Olympics, most risky megaproject

Rio de Janerio: It will be no exaggeration to say that there is no love lost between the ordinary Brazilians and the government over the hosting of the Games. “The Brazilian economy is sliding and there is virtually no government and why we are having such extravaganza is difficult to understand,” said Marcos Xavier, who is a university teacher. But when told that Olympics were awarded to Brazil way back in 2010 when economy was booming, Xavier shot back “try telling this to common man on the street” Adding to the woes of Organizing Committee and the Brazilian Government is the study released by Emerging Technology from the arXiv of prestigious MIT, which says that when the Rio Olympics kicks off, the Brazilian government would have spent over $4.5 billion on new stadiums, an Olympic village, international broadcast and media centers, transportation, administration, the workforce, and so on. The expenses, according to the report, are significantly more than what was planned when the games were awarded to Rio The cost overrun is probably around 50 per cent, but nobody can be certain until after the games end. Whatever the final figure, it is set to break the original budget by a substantial margin. In a damning indictment of the games, the report says, Olympic Games are well known for their breathtaking cost overruns. But, are they any more profligate than other megaprojects such as the construction of new bridges, railway lines, freeways, power stations, and IT projects? Nobody knows because there has never been an independent large-scale study of the costs and cost overruns associated with the Olympics. According to the researchers, the cost overruns at the Olympics average 156 per cent, dwarfing the overruns at every other kind of megaproject. “It means that for more than a third of the games between 1960 and 2016, no one seems to know what the cost overrun was.” The report said, what it has found out only includes the costs of staging the games, such as for transportation, workforce administration, security, catering, medal ceremonies, and so on. But they do not include indirect capital costs, such as the money spent on upgrading the local transport infrastructure, which at many games added up to more than the other costs put together. The research makes some interesting reading. It says that the most expensive Summer Olympic games in history was London 2012, which cost $15 billion and overran its original budget by a margin of 76 per cent. London secured the bid in 2005 with a budget estimate that proved inadequate just two years later and was revised upwards by 100 per cent. The cheapest Summer Games were held in Tokyo in 1964, for a total of only $280 million, and the cheapest Winter Games were in the same year in Innsbruck for just $22 million. Winter games are much cheaper than Summer Games, costing on an average $3.1 billion versus $5.2 billion. However, the Winter Games in Sochi 2014 were exception costing $21.9 billion to make them the most expensive games in history and significantly increasing the average cost of the Winter Games. “All games, without exception, have cost overruns. The average cost overrun for Olympic Games is 156 per cent.” The games with the biggest overrun was Montreal 1976, which overspent by a whopping 720 per cent and took the city 30 years to repay. This is followed by the Winter Games in Lake Placid 1980, which had a 324 per cent cost overrun, Sochi at 289 per cent, and Barcelona at 266 per cent. Curiously, the smallest cost overrun was for Beijing 2008, which was only 2 per cent over budget. “The reported costs are therefore deemed adequate for hosting the Beijing games, and we have seen no direct evidence that the official numbers have been manipulated,” the report said. The report compared cost overruns from the Olympics with those from other megaprojects. The average cost overrun for major transportation projects is 20 per cent for roads, 34 per cent for large bridges, and 45 per cent for rail projects. There is an average 90 per cent cost overrun for dams and 107 per cent overrun for IT projects. So why do the Olympics overspend by so much more? The main reason is  the fixed deadline of a games, which cannot be moved even if there are serious problems. “All that managers can do at the Olympics is throw more money at problems, which is what happens.” In other words, Olympic Games effectively require a blank check. Rio will have an overrun of about 51 per cent and is similar to the average in terms of total cost and cost per athlete. That will be a worry for cities and governments intending to make future bids for the games. The report had ominous warning. “For a city and nation to decide to stage the Olympic games is to decide to take on one of the most costly and financially most risky type of megaproject that exists, something that many cities and nations have learned to their peril.”