Managing Essentials

International MegaMega-events: Are they worth the costs and effort?

2012 is a year with two major international events in sports. In June, Poland and the Ukraine hosted the European soccer competition and in July the Olympics will be opened in the UK in London. You are well advised to watch at least the forthcoming Olympics given the vast amount of money spent to make these events happen. Bidding for the Olympics was not cheap with costs of about 11 mn (US$ 17 mn) and now the hosts will spend 6.75 mn per hour on the opening ceremony. The overall price tag for the soccer competition is estimated to be around 8 bn for the Ukraine alone and pessimists see the British taxpayer burdened with up to 24 bn for the Olympics. Officially the British Governments House of Commons public accounts committee sees the costs to the public purse heading towards 9.3 bn. That amounts to a cost overrun against the plans from 2005 of more than 100 percent. This does not however award them the gold medal since Atlanta, the 1996 Olympics holds the record with 147 percent. China never released figures for its Olympics four years ago so this event cannot be compared Of course, the estimation of the costs is an art and the outcome also depends on local conditions and what is included. The center stage is comparably cheap, renovating one historic stadium or building a new one costs about 500 mn. In addition, at this Olympics about 16,000 athletes have to be housed, nourished and transported. For the construction of the Olympic village London planned to spend about 1.2 bn. However, with this project London also decided to re-urbanize wasteland in the East End of the city and after the Games, the village will be converted into 2,818 new homes for local people. Also, London did not have to spend much on transport infrastructure, only 800 mn, and as investments in roads, airports, and public transport are the main cost position for many mega-events in other countries, this has been a positive financial factor. Finally, expenses for security skyrocketed from about 31 mn in Los Angeles and Atlanta to close to 1 bn now in London. The investments in sport and traffic infrastructure are especially difficult to calculate in their returns. When it comes to the construction of venues and facilities, many people are employed and this gives a significant boost to this sector and its often ailing companies. In addition, investments in the future are supposed never to be wrong, for example public transport, roads, airports and helipeds are perhaps not needed now but is predicted that traffic volume will catch up. Some would argue that these projects also give politicians an opportunity to outlive themselves. Stadiums and sport palaces are today what castles have been to kings and queens in history. Even if one shares the general notion that infrastructure is the central platform of future development this does not imply that all the specific investments are a good idea. Small and highly industrialized Germany subsidizes close to a dozen "regional airports" which never lived up to expectations. They bitterly compete for low fare carriers and actually pay them for

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passenger traffic. It is also an open question whether the heliped in Kiev was a clever investment for soccers European Cup. There do not seem to be questions asked about what became of the stadiums of soccers World Cup in South Africa just two years ago, or the Olympic facilities in Athens from 2004. To call them underused would be euphemistic as some are not used at all anymore. However, they remain on the cost side of the balance sheet as they still have to be guarded and basically maintained. Also the benefit side of mega-events is fairly difficult to assess. On the one hand British Prime Minister Cameron promised a boost to the economy of 13 bn, whilst on the other hand experts say that it was the open and hidden costs of the Olympics that contributed significantly to Greeces debt crisis. Also on a smaller level the picture is contradictory. Prices for hotel rooms quadruple, therefore many tourists avoid the destination for quite some time afterwards correctly anticipating such price rises and being unsure about readjustment later to the level before the mega-event. An indicator of financial benefits is the involvement of private investors and London tried hard to find such sponsors. However, outside the fields of marketing and merchandising, private investors proved unwilling to share the perceived burden. One might argue that focusing on the finances of mega-events is taking the wrong perspective anyway. The value of the Olympics can be seen as immaterial as it is one of the very few events uniting the world in a positive way. Its mission statement Building a peaceful and better world in the Olympic Spirit which requires mutual understanding with a spirit of friendship, solidarity and fair play is one with which most individuals in the world would agree. In ancient Greece all animosities were put aside for some time to live in a better world. Also today the Olympics serve its role as a unifying cultural reminder and symbol of a common dream. That may be much more important than the finances and business opportunities connected to the event. With this background, having the possibility to exemplify this mission is in fact an honor for the host country. The country and its citizens bear the burden of being hosts but also have the opportunity to bring these values to life. Viewed as a rare cultural event it is not the cost factor which is worrying. No controller would have approved the construction of pyramids in Giza by anticipating that they would attract millions of tourists over thousands of years. However, retrospectively the pyramids were a wise investment. The problem is that one has to worry about the budgeting process beforehand irrespective of potential positive outcomes. Evidently despite all progress in cost estimation and all the experience gained with previous events of this magnitude, it seems impossible, or politicians are unwilling, to project expenses within a tolerable margin of error. The cost overspend of mega-events like the Olympics just highlights a phenomenon to be found in nine out of ten major construction

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projects. A comprehensive study by Flyvdberg and co-workers showed that this phenomenon is an international one with overspends of 50 to 100 percent being common. Unfortunately accuracy did not improve over the last 70 years. But now lets enjoy the Olympics and engage in positive thinking. The successful bidding committee for the Olympic Summer Games from the City of Tokyo announced last month that hosting the games will give the city a much needed and deserved 23,69bn shot in the arm.
What is the real price of the London Olympics? (Jules Boykoff) www.managing-essentials.com/2fr Sky Investigation: Olympics Bill Tops 12bn (Lia Hervey, Orla Chennaoui) www.managing-essentials.com/2fs London Olympics on track to be 'most costly Games ever' (Oxford University press release) www.managing-essentials.com/2ft Flyvbjerg, Bent; Holm, Mette Skamris; Buhl, Sren (Summer 2002). "Underestimating Costs in Public Works Projects: Error or lie?". Journal of the American Planning Association (Chicago: American Planning Association) 68 (3): 279295. www.managing-essentials.com/2fu Na Chen (2008). What economic effect do mega-events have on host cities and their surroundings? An investigation into the literature surrounding mega-events and the impacts felt by holders of the tournaments. (Dissertation, Nottingham University) www.managing-essentials.com/2fv