Plotting the Profits of the Olympics

Article, Post Magazine OnlineJune 2012

Insurance / Property

While insurers may see an increase in companies taking additional cover during the games, increased profits for leisure businesses are far less certain. Justin Crick, partner and Joe Aldous, Director at RGL Forensics, discuss the factors to consider.

You can almost hear it. The light chafing of shopkeepers and hoteliers rubbing their hands together with glee, contemplating the riches that await this summer. "The Olympics are coming and we're gonna be rich," is the cry.

You only have to look at the Diamond Jubilee weekend for proof. A marvellous example of how the purchase of flags, bunting, Union Jack festooned memorabilia and, as it turned out, umbrellas and hot cocoa, suddenly become a necessity for hundreds of thousands of people throughout the country.

Undoubtedly there is a great deal of money to be made from the Olympics. You only have to consider the anticipated visitor numbers and substantial investment contributed by the sponsors to appreciate that it is big business.

However, as with most things in life, there will be winners and losers and, just because the Olympics are taking place, it does not necessarily mean that everyone's profits will be higher and failing businesses will become successful.

As forensic accountants specialising in business interruption claims, we have to take account of the external factors that influence the sales of a business when trying to quantify its loss of profit following a disaster.

The Olympics will certainly be an important factor, but it must be borne in mind that it will not be the only one and its influence may be good and bad.

Sales may well improve, but the issue is to what extent, as often the reality does not live up to the expectation.

Taking hotels as an example, expected performance, even in central London during the Olympics, is far from assured. It is worth remembering that their performance during the 2011 Royal Wedding was not as positive as expected.

In the case of the Royal Wedding, it was concluded that rooms were over-priced which had an impact on occupancy and hence revenue

The Olympics is just another external factor to consider. To do so you could look at the past experience of other host cities. However, this is something of a mixed bag.

There are a number of reasons why the Olympics may not necessarily guarantee an increase in revenue. For example, even though leisure visitor numbers are likely to increase, corporate business travellers are likely to decrease as meetings are avoided during the Olympics.

This may compound the effect on revenue as corporate customers tend to be less price sensitive than leisure customers.

Also, regular customers may be put off by the higher prices, or the perception of higher prices, or fears of terrorism and transport chaos.

It is also worth noting that the main Olympics takes place over a period of only 19 days which represents just 5% of the year. Therefore, even a strong period of trading is unlikely to make a material difference in the context of a trading year.

 

As appeared on Post Magazine Online, June 2012.

 

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