With the start of the London Summer Olympics drawing ever nearer, some Londoners are wondering if the whole thing is worth the hassle — or the cost. They’ve got good reasons to worry.
Hosting the Olympics is generally seen as a giant boon for the host city – tourists! giant new sporting facilities! — and cities lobby hard to get themselves picked. But if you look at the historical record, the actual economic impact of the Olympics on their host cities and countries has been decidedly mixed. And there are good reasons to think that whatever economic benefits London gets from hosting the Olympics will be short-lived at best.
So what is there to worry about? Well, hosting the Olympics is an extremely costly business: Existing infrastructure needs to be upgraded, new sports facilities need to be built; security needs to be tight. And it almost invariably ends up costing much, much more than expected.
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The 2008 Olympics in Beijing is the current king of cost overruns: It was supposed to cost a mere $1.6 billion – but the Chinese ended up shelling out a staggering $40 billion for what turned into a lavish propaganda extravaganza, according to economist Brad Humphreys at the University of Alberta, an expert on the economics of sports. The 2004 Olympics in Athens was also expected to cost $1.6 billion, and ended up costing ten times that, contributing to Greece’s current debt crisis. Meanwhile, many of the sports facilities built for the Athens Games are underused and already falling apart.
London isn’t expected to go quite so far over budget, but its Olympics are turning out to be a lot pricier than the frugal $5 billion affair the government originally promised. And the Brits are already feeling more than a little defensive about the cost overruns. When Public Accounts Committee chair Margaret Hodge reported in March that the event was likely to end up costing closer to $17 billion, she found herself pilloried in the press.
But Hodge is hardly the only one worried about London’s Olympicnomics. In May, Moody’s issued a report suggesting that London’s Olympics boom may come to an end not long after the event’s closing ceremonies. “Overall, we think that the Olympics are unlikely to provide a substantial boost to the UK economy and believe that the impact of infrastructure developments on UK GDP has probably already been felt,” a Moody’s official said in a statement.
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This is typical. “Once the Games leave town, there often isn’t much to celebrate,” sports economist Humphreys has noted.
Even London’s hotels – which you would expect to profit massively from a flood of tourists with money – aren’t doing as well as expected. After raising their rates in anticipation of a flood of visitors, London’s hotels are having trouble filling their rooms, with roughly a third of their rooms as yet unbooked during the Games.
Indeed, with some potential tourists deliberately staying away from London in order to avoid the Olympics-sized hassles that invariably accompany the Games, the U.K’s World Travel & Tourism Council expects that total tourist spending in the U.K. this year will only be a tiny bit higher than last year.
Back in 2009, as London began preparing in earnest for the Games, Britain’s Olympics Minister boasted that the event would “provide economic gold at a time of economic need.” With costs rising and hopes shrinking, it’s looking like the best London can hope for is a Bronze.