MSc in Major Programme Management
As Rio counts the cost of the Summer Olympics 2016, is it now time to look at new, more sustainable models for hosting the Games?
Whilst there were some issues and problems – empty seats at a number of venues and an investigation into illegal tickets sales – major fears of terrorism, the spread of the Zika virus and unfinished construction projects did not come to pass.
From an economic perspective however, the multibillion-dollar Games were held against a backdrop of a weak and failing public infrastructure. Brazil is facing its worst economic and political crisis since the 1930s and the state of Rio de Janeiro in particular has been hard hit by recession.
Unfortunately, the Paralympics are suffering from the struggling Brazilian economy and very poor ticket sales. It seems some venues will be closed and reductions made to workers, transport links and media centres. In addition, late payments of travel grants are threatening to exclude some teams from even being able to travel to Rio.
Like all previous Olympics, Summer and Winter, Rio 2016 came in over budget – by over half (51%). Whilst this is a lower budget overrun than numerous other Games, at $1.6 billion, it is a colossal overspend. Compared to other megaprojects such as roads, bridges, railways and dams, the Olympics have the largest average cost overrun, at 156%. They are the only megaproject, without exception, to always go over budget. Nearly half (47%) of all Games (1960 – 2016) have exceeded their budget by 100% – huge amounts of money, often in countries that can ill afford it. Athens 2004, for example, contributed to Greece’s economic problems and is still being played out a decade later. Montreal hosted the summer Games in 1976 and has only just finished paying off the debt.
Why do the Olympics never come in at or under budget? Whilst there are efforts to share knowledge amongst hosts, the Games are victim to an ‘eternal beginner’ syndrome. If you wanted to make it as difficult as possible to deliver a megaproject on budget, you would follow the Olympic formula. First, choose an owner and assemble a leadership team that has never delivered this type of project before. Second, base it in a location that has never seen or hosted such a project. Third, enforce a non-transparent and highly questionable bid process that encourages overbidding and places no responsibility for costs with the entity that decides who wins the bid. This unfortunately is the reality we see with the Games and why all of them go over budget.
Despite this, the hosting of the Games is still a huge prize to many. They can be very useful politically, raising the profile of a city, putting it at the centre of the world stage. Barcelona 1992 is often cited as a success in this regard (although the cost overrun was 266%). We are seeing a backlash however. A number of cities are declining to take part in the bidding process, with Boston, Stockholm, Munich and Krakow being high profile examples. The issue is one of spiralling cost and balancing it against other needs, such as healthcare and education that require large investments.
There are good examples of cities misrepresenting the costs or hiding what it costs to win the Games in the first place. In 2005, London secured the bid with a cost estimate that two years later proved inadequate and was revised upwards around 100%. When it was revealed that the final outturn costs were slightly below the revised budget, the organisers claimed that the Games were under budget. Such misinformation treads a fine line between spin and outright lying and is unethical in our view. More extremely, in Nagano 1992, it is claimed that accounts relating to hosting and paying first class airfares for Olympic Committee Members during the bidding process were deliberately burnt.
To produce more effective knowledge sharing between host cities, the IOC initiated the Olympic Games Knowledge Management Programme in the 1990s. It was first used in the lead up to the Sydney 2000 Summer Games. In our study, we have carried out a statistical comparison of the Games before 1999 and after 1999 to assess whether the programme has had any impact. Our conclusion is that there has been some success in reducing costs. Median cost overrun for pre-1999 Games was 166%, but this has been reduced to 51% for Games held after 1999. The IOC is well advised to ensure the programme is rigorously enforced and to not allow repetition of outlier cost overruns like that of the Winter Games in Sochi 2014, which exceeded budget by 289%. At $21.9 billion, it is the most expensive Games ever. A few more outliers like this and the positive effects of the Knowledge Management Programme will be gone.
The cost reductions achieved through the Knowledge Management Programme are good news if looked at squarely within the confines of the Olympic Games. However, when compared to other megaprojects and considering the billions of dollars over budget, there are still huge issues to fix. Can cities really justify the cost? Surely it is time to have a look at new, more sustainable models of hosting the Games.
Each Games lasts only two weeks and is over before you know it. Those two weeks require a massive investment in large-scale capital projects and infrastructure over a period of about eight years. Once the athletes have gone home, host cities are left with large stadia and facilities, many of which have been built specifically for the two weeks of the Games. At best, some continue to be used – the Olympic (now London) Stadium being a good example, now home to Premier League football club West Ham United as well other international sporting fixtures. However, there are numerous examples of buildings either not being fully utilised or at worst becoming derelict – many facilities from Athens 2004 are now in a sad state, overgrown and crumbling.
Three different models present themselves. The first is to award the Games to a host city twice in succession. This would still require a massive outlay, but the facilities would be used in a more sustainable way and it should reduce the overall cost and bring budget overrun down. The second model, a variant on the first, is to agree a group of cities, perhaps one on each continent, that take turns to host the Games. The third model, for the Summer Games at least, is to return the Olympics to where it all started – in Greece, hosting them there permanently. It would enable long term, sustainable investment and planning. Of course the issue with all of the above is political. The bid process pits city against city in a global competition, with an intense rivalry, and with the IOC holding an unregulated monopoly of the Games, making the final decision. However, as our study illustrates, hosting the Games is not always the gold medal it promises to be. Hosting can have a very detrimental economic effect that can last decades, long after the Olympic flame has been extinguished. Now it is surely time to think about how the Games are hosted, and how the IOC may be regulated, to avoid the multi-billion overspend that no one can really afford.
Professor Bent Flyvbjerg is co-author of The Oxford Olympics Study 2016: Cost and Cost Overrun at the Games