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Madrid 2020 Olympics: Does London 2012 Show The Games Can Help Business Win Or Lose?

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MADRID OLYMPICS
The logo for the city of Madrid's candidature for the 2020 Summer Olympic Games is pictured at the entrance of an exhibition on August 29, 2013 in Madrid. Madrid is bidding against Istanbul and Tokyo to host the 2020 Olympic and Paralympic Summer Games. The International Olympic Committee (IOC) will reveal the host city at the 125th IOC Session in Buenos Aires next September 7. AFP PHOTO / GERARD JULIEN (Photo credit should read GERARD JULIEN/AFP/Getty Images) | Getty

London’s Olympic Games ended more than a year ago to fireworks, applause and fanfare as mayor Boris Johnson handed the flag over to Rio de Janeiro, hosts of the next games in 2016.

With Rio 2016 on the horizon, Olympic officials will unveil on Saturday who'll get to host the 2020 Olympic Games, in a choice between Madrid, Istanbul and Tokyo.

Madrid’s Olympic bid has got the backing of sporting stars like Barcelona forward Lionel Messi, who said: "I think it would be good for sport to award Madrid the Games and I support their bid.”

But should Spanish people see winning the Olympics for 2020 as good for business?

With the number of people out of work in Spain falling by just 31 in August, Spain is feeling the economic squeeze. Some may wonder if a lavish festival of sport could set the economy racing again.

London’s Olympic Games paint a sharply mixed picture, as international firms like construction giant Balfour Beatty made millions as one of the Olympics' main contractors, while small firms were left in the shade.

A survey last year by market research firm BDRC Consultancy found that just 4% of Britain's small and medium sized firms managed to obtain Olympic contracts. The Olympic boost for firms outside of London looks even weaker.

The cost for holding the Olympic games for a project of its size will inevitably be over-budget, as London’s games ended up costing £8.9 billion, nearly four times the original £2.4 billion cost mooted when London won the bid in 2005. Meanwhile Madrid is offering to host the games for a "low-budget" rate of £3.2 billion.

“Nearly all academic economists who aren’t connected to the International Olympic Committee agree that the Olympics are extremely expensive events and that cities have almost no chance to make up those costs,” Victor Matheson, economics professor at Holy Cross University, Massachusetts, told the Huffington Post.

Government estimates suggest the Games brought in nearly £10 billion in economic benefit, with £2.5 billion in internal investment helping create 31,000 new jobs.

Much of the benefits will be felt in London, especially in the East London region where the stadium is located, as Europe's largest ski-slope will be built there and West Ham football club are set to take over the venue.

East London's urban regeneration is one of the few Olympic benefits that gets peddled by politicians. Former London Mayor Ken Livingstone admitted it was the only reason he bid for London to host the games in the first place.

"I bid for the Olympics because it's the only way to get the billions of pounds out of the Government to develop the East End - to clean the soil, put in the infrastructure and build the housing. It's exactly how I plotted it, to ensnare the Government to put money into an area it has neglected for 30 years." Livingstone said.

And Livingstone's plan worked perfectly, as his successor as Mayor, Boris Johnson has been able to boast that the Olympic Park will benefit from 11,000 new homes and 10,000 jobs as part of the urban regeneration.

However, thousands of the jobs were temporary jobs during the games, while other developments like the Westfield shopping centre was going to come to the area anyway, albeit more slowly.

“There is no way that it’s in your national interest to host the games, but it may be in your interest to bid for the games,” said Andrew Rose, professor at University of California, co-wrote a 2009 paper on the economic gains from hosting the Olympics.

Small firms outside of London and the South East struggled to feel the same Olympic boost, an awkward fact that Johnson would not be so keen to talk about.

Mike Cherry, from the UK’s Federation of Small Businesses, said: “Out in the regions, we found that the effect of the Olympic and Paralympics for small businesses didn't materialise as much as had been hoped. Some businesses certainly did benefit from the games with really good contracts, but for others it just didn't happen."

Not all of the Olympic contracts went to British business. Less than a tenth of London's Olympic merchandise was made in Britain, including Union-Jack emblazoned tea cups, toys and tea towels.

Even British firms that managed to win Olympic contracts saw limited benefit, with the FSB finding that just 55% of the firms they asked who won Olympic deals saw any growth. 95% of the firms said the Olympic effect failed to help them access new export markets, as firms focused on the domestic market.

One small retailer summed up the mood, saying: “It was the most fantastic sporting event I have ever been to and something I will never forget, but it was never going to be of much use to small businesses unless you had some unique connection.”

With Spaniards waiting to see if they'll get to host the 2020 Olympics, London shows that a lavish festival may liven up Madrid, but they shouldn't expect to feel the benefits in the rest of the country.

Additional Reporting By Eleazar David Melendez

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