Before going deeper into the case of London, we should quickly dive back into the past. Historically, some editions were financial successes (Los Angeles 1984, Barcelona 1992 and Atlanta 1996) while others have experienced significant losses (Munich 1972, Montreal 1976 and Athens 2004).
 
Limited costs
For public finance, London 2012 will not be a huge weight compared to what have been done in the past. Indeed, the total cost of hosting the Games is estimated at 8.5 billion pounds (13.4 billion dollars), or 0.55% of annual GDP of the United Kingdom. For comparison, in 2008, according to the Beijing Olympic Research Center, the event had cost 42 billion dollars.
This cost does not seem to frighten the British: a year ago, a majority (54%) thought the Games would have a positive impact on their economy. What is it really?
 
Impact difficult to quantify
Hotels, restaurants and retail stores will surely know an increasing demand for a month thanks to visitors. However, this effect appears to be limited by two factors. First, the rest of the economic actors are likely to suffer from significant disruptions, inflicted by the Olympics. Then, some tourists, due to inconvenience of the event, will not travel to the capital of the United Kingdom.
In the longer term, the host of the competition may enable a new promotion of London in the world as a place of tourism, but also investment. Barcelona is a city that has particularly benefited from this exposure. Moreover, the infrastructure built can rehabilitate some abandoned neighborhoods.
Nevertheless, costs to absorb are enormous and it is difficult to see clearly, at least in principle. However, London has an advantage over previous host cities: the UK economy is not running at full speed. This is one reason why British ministers have stressed the possible Keynesian stimulus caused by the organization of the competition.
 
Rising property prices, myth or reality?
Several studies have been published on the subject in the recent decades and these have not always reached similar conclusions. The latest on the subject is that one of Dr. Hui Shan. By applying a precise methodology and various linear regressions to the case of Los Angeles (1984) and Atlanta (1996), Hui Shan concludes that the Olympics and property prices were positively correlated in both cities. House prices rose during the competition and in the following months.
Two arguments may support this view. On the one hand, the many facilities of all kinds (sports, transportation, etc.) value the host city. As previously stated, many districts see an opportunity to be given a makeover. On the other hand, the inflow of tourists forced to increase the hosting capacity, putting upward pressure on demand and housing prices.
Anyway, we should put this relationship into perspective because each city has its own characteristics. In a sluggish economy, where the London real estate is not at its best, the Olympics could allow a recovery. At the same time, the construction industry may be declining in the shorter term because of the completion of major renovations.
 
An outperforming market
Investments for the Olympic Games offer higher potential benefits for industries in the host region. The question is whether these positive signals can affect the performance of the local index.
According to the latest Goldman Sachs research on the subject, there is a positive relationship following the event. Indeed, for the last 6 editions (Seoul, Barcelona, ​​Atlanta, Sydney, Athens and Beijing), local index outperformed the MSCI World Index in the 12 months following the competition. For example, between October 2000 and October 2001, the Australian index has achieved in average per month a performance 1.9% superior to its benchmark. This relationship is particularly interesting that these economies have not the same size, or are not at the same stage of development.
Another highlight noted in this study: "the Olympics may be a rather simple tool to pick long-term ‘winners’ in the FX market with good long-term appreciation potential." Although analysis did not reveal a direct causal link between the hosting of the competition and the performance of local currency, the study shows that the currency generally appreciated in the four years preceding the event.

In light blue: the performance of the local index from announcement date of the Olympic Games to opening ceremony.
In dark blue: the performance of the local index in the year following the competition.


Thus, even if the British cannot yet know whether to enjoy or not the Olympic Games, international investors may try to take advantage of the analysis above-written.
Since the beginning of the year, FTSE 100 performance was neutral and the UK index underperformed the MSCI World Index. If the relationship were confirmed again, the competition could allow FTSE 100 to be on the podium and win gold !


Sources:
« Olympic Games Impact Study – London 2012 – Pre-Game Report », UEL
« One year to go - Business and economic impact of the London 2012 Olympic Games », PwC
 « The Olympics and Economics 2012 », Goldman Sachs
« London 2012 Olympics Provide a Short-term Boost, But No Gold Medal for Corporates », Moody’s