London’s extreme Olympic makeover

FORTUNE — This summer will bring the most sponsored, most spent-on, most visited Olympics in human history. But the real story? A global city is set to re-brand itself.

London is expected to drop more than $40 billion dollars to host the world this August, and experts suggest the local economy will suffer a slight (about 2%) negative displacement of business as a result — in addition to a short-term net loss for economic impact.

“There’s a real divide now over whether these global cities should even host the Games — is there truly any impact for them, the Londons, the New Yorks, the Parises?” says NYU professor Constantine Kontokosta, who recently completed a report about the effect that hosting the Olympics has on a city’s housing market over the following eight years. “There’s a compelling argument, to me, that these smaller, developing cities should be the ones hosting.” In other words, not London.

So does the Old Smoke regret its bid? Not hardly. Sports marketing professor Bob Boland, another NYU academic, visited London last month to research the likely economic ramifications the Olympics will have. “I’ve never seen a country more realistic about what they’re going to get from this, less in denial,” he says. “They know the economic risks, but they all keep talking about the opportunity.”

Indeed, London’s opportunity here is to attract new companies, new residents, and change its image. The world sees London, with its mature economy and buttoned-up banking world, as a stodgy, unexciting place to live and do business. But the Olympic Games have incredible social power — this summer more than ever, thanks to the instantaneous nature of Twitter — and London will look to harness the hip factor.

You can already see the city preparing its appeal, in a sense; they’ve set up horse parades outside of Buckingham Palace and other events all over the city center meant to milk the many interstitial shots that audiences will see of London in the summertime. (And good timing: This will be the first Olympics shot entirely in HD.) “I found when I was there that they are even subtly shifting focus from the actual games themselves to the local events that show London,” Boland recalls. Unfortunately, the jury won’t be in on whether all of this worked for quite some time. It could take years to judge whether young professionals and big businesses, the groups that could most inject life back into London’s population, have their relocation appetites whetted by Olympic broadcast beauty shots.

For more on the London Summer Games, click on the links below

The (big) bucks behind the 2012 Olympics
Wall Street gets behind the games
Henry Kissinger: Scholar, statesman, Olympic fan
Will NBC’s investment pay off?
Rich Sport: U.S. Olympic swimmers float on cash
Poor Sport: When Olympic athletes have to moonlight
London locks down for the Olympics
BMW’s ultimate Olympic machine
13 steps to keeping the London Olympics safe
London’s extreme Olympic makeover

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