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“Winner's Curse” – defined as the tendency for the winning bid in an auction to exceed the intrinsic value of the item purchased. _________________________________________________________
For the past few years, ever since London secured the nomination to stage them, I have been trying my hardest to ‘get’ the Olympic Games, that is, to understand why so many of my fellow countrymen and women seem pleased that they are to be held here. The supposed benefits have always eluded me, whilst the prospective costs were all too apparent: that the Games would cost a fortune to stage, a vastly larger fortune than had been budgeted; that this expense would be recouped neither by direct revenue nor by any indirect economic uplift; that the powers-that-be would use the Games as an excuse for all kinds of unnecessary and unwelcome measures; and that life in the capital during the games would be even less bearable than usual for ordinary citizens, who would be unlikely to be able to obtain tickets for any of the interesting bits. Meanwhile, to average ticketless sports fans, such as me, who would be watching from our sofas in any case, it would matter not a jot whence the televisual coverage originated. It would have been better to have it coming from Paris than London, or so it seemed to me, bearing in mind that the city on the Seine had been runner-up in the bidding process. We should have let them win and bear the consequences, the winner’s curse. The French deserve no better.
So the years of waiting and wondering have passed and the games are now imminent. Arguably it is still too early to judge them, since they have not yet happened, but if I am to answer the question couched here by Ciao in the future tense – ‘will the games be a success?’ – I am running out of time in which to do so. So here’s my best stab at an answer to that question, noting that the question does not define what ‘success’ is intended to mean. To my mind, any valid definition of ‘success’ would imply an outcome in which the value of the benefits exceeded the costs, so that is the basis on which I shall attempt my assessment.
Advocates for the games argue that they will bring benefits to London, and to Britain generally, both tangible and intangible. They claim tangible benefits that would include increased revenue from tourism, the economic boost provided by building the facilities and infrastructure, other hazier ‘business opportunities’, and the regeneration of the area around the sporting sites. The intangible benefits would be derived from the international prestige that goes with hosting such a high-profile event, and from the ‘feel-good factor’ – a supposed enhancement to national morale. Intangible benefits by their nature cannot be quantified and will be considered later, but in the case of the tangible benefits a monetary evaluation can at least be attempted:
~ Tourism. The planners originally envisaged increased revenue from tourism of over £2bn, both from higher numbers of visitors and higher spend per head. It is unclear how this figure was arrived at, other than by wildly optimistic guesswork, since it is contrary to all recent Olympic experience to expect any increase at all. Typically, the pattern has been from the small rise in numbers actually attending the games to be more than offset by a fall in numbers among those deliberately avoiding the host city, fearing overcrowding and inflated prices. When Athens was the venue for the games in 2004, tourism not only declined that year, but took two further years to return to its pre-games levels; any subsequent growth after such an interval cannot be clearly attributed to the Olympics. Current feedback from Britain’s tourist industry suggests that, so far, London is doing no better. Hotels are far from full and room-rates for August on the hotel-booking sites have been falling, suggesting that they are having difficulty filling capacity. Arrivals at London’s airports are coming in below expectations. Meanwhile, other London tourist facilities are having a hard time; for example, Andrew Lloyd Webber is on record as predicting a downturn for theatres and shows during the period. All told, there is no good reason to expect any net benefit to our tourist industries accruing at all; indeed, there
might well be a net cost.
~ Facilities and infrastructure. Proponents argue that the £5.3bn being spent on the sports stadia, Olympic ‘village’, sprucing up the surrounding area and upgrading transport links is not so much expenditure as an investment that will provide economic benefits. Of course, it has provided some contracts for local firms and some employment during the course of the build, but nearly all of it has been government funded, so it simply represents either an increase in overall public spending or a diversion of public funds from other purposes. Was spending on the Olympics more productive as an investment than those other purposes would have been? It’s unlikely, to say the least. The provision of facilities for a two-week event is a weirdly wrong-headed way to go about planning long-term investment. A scaled-down version of the Olympic stadium itself will remain and be leased to a football club; I haven’t managed to discover precisely how the finances of the arrangement will work, but it seems improbable that they will repay the investment any time soon, or indeed on any foreseeable time-scale whatsoever. Some expensive facilities – such as the basketball arena and the water polo venue – are simply scheduled to be demolished; others – if the experience of previous host cities means anything – will be under-utilised and only maintainable at a loss. The Olympic village is to be sold on to the Qatari royal family and associated private developers for £557m, compared with a building cost of over £1bn, so the taxpayer will take a big hit there – and who knows what the buyers will do with the site? There’s no reason to believe it will be to any public benefit. Transport? Yes, there will be improvements, but many of those would have happened anyway, and as for the ones that would not, again, arranging to deliver large numbers of spectators to particular venues for a fortnight is a ludicrous basis for permanent planning. It looks to me as if most of the money should be written off as a sunk cost, rather than regarded as an investment generating on-going returns.
