Behind all the hype Olympic Games are financial disasters, according to a study from Oxford University's Saïd Business School. Nearly half of all Games exceed their budget by more than 100 per cent, and this year's is faring no better. 

 Saïd Business School Saïd Business School research sheds light on why Olympic Games always go over budget, including this year's in Rio de Janeiro  

By Olivia Gordon     

The Rio Olympic Games this year have already incurred a massive cost overrun of $1.6 billion, the Saïd Business School study reports, and the consequences for the local population are already taking effect.

‘The timing couldn't be worse for Brazil,’ says Prof. Bent Flyvbjerg, the lead researcher. ‘They are having their worst economic crisis in a hundred years right now, and the last thing Brazil needs is the billion-dollar cost overrun from the Olympics. In Rio, the money is being taken from health and social services, resulting in social unrest - the general population think the Olympics are a bad idea and Rio de Janeiro has had to implement a state of financial emergency to fund them.’ 

Professor Bent FlyvbjergBent Flyvbjerg is Professor of Major Programme Management at the Saïd Business School  

Prof. Flyvbjerg, an expert in megaprojects like high-speed railways and hydroelectric dams as well as the Olympics, warns that Rio is not an isolated case.

His research also sheds light on why Olympic Games always go over budgetHe and his team started studying the cost of hosting the Olympics just before London’s turn in 2012 and have been surprised by their findings. 

The research found that every single Olympics they studied - from 1960 until today - went over budget. And of all megaprojects, the Olympic Games have the highest cost overruns in the world. On average each Olympic Games exceeded its budget by 156 per cent, not including inflation. By contrast, much-debated high-speed railways’ typical cost overruns are only 45 per cent. 

Why do the Games attract overspending - should we blame governmental incompetence? Not necessarily, says Prof. Flyvbjerg. Instead, the problems are inherent in the structure of the modern-day Olympics. 

One issue, he explains, is that ‘with most megaprojects you can always put the date into the future if things are not going to plan; there’s a trade off between schedule and costs. That does not exist for the Olympics; you just have to pay whatever it takes to be finished by opening day. The only thing you can do once you have problems with the plan is to throw more money at the project. It's like writing a blank cheque.’The billion-dollar-plus cost overrun on the Rio Games comes at a time when Brazil can ill afford it, given that it’s facing its worst economic and political crisis since the 1930sThe billion-dollar-plus cost overrun on the Rio Games comes at a time when Brazil can ill-afford it, during its worst economic and political crisis since the 1930s

Another problem is the venue changing year by year. ‘You're giving it to a city and a country that has never put on the Olympics before, or it’s been so long since they did it last that nobody has the skills anymore,’ says Flyvbjerg. ‘So you have the “eternal beginners syndrome” where every host nation is inexperienced, which drives up costs.’

A third reason is political. ‘In order to get budgets approved in parliament and by city councils, you don't want the games to look too expensive, so there might be an incentive to underestimate the cost at the outset, just to get the budget approved. Of course then there will be cost overruns later when realism hits the project,’ says Prof. Flyvbjerg.

The hype could not be more different from the financial reality, he claims, including in London’s case. After London 2012, the organisers patted themselves on the back for keeping within budget. It was a cover-up, says Flyvbjerg. ‘London tried to spin public opinion about the budget. A couple of years after they won the bid they re-baselined the budget and doubled it. Then, when it turned out that the final costs were slightly below the revised budget, the organisers falsely, but very publicly, claimed that the London Games had come in under budget. It may not be outright lying but it's close, and definitely a gross example of political spin. The oldest trick in the book is to make it look like you came in on budget by choosing a later budget - because the budget becomes more and more accurate as you approach the opening date. The media bought this, and it became a general impression that London was delivered on budget. It’s totally false; the cost overrun was 76 per cent.’ 

Lack of economic foresight can play a part, too, it seems. There’s a long lead time - a decade - between when you decide to bid for the Olympics and when you actually host it, but, stresses Prof. Flyvbjerg, economic cycles are 7-10 years: ‘so if you have a booming optimistic economy like Brazil did when it bid for the Olympics, by the time you get to opening date - now - often the economy is in the doldrums and this is exactly what has happened in Brazil. The situation today couldn't be more different from when they made the bid.’His research also sheds light on why Olympic Games always go over budgetThe Saïd Business School where Professor Flyvbjerg undertook The Oxford Olympics Study 2016

The effects on local and national economies can be catastrophic. ‘Greece got into financial problems in 2007 partially because of the debt they incurred with the Olympics in 2004 - not a lot of people are aware of this,’ says Prof. Flyvbjerg. ‘When the financial crisis hit Greece it was already weakened by cost overruns from the Olympics and it made the economy more fragile than it would have been otherwise. We see the same thing in Rio.’

