Olympic rewards or running up a debt?

The Olympic and Commonwealth Games were two key UK events that were meant to drive economic and social improvements across the country; but are these upgrades really taking place and how long will we all have to wait to see a return on investment?

Calculating the benefits of large events like London 2012 and Glasgow 2014 is notoriously hard. Numbers in the debit column are always on the move, while crediting such events for benefitting exclusively a particular aspect of the UK is often hard to prove. Intangibles like ‘good will’ only add to the confusion.

The cost of the Olympics, originally set at £2.4 billion, quickly spiralled to way over £9 billion when it became clear that original projections were optimistic. Costs have continued to creep up with expenditure on the legacy events and maintenance of the Olympic Park, to name but two ongoing expenses.

And while more than 800,000 visitors to the UK attended Games events – obviously bringing significant economic benefits as well as marketing collateral – total visits to the Capital actually fell during the event. Is that good or bad in the long-run?

At the time, Nick Thistleton, co-founder of the karaoke bar business Lucky Voice said it had been “quite a dramatic failure” in its attempt to bring more consumers into London. He even described parts of the city as “ghost towns”.

In general the hospitality industry had varying fortunes. While occupancy rates were high, spending per room dropped because customers left early and arrived back late, opting to grab food on the go rather than enjoy hotel restaurants and mini-bars.

Grass roots participation in sport has been another mixed bag. During and immediately after the Olympics there was a rise in numbers of people taking exercise. But year-on-year, the numbers fell back alarmingly quickly.

Research by Sport England, the organisation tasked with raising participation in the UK, shows that of the 29 Olympic sports, 20 experienced a decline in the 12 months to April 2013 compared with the previous year. Even participation in athletics, a sport most closely associated with the Games, dropped marginally in that timeframe.

But James Berkley, managing director of Ellice Consulting, says we shouldn’t be too hasty. He believes analysts should think of the Olympics and Commonwealth Games as “processes” rather than events. This, he says, gives them a chance to be viewed as successes over time.

“I am always urging my clients to focus on process improvement and not the event itself,” he says. “An event has a shelf life which degrades as time elapses. A process only matures with age if it is nurtured in the right way.”

Nearly £10 billion is an awful lot of investment to try and make a profit on, but politicians and, to a lesser degree, economists think a financial return is certain. There are obvious benefits that massive public expenditure brings such as new infrastructure, international investment, job creation and a major PR coup for the UK.

But there have also been less expected perks: the fact that the some of the same people who built the Olympic venues also found new contracts at the Sochi Winter Olympics earlier this year is a good example of that.

Thanks to the Games there is now Wi-fi internet in many tube stations and investment in transport has increased by billions of pounds, while Oxford Economics says East London will make a net contribution to public finances of £5.4 billion by 2030.

A government report published exactly a year after the Olympics took place conclude that: “With at least a 10-year timeframe, there are still many legacy benefits to be realised and impacts to be unpicked. However…there is already much that can be said about how the Games have impacted on places, organisations and individuals.”

Estimates contained in the report suggest the London Olympics will generate between £28 billion and £41 billion of gross value added (GVA) by 2020. Presumably the Commonwealth Games, for which it is too early to make such predictions with any real evidence to hand, will have a similar, though proportionally smaller impact in Scotland.

A report published by the Scottish government in April concluded that investment in building and revamping venues for the Glasgow Games brought a £52 million boost to Scotland’s economy and has created 1,000 jobs a year on average since 2008.

The findings also revealed that £313 million-worth of contracts had been delivered ahead of the Games and that 82% of the contracts had gone to Scottish companies.

Indeed, history tells us that large sporting events don’t always make a loss. The Barcelona Olympics of 1992, for example, was held up as the “model Games” for its legacy and economic stimulus in the city.

According to the London School of Economics, certain key factors also present in the 2012 and 2014 Games’ made success more certain. These included a high degree of participation and good will from the host city’s citizens, collaboration between publically-funded organisations and buy-in from the private sector.

But, there is one fairly crucial difference between Barcelona and London, at least: namely “extreme accuracy and transparency in the economics of the Games”, which happened in 1992 but not in 2014 where costs spiralled out of control.

It’ll be at least another eight years before most of the economic and social benefits of London 2012 and Glasgow 2014 are known. Big events have ripple effects that last almost forever. Until then, perhaps the best summing up of the Games’ net impact came from a BBC commentator during London 2012’s closing ceremony: “Can we afford it? Probably not. Was it worth it? Undoubtedly yes.”