The race to become the site of the Olympic Games has reached the finish line. Contrary to all predictions, London beat out New York, Moscow, Madrid and Paris in the battle. The victory earned London the title of Olympic City, and it will derive significant economic benefits. Tourism and construction are the sectors that will benefit the most from the event, which will improve the city with millions of dollars in infrastructure investments while reviving the image of the country. Nevertheless, the tragic attacks of July 7 have cast a dark cloud over the victory. Once again, security has come to the fore as the sector that must play a crucial role during the games.
“This election was always a race between two candidates,” says Scott Rosner, an expert on sports business who lectures in Wharton’s legal studies department, “From the outset, Moscow was below the level of the other four cities. In addition, a combination of other factors damaged New York, including the Eurocentrism of the International Olympic Committee, the anti-American sentiment in many parts of the world, the fact that the Winter Games will be taking place in Vancouver, Canada, and concern about athletic venues.” When it comes to Madrid other factors also played a negative role, says Rosner. These include nervousness about the terrorism of the ETA and, perhaps, resentment against Juan Antonio Samaranch, former president of the IOC.
Nevertheless, this experience has shown that it not easy to predict the winner in this sort of race. “The voting triggers a dynamic process that is hard to predict. The votes move almost in a bloc, as a function of who is chosen in a particular round of votes,” explains Kimio Kase, professor at the CSBM center of sports management. Jacobo Ruiz Gil, a consultant of Key Sport and researcher at IES, says that political factors affect each of the players. “Why did New York give all its votes to London, and not one to Spain? Does it have something to do with the diplomatic problems that exist between the two countries after the war in Iraq?” Kase wonders.
A Source of Income
Although it is not possible to figure out what motivated each country to vote for a particular city, the presence of five great capitals shows that there are attractive economic benefits to hosting the Olympic Games. Bill O’Neill, strategist at JP Morgan Asset Management, wrote in the Financial Times that every city that has hosted the Games in the past has enjoyed increased revenues as a result. In London, forecasts are for the GDP to grow by 0.4 percent.
Millions of sports fans and tourists will visit London, attracted by the Olympic torch, and they will spend a significant amount in the British capital. Expotel, a travel management company, projects a million visitors will arrive during the event. Visit-Britain, the UK tourism authority, estimates that the Games could bring some 2 billion pounds (EU 2.9 billion) to the nation’s tourism industry.
Airlines such as British Airways, EasyJet and Ryanair, which operate in the three major London airports, will also benefit from hosting the Games, according to the Financial Times.
The retail sector is already rubbing its hands with glee. In Madrid, small companies in this segment said they would have enjoyed increased sales of more than 50% if the Games were held in the Spanish capital, starting from the day the city was chosen until the closure of the games. Anged, which owns major Spanish chains of distribution, estimated that sales could grow by between €200 and €300 million during the days of the competition. The London Retail Consortium now expects that the event will generate some £521 million.
The Unfortunate, Key Role of Security
Security is always a key factor during the Olympic Games. Sadly, this central role has special relevance in London, following the tragic attacks of July 7. The barbarity has not tarnished the confidence of the Olympic family in the British capital in its ability to organize the Games. However, the nightmare has once again called attention to the importance of security.
For last year’s Olympics in Greece the security budget reached $1.2 billion, infinitely higher than the $200 million spent for the Games in Sydney, only four years earlier. The Greek government installed a security system so sophisticated, it could photograph individual faces, intercept telephone calls, and detect the mobile telephone numbers of people anywhere in the capital. The North American Treaty Organization (NATO) also participated, providing surveillance aircraft and sending a special intervention force.
In London, the investment could be even greater. “The Games will be more uncomfortable for athletes and visitors,” says Inocencio Arias, formerly Spain’s ambassador to the U.N. “Security measures will be strengthened to a spectacular degree. As the Munich Games of 1972 showed, terrorists can take a great deal of interest in an event of this sort. They cannot be given even the least opportunity,” said Arias, who is now a member of the IESE’s center for sports management.
The benefits go beyond the purely economic. As a general rule, those involved in urban development are thankful about the Games. After all, the Games bring energy into deprived neighborhoods near the Olympic City, and they renovate some of the infrastructure. “Becoming the site of the Olympic Games will enable Stratford to enjoy some development; this region on the East of London has an extremely large need for investments,” notes Rosner.
