New University of Oxford research reveals the causes of the consistently spiralling cost overruns associated with the Olympic Games and proposes that cities avoid hosting them altogether.
The authors’ findings and proposed strategies to reduce costs come as Tokyo wrestles with the impact of postponing its event to 2021, which could make the most expensive Games yet.
Previous research by lead author Bent Flyvbjerg, professor of major programme management at Saïd Business School, has established that all Olympic Games experience significant cost overrun, averaging 172% over budget.
The authors, Professor Flyvbjerg and Dr Alexander Budzier, set out the reasons why hosting the Olympics is so problematic, detailing the flaws of a megaproject like no other.
For hosts, there is no option to reverse their decision, no chance to save on costs by trading off budget against schedule and a legal obligation to cover all costs. Meanwhile, the International Olympic Committee (IOC) incurs no costs itself, no matter how much the project may overrun.
Our data show that the expenses of hosting the Olympics are ever increasing; we are now seeing costs of double-digit billions
The authors also uncover a startling finding: rather than a ‘regression to the mean’ in Olympic cost overruns over time, there is what they term a ‘regression to the tail’ – with overruns for individual Games so variable that the possible outcomes for host nations stretch into infinity.
‘Deep disasters such as earthquakes, tsunamis, pandemics, and wars tend to follow this type of distribution,’ the authors state.
Professor Flyvbjerg said: ‘After Beijing, which came in just over budget, many Olympic supporters liked to see cost overruns as a thing of the past: we show that this is not true. Our data show that the expenses of hosting the Olympics are ever increasing; we are now seeing costs of double-digit billions.
‘The IOC’s Agenda 2020 claims to have identified $1bn-2bn in cost savings for each Games; our data show that this is hardly a drop in the ocean.
‘The idea that learning from previous games (the Olympic Games Knowledge Management Programme), which started with Sydney 2000, would remove the pain from hosting is thoroughly disproven. In this sense the programme must be seen as a failure.’
The authors propose six solutions to save future Olympic hosts from cost overruns:
- Hosts and the IOC must understand the true risks of hosting the Games
- Larger and more realistic cost contingencies should be established
- The IOC should have ‘skin in the game’ when it comes to cost, minimum 10%, preferably more
- The seven-year delivery cycle of the Games should be shortened to reduce risk
- Semi-permanent host locations should be considered, or, alternatively, two successive Games should be given to the same host, so facilities could be used twice.
Their sixth recommendation is for cities to simply avoid hosting the Games in the first place.
The authors say: ‘The high average cost overrun for the Games, combined with the existence of extreme values, should be cause for caution for anyone considering hosting the Games. Such overrun may have fiscal implications for host cities for decades to come.’
Read ‘Regression to the Tail: Why the Olympics Blow Up’ in SSRN.