If more than one applicant applies it goes to auction.
So supposing the winning bid is quite high...who gets this money?
Seems a nice little earner for Dot London Domains Limited (London Partners).
Money from nothing really!
The money goes to the .london registry of course (probably with some form of revenue share for the registrar(s) sending the bidders). The registry invested $185,000 in the application fee to ICANN, plus probably 1.5-2x as much again in setup costs and revenue guarantees, plus an unknown but likely similar/larger amount on advertising, marketing and campaigning for .london (they've lined up some big backers) so it's hardly "money from nothing" - I'd guesstimate they have well over $1 million invested in the extension at this point.
The beauty of the new GTLD process is that anyone was free to apply for an extension, and over 1,000 companies did. All you had to do was complete a (very rigorous) application/vetting process, hand over your $185,000 and wait to see if anyone else wanted to run the same extension. If it was "uncontested" and nobody raised any sustained objections to it, the extension was "yours" to run and profit from. If it was contested i.e. 2+ companies applied for the same extension, then it was time to fight it out (rev share deals, cash payments, swaps - I'll back out of this contention set if you back out of that one - etc.) until only one applicant remained. If the contention couldn't be resolved, then the extension itself went to auction, with some of the proceeds kept by ICANN and the rest shared by the losing bidders (i.e. the other applicants for that extension).
All the above does not preclude the fact that many/most of the new GTLD extensions are unnecessary and are unlikely to catch on with the "mass market" nor win significant mindshare.
Geo new GTLD may become the rare exceptions - .berlin has already clocked up an impressive number of registrations (given that we're talking about ONE city) and if those .berlin domains start to get used "in real life" it should continue to do well.
Similarly, I expect that .london may gain some traction - though whether it will dethrone .co.uk/.uk/.com even within the city limits is another matter entirely (my bet would be "no chance of that happening")