The finances surrounding the London 2012 Olympic Games provide both similarities and contrasts with the last time London hosted the Olympics in 1948.
Whether the Olympics will give an overall boost to the economy is a hotly-argued topic. Early indications are that the games did provide jobs in the run up but failed to boost overall high street sales in July and August. Economists expect GDP to be helped by the Olympics as ticket receipts for sales made earlier will be included in the figures.
Of course, we have all been inspired by the wonderful performance of UK athletes in both the Olympics and Paralympics and the legacy they leave cannot be financially quantified and it is also difficult to put a figure on the boost the Olympics will give to the local area and future sales in sectors like sports equipment and gym membership.
However, from a purely financial legacy we look at the costs and the likely financial legacy of London 2012.
London 1948 – The real austerity games
Then, as now, austerity was the order of the day, but in 1948, the cause was the fallout from the Second World War, a period of almost nine years when the country had been required to funnel most of its resources into the war effort and recovery from it.
In the three years following the end of the war in 1945, the country and in particular London, focused on re-building housing and industrial properties. Over 100,000 houses were destroyed in the capital by German bombs and more than half the stocks of industrial properties were destroyed.
1948 really was the austerity games, with British athletes sometimes making their own kits, sleeping in RAF huts and getting their bodies into perfect shape despite widespread rationing still being a part of the national landscape.
The total budget was just £760,000 equivalent to £21 million in today’s money, and the budget was met through ticket sales and turned a profit of £29,000. The opening ceremony was marked by a mass release of pigeons. With £27 million to spend, Danny Boyle, the film director who has been tasked with creating the opening ceremony for London 2012 will be planning something slightly more extravagant.
London 2012 – Austere compared to Beijing 2008
It was seven years ago that London was awarded the 2012 Olympic Games and after the Beijing opening ceremony at the 2008 Olympics, London organisers asked themselves the question, ‘How can we beat that?’ and came up with the answer that they couldn’t.
This was just one month before the epicenter of the financial crisis when HBOS and Northern Rock required a bailout and Lehman Brothers bank fell in the United States. The financial crisis was supposed to dictate the spending strategy that London has followed for the 2012 games.
The UK is spending just a quarter of the total that China spent on the 2009 Olympic Games. Britain has spent a total of £9.3 billion of public money on the games, compared to a total of £45 billion spent by China in 2008.
The estimated cost of putting on the games in 2005 was £3 billion. This was ramped up to £9 billion in 2007. So, the claim from Jeremy Hunt, the Secretary of State for Media, Culture and Sport, that the games are on course to meet the budget are somewhat misleading.
The budget of £9.3 million is made up of a £6.2 billion contribution from central government, £2.1 billion from lottery funding and a further £900 million from the London Development Agency and the Greater London Authority.
The opening ceremony
The opening ceremony has become the most important event at any Olympic Games and this has led to the government revising the amount it has allocated for the Olympic and Paralympics opening ceremony from £40 million to £80 million.
The original £40 million comes from Olympic organisers the London Organising Committee of the Olympic and Paralympics Games (Locog) whose revenue comes from ticket sales, sponsorship and the IOC.
When the government announced it was chipping in with an extra £40 million at a time when the economy has been struggling there was criticism. The government responded by saying that the money would be an investment “to drive the maximum benefit for the economy and for tourism.”
The cost of the facilities
Unlike the opening ceremony, the new stadia and facilities are paid for by the government rather than Locog. As well as temporary sites such as the volleyball stadium close to 10 Downing Street, seven new permanent facilities have been built at a total cost of more than £2 billion. These include the Olympic Stadium in Stratford costing £428 million and the Olympic Village costing £935 million.
The Olympic Village will be reconfigured by a Qatari-backed consortium to become 2,800 houses and funds will be recouped by this initiative.
The biggest embarrassment to the organisation of London 2012 so far has come from G4S who were supposed to be in charge of security at the Olympics after winning a government contract but who have been unable to supply the 18,200 personnel required. G4S have only been able to supply 6,000 security officers out of the 10,000 stipulated by the contract.
The security budget had already been increased from £283 million to £550 million and G4S are likely to have to repay about £50 million of it for their failure.
However, some marketing analysts believe the debacle could be a blessing for The London 2012 brand overall, because the presence of around 5,000 military personnel on the streets of London is expected to add to the quintessential British feel of the event and reassure both spectators and competitors alike.
Michael Payne, a former marketing director of the IOC and now a strategy advisor said: "The G4S debacle will end up being a blessing in disguise, I’m sure of it.”
The economic benefits
In 1948, despite a squeeze on disposable income even fiercer than the one UK households are undergoing today, the games turned a profit, but will that happen in 2012?
This is a difficult question to answer because it is difficult to put a value on the legacy benefits that the games will give to UK tourism in future years. In narrow money terms, bearing in mind the cost of infrastructure, it is hard to make an argument that the games will make a profit.
A report published by Lloyds Banking Group suggests that the London 2012 Olympic Games will provide a £16.5 billion boost to the UK economy and create 60,000 jobs.
However, other forecasts are less optimistic. Howard Archer, an economist at forecasters IHS Global believes the benefits will be limited and not provide as big a boost to GDP in the third quarter as the government might hope.
He predicts a 0.3 per cent boost to GDP boosted by ticket sales, retail sales, tourism and employment but counteracted by a loss in productivity and difficulties in travelling in London that will lead to many employees taking holiday or working from home during the Olympics.
Mr Archer said: “Overall, we expect the impact for the UK economy from the Olympics in the third quarter will be modestly positive. Although once the games are over, the problems facing the UK economy will still be there!
The early indications
Retail sales in August werre not boosted by the London Olympics. Although there was a rise in food and drink sales, this was undermined by people choosing to stay at home and watch the wonderful sporting action rather than go shopping. The horror stories of the predicted travel disruption during the games also saqw many people stay away from central London shops.
There was no real impact on retail sales during July, according to the Office for National Statistics, because the Olympics only started on Friday 27th July.
Employment did receive an Olympic boost in the run up to the games, Official figures indicated that the London 2012 Olympics contributed to the falls in unemployment seen in June and July through the creation of jobs.
Employment minister Chris Grayling said:"A big event like the Olympic Games is bound to have an economic impact. It is bound to see the creation of more jobs.
"I hope the Games will make a lasting contribution economically by boosting activity now that has a ripple effect in the months ahead.
It is anticipated that the Olympic Games will help boost GDP in the third quarter because the sale of the tickets for the games will be a part of the quarterly accounting receipts.