The press swallows $3.8 billion worth of junk economics.
March Madness is upon us, and news outlets are once more peddling the theory thatthe NCAA men's basketball tournament costs businesses billions in lost productivity. In 2006, Jack Shafer debunked the theory and admonished his fellow journalists to stay away from junk economics. The original article is reprinted below.
If you believe what you read in the press, fan devotion to March Madness could cost employers $3.8 billion or more in lost productivity as workers slip away to check NCAA Tournament scores, participate in office pools, read stories about the contests, or avail themselves to CBS' free streaming videocasts of the games on their office computers.
Such prominent news sources as the Arkansas Democrat-Gazette, the Daily Press of Newport News, Va., Florida Today, the Kansas City Star, MarketWatch, the Milwaukee Journal Sentinel, the Denver Post, the St. Louis Post-Dispatch, the Pittsburgh Post-Gazette, the South Florida Sun-Sentinel, the Orlando Sentinel, TheCBS Evening News, the Washington Post, the Miami Herald, the San Jose Mercury News, the Baltimore Sun, the Las Vegas Review-Journal, the New York Times, andthe Boston Globepublicized the $3.8 billion estimate contained in a Feb. 28 press release by consultant John A. Challenger, CEO of Challenger, Gray, & Christmas.
Challenger's quotable release made immediate news in the March 1 Boston Globe under the headline "Workers Take Break for NCAA Tournament." Other media outlets followed the Globe's lead, churning out headlines such as "During NCAA Tourney, Bet on a Loss in Productivity"; "Chore a Bore, What's the Score?"; "Will Tourney Hurt Businesses? You Bet"; "March Madness Fouls Out With Bosses"; " 'Madness' Dunks Productivity"; and "NCAA Cuts Into Workers' Output."
According to Challenger, businesses would feel the first hit of March Madness on March 13, after the selection committee announced the qualifying teams and workers organized office pools.
Challenger arrived at his $3.8 billion estimate based on an average wage of $18 an hour and 58 million college basketball fans spending 13.5 minutes online each of the 16 business days from March 13 through April 3, the day of the championship game. He also allowed that his figure might be conservative! "The cost may end up being much higher, since it will now be possible to watch entire games on the Internet," he stated in the release.
But as Jeff Merron argued in Slatelast week, lost productivity estimates are almost always bogus, especially when they come from attention-seeking professionals who are in the business of increasing productivity. Challenger, Gray, & Christmas helps companies "manage" plant closings, among other things.
I'm happy to report that Challenger's estimate is as loosey-goosey as they come. For one thing, he misjudges the size of the dedicated college hoops audience. In 2005, for instance, the NCAA championship game drew 23.1 million households, according to Nielsen. The year before, only 16.6 million households tuned in to the championship game, which indicates that many so-called fans have only a casual interest in the tournament. Many are happy to tune out the tournament's biggest game if it's a blowout, or if the matchup doesn't interest them. Also, many nonfans and casual fans who participate in office pools experience reduced interest in the tournament as it proceeds and the teams they bet on get knocked out.
In concocting his lost-productivity estimate, Challenger doesn't acknowledge that "wasted time" is built into every workday. Workers routinely shop during office hours, take extended coffee breaks, talk to friends on the phone, enjoy long lunches, or gossip around the water cooler. It's likely that NCAA tourney fans merely reallocate to the games the time they ordinarily waste elsewhere. Likewise, many office workers who don't complete their tasks by the end of the day stay late or take work home. If fans who screw off at work ultimately do their work at home, the alleged "loss" to productivity would be a wash.
Last, the fear that millions of workers will waste time watching the games live for hours at the office is groundless. More than two-thirds of the games are played on weeknights or weekends, when very few employees are stuck behind their work terminals. Besides, the CBS system can only accommodate 200,000 computers at a time, as the Daily Press noted in its story. My unsolicited advice to my press colleagues is to beware of grand estimates such as Challenger's, and to anxious supervisors, I counsel you to worry less about how your employees waste time and more about how much they screw off.
Addendum, March 21 , 9:30 a.m.: Carl Bialik, "The Numbers Guy" columnist at the Wall Street Journal, beat me to the Challenger story earlier this month, nailing the consultant. Bialik's 2005 column ridiculed the "consultant" for estimating the productivity loss from the 2005 NCAA tournament at $889 million. A $3 billion increase in one year? Get out of here! Bialik also whacked Challenger for his 2005 estimate that Super Bowl water-cooler talk would cost $1.06 billion. While we're giving out credit, let's also salute Hannah Clark of Forbes, who took Challenger down earlier this month.