in the Games the budget is more like a fictitious minimum that is consistently overspent.
–Flyvbjerg & Stewart
There’s one question to ask when it comes to hosting the Olympics in 2024: are they worth it? To address this question, we need to consider three factors: costs, benefits, and risks. The benefits don’t have to be monetary. There is nothing wrong with saying the Olympics at such-and- such-a-cost are worth it, even if some or all of the benefits are intangible. The costs, however, are almost all related to money. The risks, though necessarily hypothetical, have been what we’ve been talking about in other threads. As an opponent of the hosting the Olympics, I’ll let someone else make an argument for them. Instead, I’ll focus on the costs and risks, and some empirical research that suggests the Olympics are not worth hosting.
Bent Flyvbjerg and Allison Stewart of the Saïd Business School at Oxford University published a working paper called Olympic Proportions: Cost and Cost Overrun at the Olympics 1960-2012. Flyvbjerg and Stewart characterize the Olympics fall as a megaproject, a huge, complex, costly project such as the Big Dig. And due to the cost and complexity of the Olympics, it’s often difficult to account for the costs of the project. Data isn’t always collected or accurately reported. The authors have developed what they consider an improved method for counting the costs. They also confirm that the IOC requires bid documents to contain a guarantee that cost overruns will be backed by the city and government that hosts the games. Ironically, these documents ALWAYS UNDERSTATE THE COSTS.
As the authors state, “The Games overrun with 100 per cent consistency.” One reason for this seems to be the practice of ignoring the budgeting in the bid book (formally known as the Candidature File):
The Candidature File is a legally binding agreement, and as such represents the baseline from which future costs and cost overruns should be measured. However, this is rarely done; new budgets are developed after the bid has been awarded to the city, which are often substantially different to those presented at the bidding stages (Jennings, 2012). These new budgets are often used as new baselines, rendering measurement of cost overrun inconsistent and misleading.
In short, bid documents ALWAYS UNDERSTATE the costs of hosting the Olympics. Flyverg and Stewart omit indirect costs of hosting the Olympics such as infrastructure improvements, making their cost estimates conservative. Still the percentages of cost overruns are startling: “an average cost overrun in real terms of 179 per cent–and 324 per cent in nominal terms.” (It’s worth looking at the actual percentages for overruns since they vary quite a bit). An average cost overrun of 179%.
Boston 2024 sets the cost of hosting the Olympics at $4.7 billion. Thus the average (179%) overrun would be $8.4 billion. A 100% overrun would be $4.7 billion, hardly a radical estimate. A conservative 50% overrun would be $2.3 billion. The authors estimated a !00% overrun for the London Olympics.
We know the cost of the Olympics is high. We don’t know just how high they will be. No one knows. They will cost significantly more than the bid documents state. Because we don’t know the exact costs, we are in the area of risk. For how much would the Commonwealth be on the hook? We don’t know. We have $1.248 billion in our rainy day fund. Should we risk incurring this much debt? How much debt should we be willing to incur? We shouldn’t have a problem coming up with a number. Should we be willing to pay $1 billion for the Olympics? $2 billion? As far as I’m concerned, the risks outweigh the benefits. We have a $38 billion state budget, but as big as that sounds, it isn’t keeping up with our costs.
All megaprojects are risky. Most come in overbudget. The Olympics is a megaproject that always come in overbudget. As Flyverg and Stewart state, “The data thus 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.”