restaurants, caterers, stores and hotels. The retail and hotel sectors were already in trouble; in many municipalities, a season without college football could be the final nail in the coffin for these sectors, especially if they lack diversified economies.

Hotels in college towns generally are sold out for all home games and would cover 30-70% of their annual revenue, with the larger percentages for the smaller towns. Apartments and student housing have not seen a large change in their activity, but investors fear the long-term impact of canceling sports. Studies have shown that more successful sports teams can help a university increase its number of student applications. If schools lose their sport culture, multifamily and student housing landlords fear they may see demand problems with falling admissions.

As colleges face significant losses of revenue and are forced to lay off staff, other CRE sectors could feel the hit. Universities could cut their office space and even their need for space in industrial settings because universities are notorious for using any space available to fill their needs. The job cutting in the college town can snowball into increased vacancy in apartments as tenants cut costs and search for new opportunities.  

From a financial perspective, it’s understandable why so many schools are still pushing forward with football. According to Forbes magazine, 15 of the top 25 revenue-producing football programs are still on board for the fall. It’s not surprising that Texas A&M, which reported a three-year average profit of $94 million, plans to play in the fall, even if its 102,733-seat stadium is nearly or completely empty. The nation’s top college football programs receive an average of 29% of their revenue from television, 27% from tickets, 26% from contributions, 10% from sponsorships and 8% from other sources, according to Forbes. The problem is that the ticket takers and sellers and the workers in maintenance and concession stands – not to mention the CRE investors – will still be out of luck.

The unemployment rate in the College Station-Bryan, TX, metro area, the home of Texas A&M, was 2.5% in February 2020 and peaked at 8.7% in April and May before falling to 6.5% in June, according to the Bureau of Labor Statistics (BLS). Even though that well below the statewide rate of 8.9% in June, how will nearly empty stadiums and far fewer visitors than normal affect the metro area’s unemployment rate in the fall?

The best – or worst – example of this is State College, PA, the home of Penn State University, which has shut down its football program for the fall. Its year-round population, not counting its 40,000 undergraduate and 6,000 graduate students, is about 42,000. The capacity of Beaver Stadium is over 106,000. That represents a lot of alumni coming in from all over the state seven weekends a year. The economic impact on State College is estimated at $70-80 million for each home game, according to a CNN article. According to the BLS, State College’s unemployment rate has risen from 3.8% in February to 8.4% in June after peaking at 9.7% in April. Again, the state’s rate in June was 13.1% in June, according to the BLS, but will that hold?

The mayor of Tuscaloosa, AL, home of the University of Alabama and its 101,000-seat stadium and population of about 211,000, estimates that dropping college football for a season would have a $200 million impact on the city’s economy. Total 2019 revenue in the city, which has about 211,000 residents, was $156 million, according to AL.com. There’s no doubt that the mayor is relieved that Alabama has not scrapped its season. Even out of season, Tuscaloosa, like the rest of the country, hemorrhaged jobs in the spring. Its unemployment rate surged from 2.5% in February to 16.6% in April before falling back to 9.1% by June, according to the BLS. Tuscaloosa is one college town that had a higher unemployment rate than the state’s average in June, which was 8.0%.

In Madison, WI, home of the University of Wisconsin, the unemployment rate was only 2.3% in March before jumping to 11.1% the following month and falling back to 7.4% in June, still lower than the state’s average of 8.7%, according to the BLS. According to USA Today, a study by Econsult Solutions Inc., a Philadelphia-based consulting firm, says that University of Wisconsin athletics as a whole create 2,950 jobs, $395 million in revenue and $1.7 million in tax revenue for the city of Madison each year, and 4,480 jobs, $610 million in revenue and $12 million in tax revenue for the state of Wisconsin as a whole.

The study adds that each Badgers home football game, in a stadium with a capacity of 82,123 in a city of about 264,000 residents, brings in a total of $16 million in total economic impact for the state of Wisconsin. In 2017, about 584,900 people came to Madison for home games in 2017. Wisconsin will not play football in the fall.

Iowa City has a population of about 76,000, and the University of Iowa is the city’s largest employer. Local merchants have been feeling the economic effects of the pandemic since March. Iowa City’s unemployment rate was only 2.1% in February before soaring to 9.6% in April and falling to 7.2% in June, according to the U.S. Bureau of Labor Statistics (BLS). Even though the unemployment rate remained below the state’s 7.9% in June, the city’s merchants are in despair over the shutdown of the football season. The university’s stadium capacity is 69,250. 

Doug Alberhasky, owner of John’s Grocery in Iowa City, told USA Today that the football season accounts for 60% of the grocery’s annual revenue, and that all the local merchants are suffering.

"People need to continue to step up and help our small businesses, because the loss of revenue of not having 60,000 fans coming in seven times this fall is really going to be devastating for our community to survive, he said. “We are going to need everyone's help to keep small businesses going."

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