Over-hyped Olympics

I am looking forward to the Olympics as I’m sure you are. But I’m also sure I’m not alone in wondering quite why we have needed to spend £9.3 billion (the Public Accounts Committee says over £11 billion) of public money, to use 13,500 military personnel and a selection of anti-missile weaponry to lock down London for several weeks, and to produce massive inconvenience to the general public and businesses in the capital. Most of us will be watching on TV anyway, and the experience in our living rooms will surely be little different from watching the Olympics in Beijing.

Last week Moody’s produced a report which said that the Games ‘are unlikely to provide a substantial macroeconomic boost to the UK in 2012’.

I think this is spot on. Apart from the marketing benefits to various sponsors – who will, incidentally, be forcibly and rather dubiously protected from any rival firms’ publicity – and the athletes themselves (10,000 of them, unbelievably) and their myriad coaches, PR people, administrators, gofers and hangers-on – who exactly gains?

Moody’s identifies the hotel sector as the prime beneficiary. Well, yes. But their gains are exaggerated. Hotel occupancy in the summer in London is usually over 80%. During the Olympics this is likely to rise to just over 90%. This should boost hotels’ revenue by about £250 million. However, some of these visitors may have been coming to London anyway later in the year, so there may well be a fall in occupancy in the autumn.

If hotels are booked up by fans of the Olympics, they are not available for people who would have come to London for the theatre and museums. These may experience a fall in visitors and revenue.

The disruption to London’s transport network is going to cause businesses big problems. If half of London’s workforce lost 15 minutes of working time per day over the busiest three weeks of the Olympics (perhaps a modest estimate), this could cost something like £100 million in lost output – though this sort of figure is notoriously difficult to pin down. There are also likely to be significant delays in deliveries and lost retail sales.

Some employees may have to stay overnight at work, as often occurs during strikes and weather emergencies. Nursery workers are one unusual group mentioned in the press.

Transport for London wants a third of London’s employees to work at home for the duration. The civil service is to experiment with videoconferencing and cutting out meetings, working more online. It may not be a good time to try this, as internet speeds are widely expected to fall as a result of a huge increase in traffic.

Clearly those who normally work full-time at home are likely to be efficient at doing so or it would not be worth employing them. And if employers permit or encourage fairly regular (say a day a week) work at home, they must be happy about the arrangement. Studies suggest that a switch to working at home initially may lead to a drop in output, but over time people adjust to a different routine and can be at least as productive as in an office environment.

However, a temporary arrangement like this (with employees working at home more often than their employers would really wish) is bound to be disruptive, however well-planned in advance. If we assume a modest drop in output of 10% and that an extra 10% of the London workforce (i.e. 430,000 people) who would not normally work at home will do so, for 5 days on average over the period, the loss of output from this source alone would be well in excess of £30 million.

So any short-term benefits to the economy are likely to be less than claimed. To be fair, however, longer-term economic regeneration and less tangible ‘legacy’ are what are usually cited as justification for public expenditure on so-called ‘mega-events’ such as the Olympics. But careful analysis by economists such as the UK’s Stefan Szymanski and Germany’s Holger Preuss suggests that arguments on these lines are often self-interested hype and ignore knock-on effects and displacement.

Jobs, for instance: many of the jobs associated with the Olympics are short-term, and anyway may have gone disproportionately to more highly skilled or committed overseas workers rather than to the long-term unemployed of Newham or Tower Hamlets. Employment at the new Westfield centre at Stratford will be longer-lasting than that at the nearby Olympic venues.

Building costs in London will have been driven up, raising costs to Londoners and ‘crowding out’ construction which would have otherwise taken place.

As for the much-vaunted ‘legacy’ of the games, the recent experience of countries such as Greece and Australia does not bode well. Much of the Games infrastructure is likely to be given away at knock-down prices and put to non-sporting use, or else left to rot.

Nor does there seem as yet much evidence that young people’s participation in sport has been boosted even temporarily, let alone in the longer term. Indeed a Sport England survey published in December suggested that participation had actually fallen over the previous year.

So, be sure to enjoy the Games this summer. No use worrying about money that has already been spent. But perhaps also be grateful that we didn’t win the World Cup bid as well.

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

5 thoughts on “Over-hyped Olympics”

  1. Posted 08/05/2012 at 14:29 | Permalink

    “I am looking forward to the Olympics as I’m sure you are”

    Actually, no. As somebody who is decidedly disinterested in sport (especially some of the pathetic sports that hide under the Olympic banner – water polo? synchronised swimming?!) I consider the Olympics to be an appalling waste of money at any price.

    There is nothing about the Olympics that meets the criteria of a public good. They are a private consumer good, that should be financed by ticket and media sales to those that would voluntarily part with their money to watch Individual Eventing Dressage or the Men’s Trampoline.

    If the hospitality industry believes this is going to be a big fillip for them, why can’t they subsidise the Men’s Volleyball and pay for the security bill, rather than diverting taxpayers’ much-needed billions to provide hoteliers and restaurateurs with subsidised customers.

    Sorry, Len. But I’m not looking forward to the Olympics at all.

  2. Posted 08/05/2012 at 15:17 | Permalink

    While I agree with this article, when Olympic costs are discussed, it is often forgotten that there are direct revenues resulting too – notably TV and sponsorship revenue. I think that TV revenues alone are in the region of £2bn.

    As for the infrastructure, London is, fortunately, in a much better position than Athens (particularly) and Sydney. Because of the location of the Olympic Park and the population of London, the venues and infrastructure are likely to be far more used after the games than those in Athens and Sydney.

  3. Posted 08/05/2012 at 15:35 | Permalink

    My biggest concern is that London’s transport infrastructure will be unable to cope, though it depends on how many Londoners decide to leave the capital or work from home. In particular, the Central Line is the direct route from the West End, where hotels are concentrated, to Stratford. Even with normal passenger loads it is among the most overcrowded tube lines. Perhaps TFL should consider some form of congestion pricing during the Games.

  4. Posted 09/05/2012 at 13:48 | Permalink

    A depressing article in the Guardian today shows the awful legacy of the Athens Olympics. I don’t think we’ll be quite that bad, but it does show the folly of these “showcase” events.

  5. Posted 09/05/2012 at 14:58 | Permalink


    It won’t be anywhere near that bad. For a start, the cost is much much lower as a fraction of our GDP. Secondly, far more of the transport infrastructure and stadium complex will be used after the games because of the population of London and the location. Stadium apart (perhaps), we can expect pretty heavy use of the facilities in the Olympic park afterwards because London previously lacked these facilities.

    Other locations such as Dorney Lake were already constructed and paid for privately.

    I’m not suggesting for a moment that a huge amount of resources haven’t been poorly directed, economically speaking, just that much of what has been constructed will be well used after the games, unlike in Athens. We will get some returns from the money spent, unlike Athens.

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