By: David A. Smith
[Continued from last week’s Part 1.]
In Part 1 (remember it?) of this multi-part post, we started from the observed fact that every Olympic Games has run over its budget, with the typical games costing its host city 2½ times the original projections, which invited the logical question (about which you have no doubt been on tenterhooks) – why would anybody want to host an Olympic Games?
Quasi-important editorial update
As eagled-eyed or at least not entirely somnolent readers will have noticed, I’ve been unable to maintain the one-post-per-business-day regimen that served me so well for a decade. While I expect to return to it, the last few weeks’ workload has been so high it’s imprudent to make such a pledge to take effect immediately, so for the month of September I’ll post three or four times a week (skipping either Tue-Thu or just Wed), and thus giving readers a regular publication schedule to which to look forward.
– Your obedient blogger
The reason is easy: Those making the commitment are spending ‘future money’ on ‘present visibility, and that is the catnip of our financial id.
A huge stadium – millions of people –tons o’ catnip
2. Sponsors’ egos write checks their budgets can’t cash
For a municipality, hosting a major sporting event is well-nigh irresistible: not only do you draw in tens of thousands of excitable money-toting fans, you also showcase your city for a global audience. (That few of them will ever visit your city seems not to enter into the organizers’ fantasies.) That’s the argument for recruiting a visible team in a league – the Rams (back) to Los Angeles, for instance, or the former Seattle Supersonics to Oklahoma City.
Same person, different laundry
Yet the political lure of these leagues eventually wears off, becoming taken for granted: it’s always the same rota, the same fans, and the same sense of letdown that barely has the new stadium been paid off when the fickle team is agitating for another one, either in your city or elsewhere.
What about a truly global event? Unfortunately for the would-be emergent global city, many of these have fixed locations of decades’ standing. The FA Cup final is always at Wembley; Wimbledon is always held at, well, Wimbledon.
There’s only one Wimbledon
If you want in to the club of mononym cities, you have to pay an initiation fee of hosting a global event – the World Cup (by far the best), the Olympics, or in a pinch the Commonwealth Games. And since these events come around only every few years (usually four), if you decide to bid, you really want to win the bid. So you promise, and promise, and promise some more. FIFA or the IOC just demur, smile vacantly, explain that some things are mandatory, and play on your aspirational-city (or aspirational-politician) neurosis.
Sources used in this post
Want the Olympics? I can get it for you
Eventually you sign, in what might as well be blood – other people’s of course, not yours! – because it’s as binding:
The Candidature File is a legally binding agreement, which states to citizens, decision makers, and the IOC how much it will cost to host the Games.
Actually – and this is a surprising imprecision from technically sound authors – the cost isn’t binding; rather, the agreement states what the candidate city will do, and estimates a minimum expenditure to fulfill against that set of obligations.
As such the Candidature File represents the baseline from which future cost and cost overrun should be measured. If cost overruns later turn out to be zero, then decision makers [Meaning those who authorized the city executive to sign – Ed.] made a well-informed decision in the sense that what they were told the Games would cost is what they actually cost, so they had the correct information to make their decision.
Lest the host city forget something that the IOC wants it to promise, the gods of amateurism helpfully divide their gall into three parts:
Costs for hosting the Games fall into the following three categories, established by the IOC:
1. Operational costs incurred by the Organising Committee for the purpose of “staging” the Games. The largest components of this budget are technology, transportation, workforce, and administration costs, while other costs include items like security, catering, ceremonies, and medical services. These may be considered the variable costs of staging the Games and are formally called “OCOG costs” by the IOC. [Organizing Committee of the Olympic Games = OCOG. – Ed.]
Basically, Group 1 are the costs you would incur to run an Olympics if you ran them every two months, so that all the facilities and infrastructure were fully in place and properly maintained. Or, to use a metaphor that might make things clearer, they’re the cost of serving food out of a food truck that you borrow from your parents at no cost:
Mostly variable costs
But of course, an Olympics isn’t a food truck, it’s a gala fine-dining extravaganza, and it requires surroundings to match:
We have a lot of overhead to pay for
2. Direct capital costs incurred by the host city or country or private investors to build the competition venues, Olympic village(s), international broadcast center, and media and press center, which are required to host the Games. These are the direct capital costs of hosting the Games and are formally called “non-OCOG direct costs.”
Before, this was a largely informal neighborhood
As has been documented over and over, once the Olympics are finished, those specialized venues are seldom used for much of anything.
Here are the huge crowds flocking to the Sochi Exposition Centre
Finally, there’s the practical challenge of getting hundreds of thousands of people to these venues, and from the venues to their hotels or restaurants or other recreational opportunities.
AHI blog posts on the Olympics
August 13, 2012: Maius, melius, devitius?; The cost to London of the 2012 Olympics
March 18, 2014: Zeno’s public-consultation paradox; 2 parts of Brazil scouring favelas to create the Olympic venue, a special case of the planning fallacy
June 1, 2015: Mega-boon or mega-boondoggle; 6 parts on Boston’s ‘winning’ the USOC’s designation to bid for the 2024 summer games
August 10, 2015: The highbrows’ sports carnival; 4 parts on the collapse of Boston 2024.
That means that your emerging-world infrastructure (or your post-emergence infrastructure, if it’s not entirely bright shiny new) will need a world-class-expensive upgrade.
Gautrain: Built for the South Africa World Cup, but valuable valuable
3. Indirect capital costs such as for road, rail, or airport infrastructure, or for hotel upgrades or other business investment incurred in preparation for the Games but not directly related to staging the Games. These are wider capital costs and are formally called “non-OCOG indirect costs.”
Late in the post we’ll return to the Group 3 indirect capital costs – in their way, they’re the most insidious of the IOC’s categories – but for now, we’ll focus our scorn on the first two (which, in fact, are the only two that Flyvbjerg and company included in their figures.
That ain’t bad for a blog post
[Continued tomorrow in Part 3.]