Who profits from Big Snow?

February 26, 2010

If there is one thing that everyone in the region seems to be sick of, it's snow.  This year's record-breaking snowfall has led to school closings, treacherous travel, lost productivity, and series of ridiculously overhyped monikers (Snowzilla vs. Flakenstein anyone?).

Plus, Forbes' Investopedia states that "nearly 20% of the US economy is directly affected by the weather, and that the profitability and revenues of virtually every industry - agriculture, energy, entertainment, construction, travel and others - depend to a great extent on the vagaries of temperature." 

The Philadelphia Daily News's It's Our Money blog has ably covered the snowstorm's impact on local government coffers. And at the federal level, Office of Personnel Management chief John Berry has said each snow day costs taxpayers approximately $100 million in work government employees do not do.   

The resulting snowbound stir-craziness got me thinking: surely, someone must benefit? In recent weeks, I've heard that NBC's Olympic coverage has benefitted from the east coast storms (and there's some good analysis of why it's not true) and that coffee shops do well (some clearly have, but most that brave the weather get less traffic than normal days). These, however, are suppositions.

So, who's actually making money off the snow?  

1. Wall Street--Did you know there's such a thing as a weather derivatives?  A fascinating financial tool created in the late 1990s, weather derivatives enable a buyer (most often energy companies) to hedge on low-risk, high-probability weather events. The products are geographically specific, and while some focus on temperature heating and cooling, others focus on snowfall. They are traded on the CME Group, the Exchange created through the merger of the Chicago Merchantile Exchange, the Chicago Board of Trade, and the New York Merchantile Exchange. NPR and ABC News both have done interesting pieces on this topic in light of the exceptional snowfall we've had this winter.  

2. Weather Tracking and Forecasting Service Providers--I was surprised by the number of commercial weather service providers in the United States (as distinct from the National Oceanic and Atmospheric Administration's National Weather Service). And the more we all keep checking their sites, the more money they make because they're covered with ads. If you check the analytics of the three leading weather web sites--weather.com, accuweather.com and wunderground.com--over the last year they collectively averaged 35 million unique visitors every month. In December 2009 and January2010, their visitors ballooned to more than 44 million each month.

3. Free Agent Labor--Have a shovel, snow blower, or plow and an entrepreneurial bent? There's a tremendous market for free agent snow shoveling services during a winter like this one. On a couple of blogs, economists and others have been pondering the most basic free market tenets-the imbalance between the supply of shovelers and demand for their services. While the authors seemed to be focused on a shortage of labor supply in affluent communities where teenage neighbors aren't going after snow shoveling gigs like they used to, it's a different story for a city resident like myself who gets a couple doorbell rings a day if my 12'x5' stoop isn't shoveled. There is money to be made by teenagers and adults alike--especially as municipalities' fiscal problems limit capacity for snow removal -- the blogs quoted $30/hour! Cash, of course.

There's no doubt that there are people and organizations making money off of the snow. And if you want to get in on the action, I'd suggest you take up trading complex financial instruments, measure and deliver weather forecast information to consumers via the web, or invest in a good shovel. 

-- Alison Gold, Deputy Director for Strategy and Operations