Britain's Olympic Challenge

The come-from-behind victory over Paris to host the 2012 Games will prove to be easy compared with the job of making money on them

By Laura Cohn, Carol Matlack, and Rachel Tiplady

The jubilation in Trafalgar Square was of the sort usually reserved for England's national soccer team. But on July 6, when the International Olympic Committee rewarded London with the right to host the Games in 2012, the massive crowd at the historic site roared with excitement. Champagne corks popped, blue and red confetti filled the air, and people gathered beneath the massive TV screens dancing in celebration.

It's easy to forget that just over a year ago, Paris was the favorite and London's Olympic bid was looking shaky at best (see BW Online, 6/29/05, "The Olympics' Tale of Two Cities"). The American leading London's bid, Barbara Cassani, former chief executive of Go airlines, was abruptly replaced by Lord Sebastian Coe, a British Olympian. Questions about the reliability of the city's transportation system made victory seem like a long shot. And public support was limited.

Even Coe, a two-time gold medalist with movie-star good looks, concedes it was tough to convince the IOC that the city could overcome such concerns. "In the early days, it was hard pounding," he told reporters in Singapore, where the winner was announced. "But we had a bid we all believed in."


  But now that London has won the Games, will the economy win too? Hosting the Olympics isn't easy to swing financially. While the 1984 Games in Los Angeles turned a profit, Montreal, which held the 1976 Olympics, was saddled with debt for decades. Athens, which hosted last year's summer Games, also couldn't cover the cost of the event (see BW Online, 7/7/05, "For London, What Price Victory?").

In London's case, the British government has promised to hold down costs and use the Games to regenerate East London. Still, "the economic impact will be quite small," says Catherine Stanley, a portfolio manager at F&C Asset Management in London.

Sure, the Olympics will create some jobs, lead to construction, and draw tourists to the city. But according to an analysis by economist Paul Dales of Capital Economics, a London consultancy, the economic benefits won't be "worthy of a gold medal." Dales estimates that the Olympics will create 300,000 jobs worth $2.3 billion, just 0.1% of the country's annual output.

More broadly, he says the event will boost economic output by about $1.3 billion a year over the next 12 years, just 0.06% of gross domestic product. "It's a fantastic thing for the U.K.'s prestige, but it won't be an economic bonanza," Dales says. Even so, it's a good thing for British Prime Minister Tony Blair, a big supporter of the bid.


  For Paris, long the front-runner, losing the Games is a severe political blow to President Jacques Chirac, who got the bad news aboard his plane en route from Singapore back to France. Chirac had campaigned hard for the Paris bid and had hoped that a favorable decision would shore up his sagging popularity, which stands at only 21%, the lowest level of any French President in modern times.

Chirac was already struggling to recover after French voters on May 29 resoundingly defeated a proposed European Union constitution that he had supported. The Olympics setback only reinforces the impression that he's a lame duck, even though the French presidential election won't be held until the spring of 2007.

Chirac made things even worse for himself in recent days by sparring with Britain over EU budget issues and was overheard making disparaging remarks about British cuisine and agriculture, which even many French people thought were in bad taste. On July 3, the French daily Liberation reported Chirac as saying: "How can we trust a country with such dreadful cuisine? After Finland, it's the worst country in the world for food." The paper also reported him as saying: "The only thing [the British] have contributed to European agriculture is mad-cow" disease. British media outlets have already reacted angrily and are sure to have a field day at Chirac's expense.

Already, executives at French hotelier Accor are worried about the aftermath of Paris losing the bid. Alain Caudrelier, director of sponsoring for Accor, says the loss is "very hard to swallow right now." Caudrelier, in Singapore for the announcement, adds: "We were so enthusiastic about the Games and put our hearts into it. Now we have to digest this defeat and move on." London couldn't feel more different.

Cohn is a correspondent in BusinessWeek's London bureau, Matlack is Paris bureau chief, and Tiplady is a correspondent in Paris

Edited by Phil Mintz

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