“Will the Olympics have a massively positive impact on our economic confidence? I think the answer is resoundingly yes.”
Jeremy Hunt, 30 December 2011

Cathy Newman checks it out

David Cameron told his cabinet colleagues today to make the most of the economic opportunities offered by the Olympics. The prime minister thinks the double whammy of the games and the Queen’s Diamond Jubilee will give tourism and business just the boost that’s needed in these dire economic times. But is he destined to be disappointed? The FactCheck team has been finding out.

The analysis

Culture Secretary Jeremy Hunt has taken on the role of head cheerleader as the countdown to the London Olympics begins.

Nothing wrong with that, you might think. After all, it’s too late to scrap the Games now, so we might as well try to make a success of it.

But what about Mr Hunt’s insistence, in this interview with the Telegraph, that hosting the Olympics will provide a “huge plus sign” for the flagging British economy?

FactCheck asked Mr Hunt’s Department of Culture, Media and Sport (CMS) what evidence the minister is relying on for his claim.

Despite a reference in the Telegraph article to Treasury boffins “crunching the sums on the likely economic benefit”, we were told that the Treasury is not in fact doing anything of the kind.

Neither has the CMS produced any recent report on the supposed profitability of the Olympics.

What Mr Hunt’s department has done is commission a “comprehensive meta-evaluation of the impacts and legacy of the Games”. We’ll get an interim report in 2013 and a final analysis by 2020.

Only then will be able to prove Mr Hunt right or wrong when he says the Olympic feelgood factor will provide “six years of business benefit”.

But the government seems very sure now that there will (eventually) be a net gain for the economy. Is this optimism misplaced?

Costs and benefits

Cost-benefit analyses of past and future Olympiads tend to be mind-bendingly complex and of dubious accuracy.

Building the venues alone will undoubtedly cost the taxpayer billions, but the construction projections will also create jobs and stimulate the economy. Add up the money trickling down the supply chain, the money spent by rising numbers of tourists and the new businesses to cater for them and you get growth.

But how do you quantify, say, the effect on the future job market of training thousands of volunteers to work as unpaid “ambassadors” during the Games.

And how can you calculate the long-term returns on the Olympic facilities when you don’t know whether a newly-built stadium will turn out to be a popular sports centre or the next Millennium Dome?

Various auditors have had a go at totting up the pluses and minuses. In 2002, Arup predicted “an overall cashflow position of between minus £145m and plus £82m”, depending on income from increased tourism. Not numbers likely to have made the then Chancellor Gordon Brown jump for joy.

In 2005, PricewaterhouseCoopers produced a report which the government decided ought to remain confidential at the time (you can read it here now), possibly because it predicts a net boost to UK GDP of a modest £1.9bn over 15 years.

That’s pretty academic now, because the cost of staging the Olympics was estimated at £4.9bn at the time. It now stands at more than £9bn.

The staggering slippage is beyond the powers of this FactCheck to explain, but it clearly means that any benefit to the country from tourism, job creation, etc, will now have to be a lot more impressive than initially predicted if they are to stand any chance of cancelling out the spiralling costs.

Another cause for concern is the question of how many Olympic jobs are going to foreign workers. The larger the number, the less of a potential boost there will be to the UK economy.

All this may explain why the Olympic bigwigs are excercising far more caution these days when it talks up the supposed economic benefits of the Games.

At the time of the bid, there was optimistic talk of a £100m surplus at the end of the Games.

A CMS spokesman told FactCheck it no longer puts its name to precise predictions of that nature, although the department stands behind Mr Hunt in anticipating a net gain for the economy.

Lessons from the past

Every summer Olympics of recent years has gone wildly over-budget, and there are arguments about which of them, if any, have made money.

There have been spectacular failures like Montreal, whose residents were still paying off the debt from the 1976 games in 2005.

More recent Olympiads are supposed to have broken even, while cities like Barcelona and Sydney claim to have experienced long-term economic benefits.

But there is serious disagreement even about the supposed success stories. Citigroup analyst Michael Saunders
has recently suggested that there is a short-term boost to growth in the run-up to the Games, then a slowdown afterwards. 

Some economists, like US academic Professor Jeffrey Owen, say most impact studies tend to count public money spent on Olympic building projects as a benefit rather than a cost, when the money could of course have been pumped into schools or hospitals or just left in people’s pockets.

Professor Owen concludes: “There has not been a study on an Olympics or other large-scale sporting event that has found empirical evidence of significant economic impact.”

Another study, by the European Tour Operators Association, argues that it’s impossible to say whether tourism would have gone up in Barcelona and Sydney anyway if they hadn’t hosted the Games.

Dublin and Prague both outperformed Barcelona as a tourist destination in the decade after the Catalan capital hosted the Games in 1992, the authors say, and New Zealand attracted more visitors than Australia in the years after Sydney 2000.

In the case of London, the only detailed cost-benefit analyses that have been attempted were far from encouraging at the time and are now hopelessly out-of-date in any event.

Cathy Newman’s verdict

It’s notoriously hard to crunch the numbers on the economic impact of the Olympics. A £145m deficit? A £1.9bn surplus over 15 years – now wiped out by the soaring cost of the games? Take your pick. Even the lessons from the past are far from clear. Barcelona was supposed to have been deluged by tourists after it hosted the games in 1992. But Dublin and Prague both outperformed the Catalan capital as a tourist destination. Jeremy Hunt has hinted that George Osborne is running his slide rule over the figures again to try and conjure up an Olympics dividend. But the Treasury isn’t owning up to any such calculations. In the absence of more optimistic data, the safest assumption is that – depending on how Team GB does –  London 2012 might make us all feel better, but it’s unlikely to make us much richer.

The analysis by Patrick Worrall