The study’s findings, first reported in a working paper at the time of London 2012 but not yet formally published in a journal, have already had an impact on cities’ decisions about whether to host the Olympics, says Prof. Flyvbjerg. ‘It’s been the first time cities could have an idea of what the real costs and financial risks would be of putting on the Olympics. Boston used our numbers to decide not to put on the Olympics, and so did Hamburg, Oslo, Stockholm, Kraków and Davos. The IOC is concerned about this and they would probably have to focus more on reducing costs and cost overrun to get more cities in developed nations interested again’

Davis Tarwater completed a MSc in Latin American Studies at St Antony's College in 2010. At the 2012 Summer Olympics in London, Tarwater won a gold medal for his contributions in the heats of the 4_200-metre freestyle relay. He celebrated his Olympic succDavis Tarwater (St Antony's College, 2010) won a gold medal at the 2012 Olympics in London. He is pictured here at the Oxford University swimming pool on Iffley Road

So how can you have an economically healthy Olympics? Prof. Flyvbjerg says the answer is to hold the Olympics in one venue year after year so the expensive infrastructure and organisational experience stop being wasted. ‘There are the most incredible examples of stadia overgrown with weeds,’ he reflects. After all, the ancient Olympics were run for several hundred years in Olympia, Greece.

A Department for Culture, Media and Sport spokesperson says: ‘Any suggestion there was a lack of transparency surrounding the public sector funding package for London 2012 is nonsense. The Government has always been clear about the movement in the budget, and published quarterly financial reports in the run up to and after the Games.

‘London 2012 has provided a strong legacy. More than £14 billion has been generated for the economy through trade and investment as a result of the Games, homes and jobs have been created following the regeneration of a part of East London, and 1.75 million more people are playing sport once a week than when the bid to stage the Games was won in 2005.’

 

Images: Oxford University Images

Comments

By Michael Levi
on

This study is interesting and valuable. However it leaves out the perspective that the Games are a massive opportunity for rent-seeking by IOC members and their associates, politically connected contractors and largely underground political finance. These, not just political vanity, are the true drivers of the spread of Olympics Games. Until new places stop bidding or advertisers stop paying, what motivation does the IOC have for stopping this global waste?

By timothy keates
on

In Italy, where I live, it is rumoured that a bid for the 2024 Olympics is in the making. Mouths are already watering at the contracts to be signed, with all the mafia-type organisations ready to take their cuts. As if the lesson of the 1990 World Soccer Tournament had not been learnt! And this in a country that is predicted to go the way of Greece. One can only wring one's hands and hope that some sort of common sense will prevail. Thanks for this article — and copy, please, to Prime Minister Matteo Renzi.

By Andrew Smith
on

A good article. Projects do invariably go over budget but I hope that some of the overrun was routed into the local / national economy. Also I expect the Brazilian tourist industry and related sectors will be seeing the benefits in years to come, both human and economic. Has there been any learned study performed on post Olympic benefits either qualitative or quantitative?

By Andrew Smith
on

A good article. Projects do invariably go over budget but I hope that some of the overrun was routed into the local / national economy. Also I expect the Brazilian tourist industry and related sectors will be seeing the benefits in years to come, both human and economic. Has there been any learned study performed on post Olympic benefits either qualitative or quantitative?

By Olympic Budgeter
on

As someone who had the privilege of formulating the budget during the bid for London 2012, I have an intimate understanding of this subject. Unfortunately, a lot of discussion in the media about Olympic budgets wilfully misrepresents them. Newspapers wanting to be negative and report cost overruns, rarely compare like for like as the project progresses. Capital budgets and operating budgets are bundled together, or not, as the reporter wishes. Other costs like railway lines may find themselves in the "revised" headline figures as "evidence" of a ballooning budget. One significant and underreported factor is that the IOC, sensibly, require cities to prepare the original bid budget at current costs. After 8 years of modest inflation to when the Games are actually held, the final outturn cost will appear to be nearly 30% more just from that. Flyvbjerg may have accounted for this, but the media certainly do not. Another aspect to consider is that when the budget is formulated during the bid, it is a costing based on estimates from what happened in previous Olympics, adapted for the particular city that is bidding. It is not a prescription for what the organising committee must do. When the organising committee get around to actually putting the Games together, they may have a different vision of what they actually want. Whilst many fundamental elements will remain, the decision to, say, build an iconic (and expensive) aquatic centre rests with an entirely separate body of people to those that budgeted for a run-of-the-mill version all those years previously. This also highlights another point: the funding package and the budget are not the same thing, and care should be taken in trying to equate the two.

Add new comment