How The London Olympics Will Recoup Its Costs: Happiness

Article by Joseph Bailey

August 9, 2012

The final price tag for the city of London to host the 2012 Summer Olympics figures to fall somewhere between $15 billion and $20 billion. Is it worth it?

Certainly not in any direct way.

The Games are yielding only a modest increase in consumer spending for the area, according to data recently compiled from Visa. For the week just after the Games opened (July 30 – August 5), international travelers to the U.K. spent $716 million on their Visa cards, a 4% increase from the same week in 2011. The top spending customer base, by a wide margin, came from the U.S., where cardholders spent $91 million in London and the surrounding area, or 12.7% of the total. Rounding out the top five: Japan ($47.4 million), France ($44.5 million), Italy ($42.1 million) and Australia ($35.3 million).

Visa cards don’t make up all consumer spending, of course. But their broad market power makes them a strong indicator that London is realizing only modest spending increases by tourists over and above what it normally gets this time of year. While the Games draw a lot of people, they also keep others away. Business travelers and sightseers are essentially replaced by event watchers that are less inclined to spend beyond lodging and food. The net effect is still more spending, but not a lot more.

The real benefits are supposed be long term – the real reason behind London spending billions on what amounts to a two-week informercial for itself. London officials tout the benefits of cleaning and fixing up subways, and the long-needed makeover of East London. But if those things needed doing, why not do it anyway? Why spend an extra 30% needed to actually run the Games?

For all anyone can see, the answer seems to be qualitative, based on touchy-feely concepts like the value of happiness. Joe Bailey, a longtime sports executive who now handles industry recruiting through his firm RSR Partners, puts it this way: “Historically, a big event like this causes a lot of people to see that community in a more positive light. And the community thinks more of itself.” That is, over the long haul, the U.K. will retain more citizens and draw new citizens and visitors thanks to the positive vibes associated with a turn at hosting the Olympics. Think of it as upgrading your home with a new kitchen or patio – to keep the value climbing, you need to invest in some extras once in awhile.

The Olympic Games aren’t permanent the way a kitchen is, but Bailey could be right. Not that we’ll ever able to tell. If the U.K. of 2022 is drawing more citizens, tourists and business people than it is now, is there really any way to know how much of that growth can be attributed to the 2012 Olympics? London is already a world class city. Meantime, the concept hasn’t exactly worked for 2004 host Athens, now home to street rioting amid economic collapse.

Olympic benefits are more obvious for cities that are relatively less conspicuous on the global map. Barcelona, Spain has enjoyed healthy gains in tourism since hosting the 1992 Games. In the U.S., growing areas like Atlanta and Salt Lake City clearly benefited from the attention. Salt Lake’s ski industry has grown from $740 million to $1.2 billion annually since it hosted the 2002 Winter Games, narrowing the gap with neighboring Colorado, which boasts several more ski resorts. Nathan Rafferty, president of Ski Utah, a promotional entity owned by several ski resorts in the state, credits the Olympics as the main catalyst that moved ski havens like Park City, Utah into the public consciousness alongside longtime icons like Vail and Aspen in Colorado. “What we stood to gain was much more than a London or New York,” says Rafferty.

Bailey disagrees. “There have always been a lot of people who have wanted to visit the U.K. But my guess is there are even more today,” he says. For those officials looking to justify billions to tout a city that the world already knows about, that view provides the perfect cover. When the hard numbers don’t work, pitch vague, long term benefits. And those benefits may well turn out to be real. We’ll just never know for sure.

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