Beijing, London, Rio: What the Games can do for the host nation

Neptune fund managers Douglas Turnbull, Mark Martin and Thomas Smith consider the Olympic Games of the past, present and future to find out the impact of hosting the biggest sporting event in the world.

Past – Beijing 2008

Beijing 2008 was significant in terms of a ‘coming of age’, China’s debutant ball, and Beijing in her finest was certainly the breathtaking belle. But when it comes to decision-making of a serious nature, the Chinese leadership are the arch gradualists, led both by a fear of destabilisation and love of consensus. So it is fairly unsurprising that for all the fireworks, the changes it precipitated were only skin deep, regardless of how welcome the improved roads and air quality were to both Beijingers and visitors. 

Officially the games cost $2.2bn to stage, a mere $600m over budget, but estimates add up to another $40bn on the infrastructural developments that accompanied. Yet this stands in contrast to the $1.73trn that has been spent on fixed asset investment nationally by China year to date in 2012.

The economic impact on a macro level would need a microscope to find! On a micro level, the positives are equally hard to find, lost as the individual impacts are amid the vast scale and growth of the markets in which most Chinese companies operate.

Indeed, negatives are almost easier to spot – sportswear companies like Li Ning, for instance, are in some cases only just recovering from the overloading of their underdeveloped inventory management systems.

It was a great moment of understandable national pride for China, but the scale of the economy and growth that it offers there makes a one-off event, however large, pale into insignificance.

This article continues….

Continued from previous page…

And that growth story is so powerful for the companies and so critical to the global economy that China’s rise would have continued to be front and centre of attention to investors and politicians alike across the globe, with or without the Olympic fanfare.

Present – London 2012

The London Olympics is projected to rank alongside Beijing, Barcelona and Montreal as the most expensive in history. The total London 2012 sports-related budget has increased by 101% from £4.2 bn in the 2005 bid to £8.4bn in real terms, according to research by the Saïd Business School.

The benefit of much of this expenditure, however, will already have been felt by construction companies. Looking forward, housebuilders appear to be the construction companies poised to benefit most from the upgrade in facilities and infrastructure at the Queen Elizabeth Olympic Park: as many as 5,000 new homes could be built in the area after the Olympics.

It is estimated that 500,000 extra people a day will descend on the UK capital and as a result there will undoubtedly be an impact on businesses. Companies exposed to London tourism, such as pub companies like Fuller Smith Turner and Greene King should benefit, especially if they have patriotic brands like Spitfire, London Pride and other UK drinks on tap.

Hotel companies exposed to London and the South should also benefit – Whitbread and Fuller Smith Turner [again] should profit from more people seeking London accommodation who are prepared to pay a premium price.

Also we should not forget support service companies like UK-listed Berendsen, which supplies linen to the catering and hotel trades, which could also see increased demand for its products.

Unfortunately, not all businesses will be as well positioned. For theatres and cinemas the month of the Olympiad and the recent Euro 2012 fixture means that cinema admissions are likely to be depressed.

Indeed cinema operators such as Cineworld have specifically structured their film release schedule this summer.  However, for all but the shortest-term investors, the beneficial impact of the Olympics on individual stocks will likely be muted.

This article continues….

Continued from previous page…

Given that the majority of any stock’s value is contained in earnings streams way into the future, the fundamental value of a company will be totally unaffected by a ‘pop’ in one quarter’s earnings.

Future – Rio de Janeiro 2016

The 2016 Games are of particular significance because although the Olympics were held in Mexico City in 1968, they have never been held in South America, giving further recognition of Brazil’s arrival on the world stage.

The total benefit for a country hosting the Games is difficult to quantify due to the many indirect investments alongside the direct investments in Olympic stadiums and infrastructure.

A study by the Brazilian Ministry of Sport in conjunction with the University of Sao Paulo estimates that $14.4bn will be invested in Olympic preparations ranging from stadiums, sports pitches and water sports venues to roads, subways and airports.

However, the study also claims that the preparations will generate a 4.26 production multiplier, which will inject $51.1bn into the Brazilian economy from 2009 to 2027 and create over 120,000 jobs annually.

This means that for every dollar invested in the organisation of the Olympic Games, private entities will invest an extra $3.26 in production chains related to the event.

The accelerated investment in projects such as airports and roads will help remove infrastructure bottlenecks and raise Brazil’s trend growth rate over the medium term.

Rio also stands to benefit from the preparations for the 2014 Football World Cup and having the Olympic-standard facilities built prior to hosting the Pan-American Games in 2007 which will be used in both the Olympics and Paralympics.

Rio was the 2016 candidate requiring the smallest investment in venue construction, allowing it to focus on the much needed infrastructure to transform the city.

Transportation is a priority with new highways being built to link the airport to key points in the city as well as an extension to the city’s subway. The sectors likely to benefit most include construction, real estate, oil and gas, transportation and communication.

A mega event such as this can be very positive for a country’s economy but this is not always the case. Following the 2000 Summer Olympics, Australia was still paying around $40m a year to maintain underutilised stadiums and facilities a decade later.

Related Posts

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

ISAs: your back-to-basics guide for 2018/19

Here’s everything you need to know to make the most of your unused ISA allowance ahead of the 5 April deadli...

A guide to Sharia savings accounts

A number of Sharia savings products have upped their game in recent months, beating more familiar competitors ...

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
US payrolls soar past expectations to ease recession fears

July US employment figures have come in well ahead of economists’ estimates, helping stave off fears of a new US...