~ ‘Business Opportunities.’ Official statements have claimed that billions will be generated by ‘additional sales by British companies, high-value opportunities, and foreign direct investment’. Frankly, this all sounds like pie-in-the-sky to me, and I write as the former marketing director of a British-based plc with international affiliates. From my experience, I find it impossible to believe that any hard-headed foreign businessman would buy more from Britain, or invest more in Britain, simply because the Olympic Games happen to be staged here. Even if there were a commercial advantage to be gained from association with the games, the vast majority of British firms will be legally barred from taking it, since only sponsors – most of them multi-nationals based outside the UK – are allowed to refer to the games in their advertising or branding. Indeed, lots of British businesses are having their normal activities drastically restricted as rules to this effect are enforced to please those sponsors. Apparently, the government, fronted by the prime minister, is to host a global investment conference timed to coincide with the games, and has great expectations as to its outcome. Again, a sceptical shrug seems the only realistic response. If such conferences bring any benefits at all – and I sincerely doubt it – their benefits would not be contingent on their being timed to coincide with a separate sporting occasion.
~ Urban regeneration. ‘The lower Lea Valley’, as officialdom insists on referring to the area of east London that will constitute the main focus of the games, was indeed a run-down and neglected area. Whether it would have remained so left to itself is a moot question. It is not much further out from the centre than other areas – Hackney, Bow, Stepney, Poplar – that have ‘come up’ by leaps and bounds because of their proximity to the City and new business centres in docklands. Very probably, it would have been regenerated piecemeal by market forces in due course without intervention. Instead, it has been forcibly redesigned on a grand scale for the purpose of the Olympics, plus the new shopping centre at Westfield. Man shall not live by shopping centres alone, as any economist will tell you, and it is hard to see this one providing enough local economic enhancement for the future after the games have gone. Curiously, the authorities turned down an offer by the Wellcome Trust, which wanted to spend £1bn buying the Olympic Park to redevelop as a scientific research hub, surely a much more sustainable project, and one of the few genuine ‘business opportunities’ that the games have generated. As it is, the outcome will enjoy neither the merits of ad hoc free market redevelopment, nor of the centrally planned variety, only the demerits of both. As ever, if one wanted to arrive at optimal long-term regeneration, one wouldn’t start with designing a short-term sports venue. It’s hard to see any quantifiable public benefit in what is being done.
What, you may be wondering, about revenue from ticket sales, broadcasting rights, or sponsorship? That goes to LOCOG, a private company that organises the event, and to the International Olympic Committee, not to the taxpayer. Didn’t anyone tell you?
Staging the London bid for the Olympics was originally budgeted to cost £2.37bn. I don’t know whether anyone ever believed costs could be kept to that level, even those who kept straight faces while presenting it to the IOC and to the nation at home. But it came as no surprise to most of us when it began escalating almost as soon as the powerpoint slide had faded from the screen. Officially, that escalation peaked and plateaued at £9.3bn – almost four times the original estimate – and those masters of the straight face now assure us if it comes in at this figure it will be ‘on budget’. A bit like a builder who has priced a job at £2370 presenting you with a bill for £9300 while blandly assuring you it’s in line with his quotation.
Even then, though, there are plenty of reasons to suspect that some imaginative accounting has been used to keep the total down to the £9.3bn. Investigations by a number of media reporters have pitched the real prospective figure at various levels all the way up to £24bn (Sky News), which would be ten times the original estimate. And, whilst the more extreme of these might err on the side of sensationalism, as unsensational a body as the House of Commons Public Accounts Committee is of the view that costs are "heading for around £11bn".
It doesn’t help, of course, that so much of the expenditure seems gratuitously wasteful. The bill for ‘security’, well over £1bn, defies belief, and can only be predicated on the assumption that the authorities are expecting a full-scale invasion or insurrection, or are using it as practice for – as The Guardian recently opined – “a repression-ready security state”. Even the frivolous details, given our severely straitened times, make the wallet wince just to contemplate, like the steelwork sculpture of surpassing ugliness that has cost us nearly £20m, and its baby cousin, the absurd arrangement of stones on stilts at the yachting centre at Weymouth. For some reason my hometown, like many others around the country, is festooned with banners proclaiming ‘London 2012’, presumably put up at public expense. Why? What conceivable public good is served by them?
