Why are the Olympics always over budget?

London’s current budget is nearly four times higher than initial estimates. And it could be even higher than advertised.

 
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(Photo: Jae Hong/AP)

When London submitted its bid for the Olympics in 2005, its organizing team cited a budget of £2.4 billion. Soon after winning hosting rights, London’s budget swelled to £9.3 billion, which led the unsuccessful Paris 2012 team to criticize the victors for making “promises not linked to reality.”

But as it turns out, Olympics organizers have never made realistic promises. Consider the previous two hosts of the Summer Olympics, Beijing and Athens. Both cities presented US$1.6-billion budgets to the International Olympic Committee. In the end, Athens’ budget was estimated between $10 billion and $15 billion, while Beijing’s expenses totalled $40 billion.

And the trend goes back decades. A recent working paper from the University of Oxford says that every Olympic Games from the past 50 years has gone over budget—and not by slim margins. Each overshot its initial budget by an average of 179%.

So why are the Olympics always way over budget?

It starts with the lengthy bidding process, says Andrew Zimbalist, an economics professor at Smith College in Massachusetts. In a piece published yesterday on TheAtlantic.com, Zimbalist explains how organizing committees compete nationally before bidding against international entries. “As the bidding proceeds,” he writes, “the plans become more and more detailed, spectacular, and expensive.” And inevitably, Zimbalist says, making good on those plans proves even more costly than expected.

In London’s case, Olympic organizers expected a higher level of private sector investment. For instance, Olympic Village—perhaps the centrepiece of their east London regeneration plan—was initially going to be financed by Australian developer Lend Lease. After the financial downturn, Lend Lease pulled out and suddenly taxpayers were on the hook for the building’s £1.1-billion bill.

Another expense that organizers frequently underestimate is that of security. In Vancouver, the initial security estimate for the 2010 Olympics was $175 million. The final tally was about $900 million. That pales next to Beijing, whose organizers reportedly spent US$6.5 billion on security, a figure roughly four times greater than the initial estimate for the entire Games.

London’s security expenses won’t be nearly as extreme as Beijing’s. But once again, those costs are multiplying.

Initially, organizers planned on needing 10,000 security personnel for the Games at a cost of £143 million. Now, more than 30,000 security employees are being used, including police, military troops and private security. Critics have derided the measures as excessive, given that surface-to-air missiles, Royal Navy vessels and spy planes are at the ready. And during late July and early August, more British troops will be stationed at the London Olympics than in Afghanistan. All this comes at a cost exceeding £1 billion.

Part of the problem might be inexperienced organizing teams. In the press release for the Oxford study, one of its researchers, Allison Stewart, makes an interesting point: “Unlike other major programmes such as bridges, airports, IT or engineering works, the Games are always a unique undertaking to that city. Of the thousands of people engaged to work on the programme, few of them will ever have been on a Games committee in the past.”

Meanwhile, some watchdogs believe London’s updated budget is overly optimistic. “The Funding Package of £9.3 billion allocated to the Olympics does not cover the totality of the costs to the public purse of delivering the Games and their legacy, which are already heading for around £11 billion,” said the U.K. government’s public accounts committee. Its report derived the updated figure from certain omitted costs, like £766 million used to purchase Olympic Park. An investigation from Sky Sports took public transit upgrades into account and pegged the budget as high as £24 billion.

And yet London’s organizers recently said the Olympics will be delivered under budget—that is, under a debatable £9.3-billion budget that’s nearly four times higher than its earliest estimate. As always, Olympic budgets can be spun to the public in numerous ways, but one thing is certain: they always cost more than planned.

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