Real estate companies are also happy because hosting the Games could lead to a rise in housing prices in London. According to Halifax, the mortgage bank, in each of the last four cities that hosted the Games, the price of real estate grew faster than the national average during the five years before the event took place. In London, the projects that are slated for development include a wave of new construction in Lower Lea Valley, on the Eastern edge of the city, where there will be a new Olympic Park as well as some 9,000 houses and two schools.
When it comes to urban rebuilding, the thorniest area to include in the infrastructure is the housing for the various Olympic specialties. The challenge is to make these housing projects profitable not only during the event, but also after the Games have ended.
Doing so implies planning for the future of the zone. “The post-Olympic plan must involve consideration of the transformation of the infrastructure for housing, offices and sports facilities. That sort of plan will spare London the heavy cost of holding onto the same complex of facilities that, on too many occasions, wind up as a plague for the cities that have organized the Games,” says Rosner.
In Sydney, for example, construction of the sports facilities was not at all profitable. One professor at the University of Sydney commented that the only profitable part was the infrastructure where the marathon event took place — in other words, the streets of the capital, where thousands of people saw what the city looked like. It has cost $34 million a year to adapt those buildings for commercial use.
Another benefit of holding the Olympic Games is its impact on the image of the country. “The country and the city that organize the Games improve their positioning a great deal,” explains Kase. “For Japan, for example, organizing the World Cup of Football acted as its coming-out party on the world scene. China wants to achieve international credibility, and you cannot buy these things with money.” Arias adds that hosting the Olympics “is an indirect way of gaining recognition, a sort of backing for those countries that are less developed or which have governments that are not well regarded by democracies.”
Ruiz Gil agrees with Kase. “The main benefit for the Olympic city is that it opens to the world. People get to know the city; it is the center of global information during the three weeks that the events last. The name of the city becomes an advertising brand throughout the world, in a way that involves no cost and a worldwide public.”
Analysts hope that organizing these Games acts as a great platform for launching the brand of London and the United Kingdom throughout the world. They hope it has benefits for business, leisure and sports. Interest is focused, above all, in the new emerging markets such as China, Korea and Poland.
For his part, Rosner is not certain that hosting the Games helps the image of a city all that much. However, “It is entirely likely that all the cities that were in the final round [for hosting the Games] were motivated by the opportunity to be the center of worldwide attraction during the Games, and to celebrate their image as an elite capital.”
Another factor is that, after the Games are over, the positive image endures. “People always remember the names: Atlanta, Barcelona, Athens…,” says Ruiz Gil. And, if everything goes well and the country has an adequate marketing strategy, it can achieve benefits similar to those that Barcelona enjoyed in 1992. Between 1991 and 2000, the number of tourists visiting that city doubled, and Barcelona became the third-most visited city in Europe, behind only Paris and London.
Analysts agree that those locations that are not prepared to carry off an event of this magnitude do not usually compete to become the site of an Olympics. It is even less likely that an unqualified city would be chosen by the IOC. “It never happens that a city that hosts the games winds up being damaged, except for unexpected circumstances such as the terrorist attack in Munich,” explains Ruiz Gil. For Arias, Atlanta is the exception to the rule. Organizational defects were more frequent that in other countries, and they were even more glaring because they took place in the world’s greatest power [the U.S.] In this case, the image [of Atlanta] did not wind up stronger.
It is not only cities that derive benefits from hosting this event. The IOC also benefits, along with the companies that get behind the Olympic mark of excellence to sponsor the event, and enjoy the media attention it brings. “The benefits for the IOC are significant, both economic and in terms of status,” says Arias. “What organization would dare seat heads of state and kings on the wings of a stage ceremony, while reserving the privilege of center stage for its own officials? The president of the IOC is received with honors by the chiefs of state and, on occasion, he receives more attention than they get.”
Nevertheless, Rosner warns that hosting the Games brings some problems for local residents, such as traffic congestion and logistical problems. Depending on the treatment provided by the communications media, it can lead to all sorts of problems for the host city.
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