Olympics in London Is it worth the price?
Professor in Economy, University of Michigan
President for International Sport and Culture Association
For two weeks athletes from all over the world have been gathered in London for the 2012 Olympic Games. It is a large and costly event even for a city of London's size. But is it worth the price?
The bill to the UK taxpayers for the Olympics event in London is currently at £9.3 billion. It is a considerable sum for London and the city's 7.5 million inhabitants and the question is whether it is worth the price.
The price and value of an Olympic event is often seen through very different glasses - whichever is the viewer's position or errand. Typically, the political argument in the award battle for the hosting of the Olympic events is that it is an investment that from an economic perspective will provide an important return on investment. Another argument that in a way also belongs to the category of educated guesses is the argument of the event's enormous marketing value for the city, the country, etc. A third politically powerful and popular argument claims that the Olympics will inspire more people, especially the younger generations to be physically active. Promising arguments for what the Olympics would bring to London after the Games were also part of London’s heavy artillery when the city was struggling to qualify as Olympics host in 2005. Specifically, there were predictions and objectives that the Olympics would leave Britain as a leading sport nation and inspire the younger generations.
The £9.3 billion figure is itself a little misleading. This is really the cost of creating the Olympic venues and providing the transport infrastructure surrounding them, the cost of administration and security, and finally the cost of remodeling the site after the games (some people might be surprised to know that the Olympic site will be closed for a year after the games in order to be redeveloped for its long term use, at a cost of £500 million). In addition to this the games themselves will cost around £3 billion to stage, but all of this should be recovered from the sale of tickets, merchandising, broadcast rights and sponsorship. Plus the government spent an additional £1 billion acquiring the Olympic site in the first place. There may indeed be further cost overruns to be absorbed by the British taxpayers.
This is all very different from London’s initial bid proposal from 2005, which claimed that the total cost to the UK government would be a mere £2.4 billion - less than a quarter of what is actually being spent.
The money for the Olympic event is an investment in the sports sector, although a very narrow part of this sector, it is therefore relevant to compare the cost of the Olympics with what else you could have received by a broader and longer term investment in the sports sector. In the European countries the bulk of the sports sector’s turnover comes from household spending. The European average is at 69% of the sport turnover being financed by the household spending. The remaining 31% is primarily composed of sponsorships and public grants.
The government grants in Britain from state and municipal institutions to sporting purposes is approximately 70 pound per capita per year. This means that state and municipal sports support sprinkled over London's 7.5 million citizens, amounting to £525 million a year - or put another way - the cost of 9.3 billion pound for the Olympic event is equivalent to just over 17 years of public sports budget for London!
Now you could probably - even starting from grassroots and recreational exercise perspective - enjoy that hosting the Olympics seem to be able to add a huge extra financial investment in the sports sector. But here two sport economics ’natural laws’ are entering the game.
Firstly, very little of the Olympic investment is of long lasting joy and inspiration for the average Londoner – as example only one third of the budget goes into infrastructure and facilities. Two thirds of the investment is gone when the flame is extinguished. In other words a large part of the cost of an Olympics has nothing to do with sport activities and leaves nothing. When London won the bid the government argued that they would use the excitement generated to increase sports participation by one million by 2012- an ambition that was quietly dropped when it became apparent that there has been no change in sports participation since 2005. The prospects after the event are no better.
The second of the sport economics 'natural laws' is that when the economy comes under pressure, grassroots sport always loses to large elite sport events. And it was exactly what happened in 2010 when the financial crisis also hit one of the world's financial centers, London and the British governments had to cut to the bone. This meant that, one of the organizations that organize grassroots sport in the British territory, namely Sport England had cut its public support by 29%. In the same process the government took away an annual subsidy of £160 million for school sports projects across the country. There were cuts wide and hard in the sports sector, while the Olympics budget of £9.3 billion remained ring-fenced.
There was obviously not a lot of praise for the government’s budget cut priorities, except from the British Olympic Association, who was pleased that the Olympics budget and the economic foundation for delivering good results were secured. And as for these results, there are - or rather were great expectations from politicians to see the type of results of an Olympic event, which are not measured in medals.
Firstly, it was one of the main political arguments for hosting the Olympics that it would inspire many more - especially young people - to be physically active. Many sports federations put praiseworthy high goals for how many more young people they would get to practice sports. Optimistic targets of up to 30% more was heard from various sports federations. To follow this estimated positive development in sports participation and physical activity generally, Sport England has conducted an annual survey. But unfortunately, although quite predictable, there is no effect.
So in 2011, unfortunately everyone - including the funding politicians - had to realize that the past years, preparing for the Olympics was not in the vicinity of the goals set concerning increased participation and more dramatically is the statistics showing a decrease in participation of young people.
When the Olympic Games apparently do not create increased participation one could hope that it would boost the economy and labour market. Lloyds Bank, an Olympic sponsor, published a research document claiming that the games would add £17 billion to UK GDP over a 12 year period. To put this in context, UK GDP is about $2.5 trillion, so the estimated impact amounts to around 1% of GDP over 12 years, roughly one tenth of one percent of GDP per year - as small as to be little more than a rounding error.
Despite the many promises, expectations and hopes, the Olympic Games are in no way a ‘booster’ of either sport participation, or the economy. It is simply and more precisely as the president of the International Olympic Committee Jacques Rogge puts it, ‘an arena for the best athletes’.
And not to forget 17 days of televised entertainment paid by the British taxpayers.