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ON THE PULSE - THE LATEST INSIGHTS FROM THE OLYMPIC STUDIES CENTRE

the latest insight from
the olympic studies centre

OCTOBER 2018, NO. 40

3 QUESTIONS TO...


We speak to Holger Preuß, Professor of Sport Economics and Sport Sociology at the Johannes Gutenberg-University in Mainz (Germany) and  Prof. Wladimir Andreff, Emeritus Professor in Economics at the University Paris 1 Panthéon Sorbonne (France). Both professors have a researched and published extensively on the economy and costs of the Olympic Games. With the collaboration of Maike Weitzmann, PhD student at the University Johannes Gutenberg (Germany), they just finalised their latest study, in which they assess the development of expenditure and revenues of the Organising Committees of the Olympic Games (OCOG), which covers the operations of the event, and the investment for the main Olympic venues (non-OCOG budget) and compare them to the original estimates. They share with us some interesting insights into the objectives, challenges and main results of their study.


You recently finished a study on the cost and revenue overruns of the Olympic Games (2000-2018). Can you tell us more about the objectives and challenges of your study?
 

The costs associated with hosting the Olympic Games are a very complex subject, even for us as economists. The scale of attention and visibility, combined with the uniqueness of the task, have inevitably provoked many discussions about the costs and benefits of the Olympic Games and the importance of assessing them carefully. Part of this conversation has been a recurring focus on the cost overruns of the Games. 

The objective of our study was to investigate the cost but also the revenue overruns of the past 10 Olympic Games and to provide recommendations to the IOC, the host cities and public authorities on how to better control the costs for future bids and host cities. In our study, we assess the expenditures and revenues related to the organisation and hosting of the Games, i.e. the Organising Committees of the Olympic Games and the central and most important Olympic venues (non-OCOG budget), which usually represent public money. It was important to us as researchers to collect valid and robust data, make them comparable and find the reasons behind certain cost overruns.

For the Olympic Games, often more than 300 projects in different industries and communities need to be coordinated, regularly involving more than 50 different stakeholders. Three facts made this research project difficult. Firstly, many investments and revenues are from private industry and thus data were often not published. Secondly, many investments are financed by a consortium of (public) stakeholders, and so the data are difficult to obtain. Thirdly, the delineation of what is really (only) for the Olympic Games and what is just for city development but argued to be necessary for the Games is unclear. Thus in our study we show why attempts to come up with and compare overall capital costs for different Olympic Games editions are misleading.

This complexity explains why there are so many different references and sometimes contradictory figures published in the media, and why even some fellow researchers have failed to present figures in a comparable and contextualised manner. There are many public authorities and private investors involved, which makes it extremely difficult to find and compare fairly all project data from the candidature phase eight years before the Games (t-8) and right after the Games (t). If data are left out over the time of observation, cost overrun calculations will be based on a comparison of two different projects, i.e. we would not be comparing apples with apples for non-OCOG budgets, but rather apples with oranges. 
 

Could you please explain the distinction of different Olympic Games-related costs and the main outcomes of your study in more detail?
 

We must differentiate between three budgets:

1 - The expenditures and revenues of the OCOGs, because they are the centre of Olympic Games organisation.

2 - Olympic-related capital investments which are needed to stage the Olympic Games. These are typically sports venues and others, such as Broadcasting and Media Centres and the Olympic Village. Most of these investments (if needed) are typically financed by public money,

3 - Non-Olympic infrastructure projects (airports, metro, roads, urban parks), which are for the long-term benefit of the city and region and are not required for the organisation of the Games, but which are often mistakenly mixed into the Games-related costs. These projects have not been considered in our study, but they are often mentioned in media reports for their cost overruns.

The four main findings of our study are:

1 - For all 10 Games, we found that the costs of organising the Olympic Games (OCOG budget) are usually covered by the revenues, which are almost exclusively private resources plus the IOC contribution.

2 - The OCOGs usually significantly overrun on their expenditures during the first few years, but then all OCOGs managed to save during the last two years and finally balanced the budget or even made in a profit.

3 - All Games have underestimated their revenues and had revenue overruns. 

4 - The core Olympic capital investments considered in this study show cost overruns, but they are similar to cost overruns of other (non-sporting) mega-projects.

In general, our study reveals that it is (almost) impossible to evaluate all costs related to Olympic Games, as figures on privately funded investment are not publicly available. We overcame the challenge by building a core basket of the typically most expensive venues to provide a basis for comparison. The baskets were built around venues such as the Olympic stadium, Olympic Village, IBC/MPC, swimming pool, multipurpose hall and velodrome, for the evaluation of Summer Games, and ski jumping hill, sliding centre and ice stadium for the Winter Games, which typically represent the highest level of project size and complexity, and reflect with high probability the “performance” of the full basket. The complex interplay of forces linking project owners with the diverse powers of stakeholders that have conflicting interests can cause cost overruns.  


What is your recommendation to cities wanting to host the Games?
 

We like using the metaphor of a surfer riding the waves.  The Olympic Games bring a massive wave of energy to a city and its population. In order for a surfer to best ride the wave, he has to be in the water, ready and already moving in the right direction when the wave arrives and carries him. The same is valid for cities hosting the Games. The wave of positive energy that the Games bring to a city can be fully leveraged only if the city is already moving into the same direction the wave is going. 

If a city is not already in a development process or has contradicting plans, the energy of the Olympic Games cannot be leveraged in the same way. Then typically cities are left with structures that are not really needed. So, a city must plan from the very beginning how to use the energy to develop positive legacies.

This is why the IOC reform process of the Olympic Agenda 2020/New Norm is very promising. In the new dialogue phase of the Candidature Process, the IOC and the cities are openly discussing how the Games can fit the needs of the cities, and no longer trying to have the city meet standardised requirements of the IOC, as used to be the case.

Furthermore it’s important to remember that an event such as the Olympic Games brings financial injections into the local economy which would not be made without the event happening. These range from the spending of tourists who attend the Games to government funding, which would otherwise not be necessarily spent for the city or its population. The economic activity which is triggered by the Olympic Games is significant and must therefore be carefully evaluated and not just be put off as necessarily only negative. 

We hope that cities recognise this opportunity and that the IOC keeps being flexible. We are already seeing that the Olympic Agenda 2020/New Norm can dramatically reduce the costs associated with hosting the Games. In our report we also make 18 recommendations to the IOC, OCOGs, host cities and public authorities which would additionally help to avoid cost overruns and offer more realistic cost and revenue estimates in the bidding phase.

 

For further information, you can consult the following ressources:

Link to Executive Summary of the Study

Link to the New Norm – full report

Link to the video about the cost of the Games

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