Before we come to the unquantifiable benefits claimed for the London Olympics, let’s balance out the quantifiable ones against costs to see how much, net, we’ll be paying. What seems to me apparent from the analysis above that it’s difficult to identify any clear-cut quantifiable benefit at all, whilst the costs are going to come in at somewhere upward of £9.3bn. But let’s be generous to officialdom and imagine that I’ve underestimated the business benefits and they might amount to, say, £2bn. Let us also generously imagine that approaching half – say, £3bn – of the investment in facilities and infrastructure will result in legitimate long-lasting improvements and will pay for itself in due course. For the other, cost, side of the equation, let’s take the House of Commons Public Accounts Committee figure of £11bn. Subtracting one from the other we arrive at a net cost to the taxpayer of £6bn. That’s £100 for every man, woman and child in the UK. So the question is: will every man, woman and child in the UK derive £100 of intangible value from having the Games staged here rather than somewhere else?
What were those intangibles again? National prestige was one. I have to say I personally find this very unpersuasive. Did I think better of Beijing – or China generally – because that city hosted the Olympics a few years ago? Or Athens, and Greece? In both cases, absolutely not. Did you? If not, may I invite you to wonder why should anyone else think better of London, or of Britain generally? There is vague talk of ‘putting London on the map’. This is nonsense; it’s already ‘on the map’ of international awareness. Frankly, cities that aren’t already on the map of the world’s awareness don’t get to be hosts in the first place. Will foreigners gain a better impression of London than their existing one, because they happen to see on television a few sporting events being contested here? I can’t imagine how, whereas there is a huge potential for bad publicity if anything goes wrong. Personally, I wouldn’t value the prospective boost to our national prestige at 10p of my own money, let alone £100.
Then there’s the so-called ‘feel-good’ factor. Do you feel any better as a result of London hosting the games? Personally I feel worse, but, obviously, whether you feel any better is something I must leave to your own evaluation. If you do, then what I would ask you to consider further is whether you feel £100-worth better for every member of your family, or whether you would rather have spent the money at your own discretion in some other way, or simply saved it. If you feel less than £100-worth better, the games are not giving you good value.
Then there’s allegedly a benefit to sport in Britain, ‘Inspiring a generation’ as the vapid slogan of the Games would have it. Conceivably, British success in some events might inspire the young in our country to attempt imitation, though one has to ask whether they would not have been equally inspired by British success on a foreign field rather than our own. But inspiration is only a small part of what is needed if sport is to be encouraged. Also needed are sporting facilities – public pitches and courts, school playing fields – of the kind that have been disappearing for decades, and are now disappearing ever more quickly under the pressure of public spending cuts. A more productive, and probably much more economical, use of funds would have been to devote them to reversing this decline, rather than to staging the Olympics.
Finally, before we leave the unquantifiables, let us remember that many of them appear in the debit column too. Greenwich Park, previously one of London’s loveliest, has been ruined for a transitory equestrian competition. Parts of Weymouth have been transformed too, and not for the better. During the games, Londoners will be treated as second-class citizens in their own city, warned off their already overstretched transport system (I understand from commuting friends that a ‘rehearsal’ on July 10th was excruciatingly chaotic), lanes in their streets sequestered for Olympic traffic, and subject to heavy-handed security intervention if they stray into the ‘wrong’ areas. In effect, areas of our country will be under martial law. Security, after the latest shambles involving G4S, more than ever looks like a disaster that can barely wait to happen.
The sour smell of success
Looking back on the way in which we were saddled with this over-priced extravaganza, the questionable prize for winning the nomination, it seems typical that London’s bid was championed by the then prime minister Tony Blair. It’s a quintessentially Blairite initiative: flashy and vainglorious. It’s a national vanity project, and whether or not it’s judged a ‘success’ by commenters dazzled by feats of athletic prowess, our vanity in hosting it will cost us dearly. I begrudge no one whatever pleasure they may be able to derive from the occasion; indeed, the more pleasure that people can derive the better. But I would ask them to remember that their pleasure comes at a heavy price to every taxpayer. Once the fortnight’s froth has subsided, we’ll be left with the expense of dismantling some of the venues, and of maintaining others which will be unable to pay their way. We’ll be lumbered with the ill-conceived aftermath of planning for a one-off event rather than for the longer future. And of paying the interest on the money that was borrowed to finance it all in the first place.
Very interesting read. It would be even more interesting to have a post-Olympics analysis of a similar kind in a year or two's time to see if your assumptions were correct. I suspect many of them were... On the point of "Inspiring a generation", I completely agree with you. It's all very well inspiring everyone, but if they have nowhere to make good on that inspiration then what is the point exactly?