The Olympics are a giant money sink, so what?

By Matthew Brooker

You can’t blame Britons for looking back fondly on the 2012 London Olympics. It was possibly the last time the country did anything really well in the eyes of the world, an unqualified sporting success and an optimistic celebration of openness and diversity. After a decade marked by Brexit, public health failures, economic crisis and rising anti-immigration rhetoric, it’s small wonder the games retain a warm glow for many. But were they worth the money?

The model of using the games to regenerate a deprived area of east London served as an inspiration for Paris, which will host the competition next summer. Parallels are already building between the two, with the French capital seeing inflated budgets, complaints of high ticket prices and, most recently, suggestions of backtracking on commitments to social inclusiveness. Last month, the president of the French National Olympic Committee resigned after 18 months of internal conflict.

The question of whether staging the Olympics is worth the money is nigh on impossible to answer. Doing a cost-benefit analysis is like trying to nail jelly to the wall. The last host city to record an operating surplus was Los Angeles in 1984, so all games since have been money losers in the narrowest sense. But a more realistic assessment of whether the wider economic impact justifies the cost is confounded by the issue of what to measure.

The cost of building Olympic stadiums and accommodation for athletes is straightforward enough, but what about the panoply of associated infrastructure, particularly if some or all of this was planned in any case? What to include on the benefit side is just as fraught. Separating economic activity generated by the games from investment and spending that would have happened anyway is an inexact science, to put it mildly — and the further out the estimates go, the more speculative the exercise becomes. Most studies showing large anticipated gains for host nations are better regarded as promotional documents than objective analysis.

What can be said with certainty is that the games almost always cost more than organizers say (or pretend) they are going to. Budget overruns are about as predictable as Chinese athletes taking home gold in the table tennis. The average cost overrun was 172 per cent in local-currency terms for games staged between 1960 and 2016, according to researchers at Oxford University, using a methodology that excludes costs of transport works, hotel upgrades and other investments that aren’t directly related to the games.

The study, first carried out in 2016 and since updated, put the cost of London 2012 at $15 billion (some other analyses arrived at a total bill of $20 billion or more). At the time, this was the most expensive summer games ever staged, though London has since been eclipsed by both Rio and Tokyo. The UK government said in July 2014 that the economic boost from the games had surpassed £14 billion, equivalent to about $24 billion at the exchange rate then.

London’s bid illustrates the smoke and mirrors typically involved. The city won with an inadequate budget that was later doubled. When the final costs proved slightly lower than the revised figure, this enabled organizers to claim that the games had come in under budget. “Such deliberate misinformation of the public about cost and cost overrun treads a fine line between spin and outright lying,” the Oxford paper states, concluding that we can’t count on organizers, the International Olympic Committee or governments for reliable information.

The study puts London’s cost overrun at 76 per cent, which ranks the city as a relative amateur in the annals of Olympic profligacy. The undisputed champion is Montreal. The 1976 games, spearheaded by Mayor Jean Drapeau, went 720 per cent over budget — a debacle that the Montreal Gazette attributed to a cocktail of “incompetence, inflation, fraud, kickbacks, horrid weather, security concerns and militant unions.” As a result, the games incurred debt that took 30 years to pay off. Montreal’s Olympic stadium, nicknamed The Big O, became known to cynics as the Big Owe.

Needless to say, budget blowouts are common for large-scale infrastructure projects. But cost overruns for the Olympics far exceed those for any other type of mega-project, be it roads, railways or dams.

Walk around Queen Elizabeth Olympic Park in Stratford and it’s hard not to appreciate the scale of London’s achievement. What was once a post-industrial contaminated wasteland of derelict factories and World War II rubble is now a 226-hectare space of woodlands, waterways, leisure and culture facilities. The Westfield shopping center across from the Olympic stadium is permanently humming, and there were plenty of people enjoying the park on a weekday afternoon when I visited. If nothing else, London has at least avoided the abandoned and decaying Olympic sites of hosts such as Athens and Rio.

There are flaws, undeniably. In particular, failure to meet promises on affordable housing has tarnished the legacy. Even so, a change in the makeup of the population seems inevitable when glitzy modern apartment buildings with names like Stratosphere Tower start appearing among the far more modest surroundings of a rundown area. Much of the district around the Olympic Park looks like an incomplete outgrowth of the Canary Wharf financial hub to the south. The Financial Conduct Authority moved its headquarters to Stratford in 2018.

Development creates local winners as well as losers. That includes home owners who have gained from the predictable runup in property prices. Few of those who remain in the area are likely to begrudge the changes.

“Personally, I love it,” said Neil Vening, fourth-generation owner of the G. Kelly pie-and-mash shop in nearby Bow, a family-run business that has been there since 1939. The seller of staple East End dishes such as jellied eels has benefited from an increase in customer traffic since Premier League soccer club West Ham United took over the Olympic stadium as its new home on a rental deal starting in 2016. The Times reported in March that West Ham may buy the stadium, which continues to be a drain on public finances.

It would still be a leap to consider the London games a financial success. One complication is what economists call the opportunity cost. Spend $20 billion on just about anything and you’re going to create some kind of economic boost (even if you’re paying people to dig holes in the ground and fill them in again, to cite John Maynard Keynes’s famous example). The more important question is whether that money could have been used more effectively, as Andrew Zimbalist, an economics professor at Smith College and author of Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup, told me.

What, though, if there is no alternative? From London’s perspective, this was the case. Ken Livingstone, the city’s then-mayor, pursued the Olympics as a catalyst for regeneration that otherwise might never have happened. The tortured history of Britain’s high-speed rail plans show just how prone the government is to tinkering with intended investment as soon as economic trouble appears.

This, for me, is the clinching argument. There might have been better ways to spend $20 billion on regenerating the East End, but none of those were available, and the Olympics was. “London did an intelligent thing,” said Bent Flyvbjerg, co-author of the Oxford study and How Big Things Get Done, published this year. “It looks like it’s working.”

In the end, the question of whether the Olympics were a financial success is a subjective one of values rather than an objective calculation. The more meaningful measure of success is whether the games achieved what they set out to achieve, and whether the cost was acceptable to those who paid it. On that basis, London’s legacy looks pretty good. Paris will hope it can say the same.