Bad Sports

The unreasonable economics of the London Olympics

By DALIBOR ROHAC AND HEMAL SHAH

Before the 1948 Olympic Games in London, an Evening Standard editorial suggested that “the average range of enthusiasm for the games stretches from lukewarm to dislike. It is not too late for the invitations to be politely withdrawn.” This year, as London prepares to host another Olympics—“the greatest Games that have ever been held,” London mayor Boris Johnson promises—canceling the event isn’t an option. And that’s unfortunate, because a sober look suggests that not much has changed since 1948. What was arguably a waste of money in the cash-strapped years after the Second World War will be a waste of money again in fiscally messy 2012.

The history of the modern Olympics (and of other large-scale sporting events) reveals a consistent pattern. Organizers or local politicians in the host city commission “impact studies,” which almost always promise extravagant economic benefits. Studies performed after the event, however, find no positive effect at all—let alone one approaching the initial estimates. So it isn’t surprising that a PriceWaterhouseCoopers study commissioned by the British government forecasts that the Games would add about $9.4 billion to London’s GDP between 2005 and 2016. That seems like a large number until you realize that the London metro area’s GDP is roughly $712 billion annually. If the Games’ benefits were spread evenly throughout the decade, they would increase London’s GDP level by 0.1 percent each year.

Further, that $9.4 billion benefit pales compared with the cost of hosting the Olympics. In 2002, the UK’s Department for Culture, Media and Sport estimated that the cost would be $2.8 billion. Ten years later, London’s budget for hosting the Games is $15 billion. Costs already run above that figure and are likely to rise to approximately $38 billion, according to an investigation by the TV network Sky Sports. That would easily dwarf the economic benefits that the PriceWaterhouseCoopers study predicts. Security alone will be extremely costly: more British troops will patrol London than there are currently at war in Afghanistan. And these figures don’t count many hidden and indirect costs of hosting the Olympics—most prominently, disruption to business and traffic congestion. Traffic in London is already difficult; with special lanes for Olympics-related traffic, daily commutes will become a nightmare. (London’s transportation commissioner, Peter Hendy, helpfully advises commuters to go to the pub to avoid rush hour.)

The strongest economic argument for the Games is that the event will catalyze much-needed investment in infrastructure. Any visitor to London will attest that the city sorely needs improvements: the Tube lines are old and suffer frequent disruptions; Heathrow Airport (the world’s busiest hub) still uses only one runway; many areas of East London look downright depressing. Indeed, Mayor Johnson’s predecessor, Ken Livingstone, made no effort to hide his motivation for hosting the Games: “I bid for the Olympics because it’s the only way to get the billions of pounds out of the Government to develop the East End.” The Olympic village will add to East London’s stock of subsidized housing, and the area will benefit from the extension of the Docklands Light Railway line to Stratford.

It’s not clear, however, that the strategy will work over the long haul. Other host cities have found themselves, after the Games ended, saddled with white-elephant facilities constructed for the events but costly to maintain and that do little to help the general public. Athens, for instance, spends around $800 million annually to maintain its Olympic sites, which are nonetheless progressively falling into disrepair.

In ancient Greece, the Olympics featured more interesting sports than the modern Games—most notably pankration, a brutal mix of wrestling and boxing. Another difference: the organizers back then managed to control costs by keeping the Games in one place. It’s time that we relearned a few lessons from antiquity.