By Matt Bolduc, equity analyst at Saxo Bank. When a country hosts the Olympic Games, the costs are usually underestimated and benefits overestimated. The causes are to be found in the marketing hype and chatter of politicians who seek to gather public support. And guess what? London was no exception. From the point of view of economic and political, the sad thing is that the real costs and benefits of the London Olympics will never be known, because in reality very few are conducted post-event analysis. The original budget for the London Games was between 2.4 and 3.9 billion pounds. Since 2007, costs have soared to 9.3 billion. Now the comments of analysts and research indicates that the Olympics cost the UK £ 13 billion and a survey revealing Sky Sports said that the cost could reach up to 24 billion, in part used for the improvement of transport. According to reports about a billion pounds has been set aside just for safety.
As expected, and already experienced in other games, many non-Olympic tourists have been scared by a city “full to the brim” and have simply decided to avoid London. The English themselves have remained in their homes, for fear of overcrowding. From empirical evidence it seems that at the beginning of the Olympics many of the neighborhoods and the most popular attractions of the city were much less crowded than usual. The future data will show whether the fear of “overcrowding” has continued to punish the shopkeepers even after the end of the races.
Analyst firm Experian Footfall noted that, during the two weeks of the Games, in the eastern part of the city the store visits decreased by approximately 9.6%, while west London showed in general a “modest decline”, but the data have been influenced largely by the location of the event. It’s no wonder that hotels have benefited from the Olympics, thanks to higher employment rates (an increase of about 8%) and more profit per room available (a common unit in the field), which rose of 95%. Jeremy Hunt, the UK minister, admitted that the Olympics have provided a big boost in the short term, which is exactly as reported by retailers. As for the long term, Hunt said that the Games have allowed the City of London to “get out on the global stage.” The statement is quite questionable, since the city is already well represented. He went on to say that the Olympics could help British businesses. This argument was more credible for Beijing 2008 and could be used to Brazil in 2016 (given the infrastructure needs of the city and the lack of popularity “global” in the country), but it does not stand for a city like London, which is already a strong destination Tourism and the second financial center of the world.
Of course, in 2012, the Olympics have benefited the United Kingdom in terms of revenue, but from the point of view of the tangible net benefit or not, the pure costs make the investment questionable. The war is good for the economy, but does not produce returns on investment, the Olympics can be seen in the same way – other than buildings, infrastructure and landscaping general, that benefit only marginally. Nevertheless, the United Kingdom will not recover in any way the cost of 13 billion to 24 billion pounds. If we think of the Olympics as a correct investment, the cost of 24 billion pounds (including infrastructure) should provide an annual return of at least 5.3%, or a perpetuity of 700 million pounds a year, or 85 pounds per citizen per year. You can, but, as we have seen in previous games in Beijing and Athens, the simple maintenance of the Olympic unused hours can cost hundreds of millions a year. So spare ourselves the political speeches. To say that the Olympics have been beneficial for the economy of London is like claiming that the economic theories based on the offer is realistic.