Moody's sees short-term boost for UK Plc
The Olympic Games in London this summer will likely provide only a temporary boost to corporate earnings, credit ratings agency Moody's said on Tuesday.
Britain, which went back into recession at the start of 2012, has spent nine billion pounds ($14.6 billion) building the Olympics venues in east London and hopes the Games will be a catalyst to help revive the sluggish economy.
However, many commentators believe the Games glow will wear off quickly.
"Overall, we think that the Olympics are unlikely to provide a substantial boost to the UK economy and believe that the impact of infrastructure developments on UK GDP has probably already been felt," says Richard Morawetz, senior credit officer in Moody's Corporate Finance Group.
"We expect the net impact of the Olympics on UK tourism will be positive overall, but far less than gross visitor numbers would suggest," he added. The Olympics run from July 27-August 12.
For example, the benefits for the transport sector may not be clear-cut as lower-margin tourist travelers may displace business travelers during the Games, Moody's said.
The hotel sector will be a clear beneficiary and can expect some very positive revenue per room numbers during and around the events themselves. However, Moody's cautions that this could result in some weak year-on-year comparable results in 2013.
The construction sector may already be affected by a slowdown in projects as building work for the Games, which have regenerated a formerly rundown part of east London, is almost finished.Moody's expects that corporate sponsors will benefit most from the Games.
However, given the largely one-off impact of the Games on corporate profits, the rating agency does not expect that this alone will be enough to have a positive impact on ratings.The International Olympic Committee (IOC) has 11 partners who pay almost $1 billion for worldwide rights to market their products on the back of the Games over a four-year cycle. London has separately raised around 700 million pounds through one-off sponsorship deals for these Olympics.
While increased visitor numbers could boost sales of retail and consumer products, Moody's expects that any longer-term benefits will be mainly from increased visibility of the brands.
Advertising and marketing sectors would also benefit from the European soccer championships in June and the U.S. Presidential election in November.