Holger Preuss notes

London Legacy 2020
BREAKFAST
Professor
Dr Holger
Preuss
THE ECONOMICS OF SECURING AN OLYMPIC LEGACY
We met Dr Professor Holger Preuss from Mainz University in Beijing. We thought what he had to say on
the economics of securing a lasting legacy should be heard by London legacy 2020 board members and our
friends. Here’s a digest of what he had to say this week at a breakfast, generously provided by UBS.
Holger looked at how much new
money comes into an economy as a
direct result of the Games. He noted
that the operational costs of the Games
are a given at around 2bn Euros. And
this money spent by the organising
committees (in our case LOCOG) is
always recouped from TV rights and
ticket sales. There has not been an
OCOG that has been in deficit on this
point.
This was true even of Montreal,
which has become a byword for
indebtedness post Games. In this case it
was that the infrastructure cost, rather
than the operating costs, fell on the city
and was not picked up by national or
regional government.
Turning to infrastructure costs
Holger noted that investment in the
stadia was almost always putting money
into facilities that are not needed post-
Games, and that this cost too was pretty
standard at around three to five billion
Euros.
However, this basic cost is never the
final cost of staging the Games, because
all host cities use the Games as a reason
to bring forward spending on major
infrastructure projects. Cities tend to
replace their infrastructure at around
1% per year, but Olympic host cities
tend to renew around 10% of
their infrastructure in one
intense burst.
He noted at least
two dynamics that also
push up the total budget,
sometimes by as much as
1,000%.
[1]
Olympic
spend has been
known to rise
by 1,000%
Looking ahead
Digest
At London Legacy 2020 we
are revising our
strategy in the light
of this and other
lessons learned from
Beijing

Top: Most construction for the
Games (as opposed to investment
in infrastructure) is a necessary
expense with little return. The IBC
could be the exception to the rule.
Middle: Holger Preuss with James
Graham and Bob Lentell in Beiing.
Bottom: The Olympic Green in
Beijing
The first is that the Games are used
by politicians and stakeholders to create
the momentum for major infrastructure
projects. In our case it might be
Crossrail or the DLR extension and
expansion, for example. In Athens it was
the Airport. In Beijing it was the
Airport, the ring-road, underground lines
and major environmental projects.
Pressure from the population to
host the Games, a lack of knowledge
about what precisely is required by
government, pressure from Organising
committees and local stakeholders all
add to the upward pressure on costs.
Holger made the point that this
infrastructure spend is not in the same
category as the three to five billion
Euros that are in effect, buying the one
off ability to host the Games. These
infrastructure investments have a much
longer depreciation and are often where
real benefit is derived from hosting the
Games by boosting the infrastructure
development of the city by ten years.
Holger then looked in
more detail at the drivers
of genuine legacy from
the Games.
He noted that
the injection of
money from tourism
and visitors to the
Games leaves no
noticeable impact two years
post Games. In Germany it was
estimated that the World Cup boosted
the German gross domestic product by
just 0.13%. The Games-time new money
leaves no impact.
The real benefit comes from:
• Change of location factors
• Signaling effect
Change of location factors are
these:
Changing the image of the host city
and nation. Holger noted that whilst
London is a well known global city, that
well known global brands have to
continue to promote themselves in a
highly competitive environment.
[2]
Paradoxically it is
only the additional
infrastructure spend that
secures a positive
legacy
Changing emotions: pride and a feel
good factor for people looking to live or
work in the host city.
Increasing know-how: not just in
terms of how to stage a major event, but
the knowledge gained by thousands of
volunteers, specialist knowledge in areas
such as security (for example Athens
worked alongside the FBI and renewed
their security infrastructure).
Developing networks: The Games
will attract world leaders into a nonpolitical
environment. Business leaders
can use the Games to broaden and
deepen their networks in a conducive
atmosphere. Sydney businesses built
relationships they are still exploiting
today.
Culture and sport: The Games bring
massive exposure of the host culture and
renew and deepens appreciation of the
cultural offer. Tourism boost in
Barcelona was not because people
wanted to wander through the old
Olympic Park, but because people had a
new view of Barcelona as a
cultural destination with a
beach. Barcelona spent
money developing
galleries and other
cultural assets and it
was these that now
attract tourists and
repeat visits.
Infrastructure: The visible
infrastructural changes, not only sport
but also DLR, stations, parks, …
Both Barcelona and Athens invested
heavily in these location factors.
This brought Holger to the nub of
the dilemma. These infrastructure and
location factors drive up costs of
Olympic projects, and yet they are the
investments that long term drive legacy
benefit. The Games are a catalyst and an
excuse that can justify this additional
spend.

