How the Olympics Will Cost London

A huge stadium and other facilities may end up as costly white elephants.

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The Olympic Games have a rich history, but so does the controversy over cost. More often than not, the host city gets stuck with unanticipated bills and hulking, underused structures that quickly lose their Olympic grandeur.

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Officials in London, where this year's Summer Games will be held, have precedent on their side. The 1948 Summer Games, also held in London, were known as the "austerity Olympics" because the United Kingdom, still under rationing and other strictures from World War II, had little to spend on a lavish show. Some British citizens feel the 2012 Games should follow a similar formula, since Britain, like the United States, is struggling with high unemployment, excessive government debt, and the hangover from a deep recession.

But the British government has waved off austerity. When London won the bid in 2005, the estimated cost of hosting the Olympics was £2.4 billion, or about $3.8 billion. That has risen more than fourfold and could still go higher, thanks to mushrooming costs for security and the opening and closing ceremonies, among other things.

U.K. officials mount a familiar defense of their Olympian spending: The nation will earn it back through enhanced tourism, economic development, and worldwide exposure. But overstating the economic benefit of the Olympic Games is as much of a tradition as the torch or the marathon. "A city is like an athlete," says Canadian academic Bob Barney, founding director of the International Center for Olympic Studies in London, Ontario. "It will pursue almost any means to win the games. But some will lean toward performance enhancing measures."

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Some elements of the Olympic buildup do typically help the local economy, such as infrastructure and transportation improvements, beautification, and communication upgrades. London will garner some of those benefits. Much of the development for the Olympics is taking place in the east London area known as Stratford, which had been a decaying and neglected industrial zone. Improved transit, the Olympic park, and an athlete's village that will be converted into residential housing could help revive the area. A huge new shopping mall has already opened, transforming an old railroad brownfield into a bustling retail complex.

But London also seems to be making the same mistakes as other cities that lost a bundle on the Olympics. The biggest may be an 80,000-seat Olympic stadium that's likely to cost about $800 million but still has no planned use once the games are over. There are two soccer clubs in London that could use a stadium of that size, but they also want features the Olympic venue doesn't have. "There are no executive offices, no hospitality suites, no luxury boxes," says British sociologist Garry Whannel, co-author of Understanding the Olympics. "Who is a viable end-user? You'd think that might be a good question to ask when you're designing the bid."

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There's also a striking new swimming complex, with an arched roof meant to evoke a breaking wave. But that's been controversial too, because the height of the roof, unusual for a pool complex, raises the cost of keeping the water heated to the right temperature. That reflects a common problem with Olympic economics: Planning committees are typically focused on impressing the world for two weeks, but typically disband once the games are over. It's somebody else's problem to worry about "legacy" issues, as the International Olympic Committee calls them.

Meanwhile, tourism obviously spikes around the time of the Games, but thick crowds, snarled traffic, and inflated prices also drive other people away and hurt some businesses. Overall, there's no strong evidence that tourism changes much following the Olympics—especially in cities that are already well-known, such as London.

The worst planning debacle of the modern games was probably the 2004 Summer Olympics in Athens, which left the country saddled with more than a dozen once-glorious sporting venues that are now abandoned or barely used—yet still cost millions for upkeep and security. Huge cost overruns contributed to the debt woes that have wrecked the Greek economy.

The Beijing Olympics in 2008 featured iconic venues such as the Bird's Nest and Water Cube that are also underused today. That may not bother Chinese officials, who had the money to spend on a spectacle meant to showcare China's growing economic might. Yet that too highlights how the facilities needed to showcase thousands of athletes competing in more than two dozen sports may simply be incompatible with smart economic development. "The venues are the negative thing," says Barney. "They seem so glorious, but almost all of them end up being white elephants."

There have been modest efforts to come up with plans that meet the needs of the Olympic Games without shackling a city to costly, unwanted structures. Chicago's bid for the 2016 Summer Games, for example, included a concept for a main stadium that could be dismantled afterward, with most of the materials salvaged for other uses. But Chicago lost out to Rio.

Meanwhile, cities that have hosted Games generally deemed economically successful--such as Sydney in 2000, or Salt Lake City, which hosted the 2002 Winter Games—usually benefit from generous federal support. Salt Lake City, for example, got more than $2 billion for security directly from Washington, at a time—shortly after the 9-11 attacks—when taxpayers had few qualms about such spending.

Most of the cost of the London Olympics will be borne by taxpayers, although London officials may yet reduce the cost by finding profitable uses for various Olympic facilities. There's been some griping about spending taxpayer money on swimming pools and athlete housing at a time when the government is raising taxes and cutting support for the poor. But on the whole, it takes more to rouse the ire of Londoners than it used to. "Over the last three years, we've had bank bailouts and heard about these sums we can't even comprehend," says Whannel. "The Olympics don't seem like the biggest spending issue we have."

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success, to be published in May. Follow him on Twitter: @rickjnewman.