Olympinomics - the economics of hosting the great game

The Summer Olympics are going on with all the fervour, with people swimming faster than before, getting medals for jumping higher than ever, and being lauded for lifting weights heavier than before. London gets a major share of the glory, being widely touted as being the first city to be holding the events for the third time. Do gains on the economic front match the fanfare seen around the games? The price tag on hosting the event is no lean bill. A staggering £11billion budget had been devoted to the events, earning the games the name white elephant. Apparently, additional expenditure on security has caused budget overruns for the games, with fears that the event will be a strong terrorist target because of the influx of tourists and visitors. Yet, the economic gains from the Olympics cannot be ignored either. After all, there must be a reason why governments vie with each other to host the events and citizens get jubilant upon winning the bids. A study by the Lloyds Banking Group estimates gains of £16.5 billion to UKs economy, right from 2005 when London won the bid to the games, up till 2017, incorporating a 5-year post-event legacy period. In effect, most of the gains come from the pre-games period and the post-games legacy period, with tourism and expenditure for staging the games real-time accounting for 18 percent only. Key areas driving up economic activity in the country are tourism and construction, according to the report, while small and medium businesses are the main deserving beneficiaries. In the build-up to the great Games, contracts for building up game venues has boosted construction work, with contracts awarded to over 800 firms in each of UKs nations and regions. Site preparation, building retail, office and residential space and transportation-related expenses are some of the areas generating economic activity on the construction side with the derived benefits of additional employment for UK residents. While the impact of construction is felt largely before the event, tourism boosts the economy primarily during the event. There is an expected decrease in tourist arrivals in the country prior to the games as people time their plans to coincide with the Games. During the event, non-games tourist spending is expected to decrease, though athletes, technical officials, media and foreign residents are likely to bring additional expenditure into the UK, with hotels and restaurants being the biggest beneficiaries. But the impact of tourism is expected to be truly felt after the Games when media exposure will open a plethora of marketing opportunities for businesses. Besides these overt benefits, there is also a feel good factor in hosting the events. While the benefits of this cannot be quantified, it increases consumer confidence and boosts household consumption to an extent. These benefits do not accrue in a single year, however. Moodys analyst Richard Morawetz was quoted by the Guardian, "Overall, we think the Olympics are unlikely to provide a substantial macro-economic boost to the UK in 2012," adding that the impact of infrastructure projects has "already been felt". But the prestige and morale-boosting benefits are definitely there, besides the image and marketing boost to a country. The next time a government wonders whether it should host a sporting event, these factors ought to be kept in mind.