Saturday, July 28, 2012

The Cost of Hosting


From Wikipedia at:

The cost of the Olympic Games (Summer and Winter) have been studied by Oxford scholars Bent Flyvbjerg and Allison Stewart (Flyvbjerg, Bent and Allison Stewart, 2012, "Olympic Proportions: Cost and Cost Overrun at the Olympics 1960–2012," Working Paper, Saïd Business School, University of Oxford).    

They found that over the past 50 years the most costly Games have been:

·         London 2012 (USD14.8 billion);

·         Barcelona 1992 (USD11.4 billion); and

·         Montreal 1976 (USD6 billion).

Beijing 2008 may have been more costly or not; the Chinese authorities have not released the data that would allow verification of either position.  

Cost here includes only sports-related costs and thus does not include other public costs, such as road, rail, or airport infrastructure, or private costs, such as hotel upgrades or other business investments incurred in preparation of the Games, which are typically substantial but which vary drastically from city to city and are difficult to compare consistently. 

Flyvbjerg and Stewart further found that cost overrun is a persistent problem for the Olympic Games:

§  The Games overrun with 100% consistency. No other type of megaproject is this predictable regarding cost overrun. Other megaprojects – in construction, infrastructure, dams, ICT – are typically on budget from time to time, but not the Olympics.

§  With an average cost overrun in real terms of 179% – and 324% in nominal terms – overruns in the Games have historically been significantly larger than for other types of megaprojects.

§  The largest cost overruns have been incurred by:

o   Montreal 1976 (796%);

o   Barcelona 1992 (417%); and Lake Placid 1980 (321%),

all in real terms.

§  The data show that for a city and nation to decide to host the Olympic Games is to take on one of the most financially risky type of megaproject that exists, something that many cities and nations have learned to their peril. For example, cost overrun and debt from Athens 2004 substantially worsened Greece's financial and economic crises 2008–12. Montreal took 30 years to pay off the debt from the 1976 Games.  

Finally, Flyvbjerg and Stewart found that over the past decade, cost overrun for the Games has come down to more common levels for megaprojects. For the period 2000–2010 average cost overrun was 47%, whereas before that average overrun was 258%. However, London 2012 has reversed this trend with a cost overrun that, at 101% in real terms, is back in the three-digit territory. Going forward, the challenge for planners and managers of the Games will be to get cost overrun and costs back under control, and to reduce them further, conclude Flyvbjerg and Stewart.

From Business Strategy Review, Stuart Crainer: “Seven hurdles facing Olympic host cities”

The past three summer Olympics have left their host cities with major financial problems and unfulfilled dreams. The following is by no means a thorough review, but a few details will symbolise the sad risk/reward history of recent Olympic events when viewed through a pair of business and management glasses: 

  • Sydney 2000 According to news reports, it cost New South Wales (whose capital is Sydney) some £720 million to stage the Olympics. Sydney’s Olympic Park became a white elephant; in fact, plans to develop the site for residential and commercial use did not even emerge until 2005. The Olympic legacy appeared an afterthought rather than part of an overall Olympic strategy. It was hoped that the Olympics would generate new and higher levels of tourism in Sydney and beyond, but this didn’t happen. 

  • Athens 2004 While everyone knows that Greece today is facing huge economic problems, the financial picture wasn’t much better for those organising the Olympics more than seven years ago. According to reports, the event cost nearly $11 billion — twice what was planned. And the cost of all those infrastructure projects that required round-the-clock labour going right up to the start of the games isn’t included in that number. It is estimated that more than half of Athens’ Olympic sites are hardly used or empty.  It turned out that Athenians had little real desire to conquer kayaking, baseball or table tennis.  The facilities for these sports are among those decaying and forgotten. 

  • Beijing 2008 Originally, ‘The Bird’s Nest’ Stadium created a worldwide enthusiastic stir; but a year later, the only use for it was to hold a commemorative opera.  There are plans to make it into a shopping centre as its size is too big for just about anything else.  China’s great capitalist coming-out party was accompanied with a hefty price tag.  Architectural eye candy comes with a premium price.  The Beijing Games cost an estimated $43 billion — thought to be three times more than any other Olympics.

Coming attractions . . .

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