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Are 2012 Olympics a Blessing or a Curse for the UK?

With less than a year to go until the 2012 Olympic Games in London reach the starting line, the economy is looking ever gloomier.

Fabrie Coffrini | AFP | Getty Images

Unemployment recently hit a 15-year high in the UK, inflation is hovering around 5 percent and economic growth is barely advancing, leaving many to wonder whether hosting such an expensive event with taxpayers’ money will bring benefits for a nation already tightening its belt.

“The challenge is that you are trying to budget initially seven years in advance of the Games,” Stephen Wenn, Professor of Kinesiology and Physical Education at Wilfrid Laurier University in Ontario, Canada and lead author of the soon-to-be released book "Tarnished Rings: The International Olympic Committee and the Salt Lake City Bid Scandal," told CNBC.com.

“When London got the Games in 2005, could anyone have reasonably predicted 2008/9, and the more recent and ongoing additional economic challenges centered in Europe, but with tentacles reaching to other regions?” he said.

The economic distress, which culminated in last summer’s riots in London and more recently anti-capitalist protestors camped outside at St Paul’s Cathedral , has also cast a shadow over the Olympics.

The tent camp outside one of London’s biggest tourist attractions has been described as an embarrassment for the city’s tourism industry, which is hoping for a significant boost from the Games.

“It is part of the risks one accepts in chasing the rings. Sometimes you get lucky, as did Calgary, when it benefitted from a massive explosion in the value of sports television properties in the early 1980s,” Wenn said.

The UK economy grew by 0.5 percent year-on-year in the third quarter of 2011, according to the preliminary figures from the Office for National Statistics, but the recovery is slow and the government, focused on budget savings, is struggling to support it.

Impact on Jobs

A 2005 PriceWaterhouseCoopers and the Department for Culture, Media and Sport study found that total UK GDP (gross domestic product) in the period from 2005 to 2016 would be increased by 1.9 billion pounds ($3.0 billion) as a result of the Olympics.

Since then, the economic downturn has put pressure on government spending and jobs, and the Olympics have been hailed as an opportunity to create much-needed employment.

The Department for Culture, Media and Sport is aiming to generate least 1 billion pounds for the UK economy by promoting everything that the country has to offer as a place to invest, do business with and visit.

Meanwhile the Olympic Delivery Authority (ODA), the public body responsible for developing and building the new venues and infrastructure for the Games, says over 40,000 people have worked on the Olympic Park.

It has awarded 1,500 contracts worth some 6.4 billion pounds, the vast majority of which it says have gone to UK businesses.

Many more, including substantial agreements such as Welsh company Rowecord’s contract to build the wave-shaped steel roof for the Aquatics Centre, have been awarded indirectly to sub-contractors.

“Tens of thousands of companies are benefiting from the value being spread through the nation’s supply chain,” an ODA spokesman told CNBC.

Public sector funding made available for the Games stands at 9.298 billion pounds ($14.7 billion), with around 8.1 billion pounds made available to the ODA.

The body’s latest figures show that the final cost for the construction phase is expected to amount to 7.25 billion pounds, representing savings of over 800 million.

Other costs include maintenance of the Olympic Park and security.

“As for costs, infrastructure heads the list, specifically venues and their operations, and naturally security is a significant investment, now, more than pre-9/11, even though it was an expanding file for a number of years prior to that point in the aftermath of the Munich Olympics,” Wenn said.

But scholars point out that budget claims depend heavily on accounting methods, and that the short-term boost the Games can provide for the economy will only have lasting benefits if the organizers remain firmly focused on the legacy of the Games.

“Given the budget modifications that have already been made when combined with various comments…indicating they are 'ahead of time and under budget,' the London Organizing Committee of the Olympic Games and Paralympic Games (LOCOG) will at the very minimum report a balanced budget,” Scott Martyn, Associate Professor of Olympic and Sport History at Canada’s University of Windsor said.

“However…such a claim is very dependant on what is and is not included as a LOCOG expense,” Martyn, co-author of “Selling the Five Rings: The International Olympic Committee and the Rise of Olympic Commercialism” said.

Winners and Losers

Successful Games like those staged in Los Angeles in 1984 or Barcelona in 1992 can bring real benefits for the country. But the 2004 Athens Olympics showed they can also end in financial disaster, a legacy which some have argued eventually dragged the global economy down.

Heavily-indebted Greece has already been bailed out twice, and some of Europe’s banks are greatly exposed to Greek debt which has caused fears in financial markets that other, much larger countries may need to be rescued as well.

Aside from an increase in the construction workforce, the Olympic Games in London are expected to boost the tourism industry, with more business for airlines and hotels, and present marketing opportunities.

Economic studies have also found that Olympic host countries’ export trade generally rises after staging the Games and there is an increase in trade between the host and the rest of the world, with the Games in Sydney in Australia a case in point.

“They certainly have the capacity to provide short-term boosts to the local economy, but it can also go the other way,” Wenn said.

“So many people weren't exactly sure what Athens would provide and international ticket sales lagged. If there ever was a city and nation that likely regretted its $14-$15 billion Olympic accrued debt, it's Athens and Greece,” he added.

Beijing was keen to show the world it was an important global player, perfectly organized and demonstrating financial strength, and Brazil will want to do the same in Rio de Janeiro in 2016.

Meanwhile London is using the opportunity to remake the city’s East End, one of the UK’s most deprived areas, providing new houses, schools and sports facilities.

This will bring “massive regeneration and employment opportunities”, the government says.

The prestige that comes with hosting the Olympics, as well as a greater take-up of sports among youngsters inspired by the Games are among other, less tangible benefits.

“The state of the art venues on the Olympic Park are a fantastic showcase for British construction and design and through agreements with future host cities, many British firms will export their expertise to forthcoming major sports events,” a Department for Culture, Media and Sport spokesperson said.

Will UK citizens truly benefit from hosting the Games during the worst economic downturn since World War II? As London will be staging the Games in a climate very different to the optimism that reigned in 2005, success, analysts and observers say, will ultimately be judged on the enduring legacy of the Games.

Contact Europe: Economy

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