The Olympic spending race

With the eyes of the world are focused on the UK for two successive weekends - first for the Live8 gig in Hyde Park and then for the G8 summit in Gleneagles - attention will briefly turn east to Singapore on Wednesday for the International Olympic Committee's decision regarding the 2012 Games.

One overriding question regarding the bids which has been under-reported is the crippling cost of hosting "the greatest show on earth". A very interesting 'Focus' in the Sunday Times yesterday provided all the facts and figures. Here's a precis of the key Olympic facts:

• So far, taxpayers have provided GBP20m for London 2012, the company organising the British pitch, and GBP10m for supporting activities. If London wins the Games, the government estimates that it will cost taxpayers GBP5bn. Others say it could be double that.
• Montreal, which hosted the Games in 1976, is still repaying its Olympic debts. It made a profit on the operation of the Games, but capital expenditure on infrastructure projects spiralled out of control, causing the government to slap a USD2bn (about GBP909m) tax on tobacco to recoup its losses. Nearly 30 years later, 17 cents from every packet of cigarettes goes to repay the debt.
• The Sydney bid for the Games in 2000 estimated the cost would be less than GBP500m, with only GBP154m coming from public funds. The actual cost was more like GBP3bn, with taxpayers paying about GBP1bn. The cost of the most recent Games in Athens also spiralled from GBP750m to more than GBP3.5bn.
• The last British Games in London in 1948 relied largely on existing facilities: Wembley stadium, built in 1923, was the centrepiece and many competitors were housed in barracks or schools. The cost was just GBP750,000 - about GBP18m at today's prices.

The key to understanding Olympic finances is the difference between operating costs and capital costs. The Games often make an operating profit, but this is usually outweighted by a much greater capital loss. The article breaks down the costs:

The bid budgets GBP1.5 billion for operating the Games. "It's made up of sponsorship, ticket sales, TV rights and merchandise," said Coe. "Not a penny of this will be drawn from the public purse." Stadiums and transport, however, do not come free. The facilities and links would be funded by GBP2.375 billion of public money, including GBP1.5 billion from the national lottery and GBP550m from London council tax. That, though, is far from the end of the money marathon. The bid relies on billions more being poured into the infrastructure not directly related to the Games. This includes road and rail schemes costing GBP7 billion paid out of general taxation; GBP800m largely from central government for redevelopment of the Lower Lea Valley in east London where the Olympic village would be sited; and GBP650m of private funding for a housing development."

This is why Michael Liebreich, a member of the British team in the 1992 Winter Olympics and now a Harvard-trained financier, is cautious. "We must be honest," he said. "If London did win, it would cost between GBP10 and GBP12 billion to stage the Games, not the GBP5 billion the bid suggests."

Posted by Matthew Elliott | Permanent Link

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