The implication of this seemed to
be that strategically planned
infrastructure spend, whilst increasing
the headline budget, is key to capturing
benefit to a host city.
A strategy could be developed
around this legacy benefit by:
Close analysis of the likely knowhow
expertise and how to demonstrate
that London leads in the given field.
Post the gigantism of Beijing
London could be seen
perhaps as the
environmental
sustainability
world leader.
Consideration
of the image
projected by
the Games. The
experience of
visitors to the
Games, particularly in
We have been
suggesting that one of
the subliminal messages
from the 2012 Games is that
London is reinventing itself
as the city for a new
generation
terms of their welcome and experience
of the culture of London is key.
Emotions: What will it take to have
Londoner’s feel proud of London, and
what will be the emotional draw on
visitors?
Networks: How can London pick
up new, deeper political, business and
other networks?
What location factors will help
refresh and deepen London’s offer as a
destination for tourism, business
visitors and conferences, events and
fairs? (It is worth remembering that in
Paul Donovan’s original economic
impact report for London Legacy 2020
he stressed the potential particularly
for business volunteers.)
Holger made the point that Games
and the way they are staged has
signaling effects. That is to say they
carry subliminal signals about the host
city. The Chinese could have built a
budget stadium. By building the Bird’s
Nest, they sent messages to their own
population and to the world at all sorts
of levels. Whatever London does will
also send messages, and we would do
well to orchestrate these.
Holger returned to the factors that
drive up costs, noting unplanned
factors:
• The need to be more state of
the art than the last host City.
• Strikes, spikes in prices as the
deadline looms
• Forgotten infrastructure that
is suddenly thought of late on
• Stakeholders adding projects
•Currency fluctuations,
particularly around debt
Turning to the current
economic downturn,
Holger suggested that
this might work in
favour of London,
depressing construction
costs. He noted too that
infrastructure spend in a
downturn for a government is
cheaper than in a boom, and so
concentrating ten years spend into an
Olympic burst of energy makes financial
sense when viewed in the medium
term.
He also noted that in terms of the
know-how legacy, London could benefit
from Athens being perceived as poor,
and Beijing perceived as hard to deal
with. London expertise gained for
2012 could be current for winter and
summer Olympics in 2014, 2016 and
2018 as a consequence.
In questions following his
presentation, the point was made that
80% of tourists into the UK came from
just 30 nations. Holger reported that
Sydney had spent some ten million
Australian Dollars on a marketing
strategy that included preparing stories
for visiting journalists.
Holger noted the difficulty of
measuring the value of changed image
of a nation and the “front of mind”
factor that might influence purchasing
decisions, but note an example of the
success post Sydney of Australian
architects winning contracts.
For more: Peter Welton. 0207 068 6960. peter.welton@legacy2020.org
[3]
Implications for ELBA
Our instinct to continue to help our
strategic partners attract inward
investment seems to be in line with
this, but could perhaps be seen
differently. Perhaps our idea to
create New Generation London
House could aim to help foster new
networks – political, business, cultural
and educational.
Can we work together to identify the
key know-how factors that London
will want to sell post 2012? I am
guessing these could be the IBC/MPC
at the cutting edge of new digital
media, including business models that
will work for the small independent
producers (where we can anticipate
an explosion of creative activity given
the increasing accessibility of the
technology). What about
environmental sustainability and
science? Security might seem to be
another but is best dealt with
elsewhere. These thoughts suggest
we might want to use our company
networks to pull together the worlds
of science, sustainability and
education and additionally to sit
down with digital media companies
to think about what would make
London the home for new talent in
this industry.
What scope is there to use our plan
to create a “National Youth Theatre”
equivalent for the broadcast and new
digital media industry to create
content and build relationships that
will be useful to visiting
broadcasters, and help build links
between young Londoners and young
people around the world?
The volunteering and skills
development work of ELBA
companies again appears to fit well.
We are currently working up ideas
around volunteering opportunities
that will reinforce East London as a
destination and prepare a swathe of
company, youth and community
volunteers. Thames Water and EDF
have pioneered skills academies on
site and will develop under the Jobs
and Enterprise Board.
What about the potential market for
business visitors and their expo and
conference needs? As part of our
work to support the mooted visitor
centre at Bow, should we develop a
tour that highlights ExCeL and
Canary Wharf options? Is there a
way to create London’s much talkedabout
new conference centre in the
Olympic park?