Olympic organizers, hosts “treading a fine line between spin and outright lying” — Oxford study claims unethical behavior

Before countries take on an Olympic games, they need to know that whatever they think it will cost, it will cost more — lots more. Whatever you think it’s going to cost, double it. Nearly half (47%) of all the Olympics cost 100% more than what organizers originally estimated it would take.

In fact, the average cost overrun for all Olympic Games is 156% of budget. For the Summer Games, it’s even higher: 176%.

This comes from a study done by the Said Business School at the University of Oxford, which tracked budgets and actual costs over the past 50+ years. Its conclusion: All Games, without exception, have cost overruns. In this, the Olympics are alone compared to any other type of “megaproject.”

For other project types, typically 10–20 percent of projects come in on or under budget. For the Olympics it is zero percent. It is worth considering this point carefully. A budget is typically established as the maximum — or, alternatively, the expected — value to be spent on a project. — Study done by the Said Business School at the University of Oxford

The study concludes that the budget is more like a fictitious minimum that is consistently overspent.

“Unfortunately, Olympics officials and hosts often misinform about the costs and cost overruns of the Games,” the study concludes. It points to the 2012 Summer games in London. The bid was secured in 2005 with a cost estimate. Two years later, the estimate had to be revised… up 100%. Yes, it had to double the budget. “Then, when it turned out that the final outturn costs were slightly below the revised budget, the organizers falsely, but very publicly, claimed that the London Games had come in under budget (BBC 2013).”

Unethical, but very common

“Such deliberate misinformation of the public about cost and cost overrun treads a fine line between spin and outright lying. It is unethical, no doubt, but very common.” — Study done by the Said Business School at the University of Oxford

No other projects come close

No other major construction project has the kind of cost overruns that the Olympics has consistently shown. Road and infrastructure projects, which you more typically think of as running over budget and behind schedule, aren’t even in the ballpark.

The chart below summarizes the types of projects and the amount of cost overruns (in blue). The red lines are the percentage of times the projects are delivered later than scheduled. You can see the Olympics, with a hard deadline, HAS to be done on time — which plays a part in why it always goes over budget.

The opening date can’t be moved for the Olympics. For other projects, there’s often a trade-off between the cost of finishing the job on time and the schedule. The schedule may be moved to keep the costs done.

All that managers can do at the Olympics is throw more money at problems, which is what happens, the study said.

Still, the run up to the Games is about the same — or more — than most other major projects, albiet more difficult to manage. On average, host countries have 7 years to build out the necessary infrastructure.

Other key findings:

  • Average actual overrun cost for Summer Games is USD 5.2 billion (2015 level), and USD 3.1 billion for Winter Games.
  • The most costly Summer Games to date are London 2012 at USD 15 billion; the most costly Winter Games Sochi 2014 at USD 21.9 billion.
  • 47 percent of Games have cost overruns above 100 percent.
  • The largest cost overrun for Summer Games was found for Montreal 1976 at 720 percent, followed by Barcelona 1992 at 266 percent.
  • For Winter Games the largest cost overrun was 324 percent for Lake Placid 1980, followed by Sochi 2014 at 289 percent.

Rio 2016 doing better, but…

If there’s good news for organizers, the study reports the Rio 2016 Games, at a cost of USD 4.6 billion, appear to be on track to reverse the high expenditures of London 2012 and Sochi 2014 and deliver a Summer Games at the median cost for such Games.

Still, the cost overrun is expected to top 50% (about $1.6 billion dollars).

The high average cost overrun for the Games, combined with the existence of outliers, should be cause for caution for anyone considering hosting the Games, and especially small or fragile economies with little capacity to absorb escalating costs and related debts. — Study done by the Said Business School at the University of Oxford

Long term financial implications

The financial implications can impact countries for years to come. Montreal took 30 years to pay off the debt. The 1976 Summer Games overran budget by a whopping 720%.

The overruns in the 2004 games in Athens played a part in Greece’s financial woes, which continue to this day.

“Within days of the closing ceremony, Greece warned the euro area that its public debt and deficit figures would be worse than expected.” - Bloomberg

Read the full study here.

H/T FiveThirtyEight.com