Olympic-style mega-events reach new frontiers – at a cost

By Will Jennings, Reader in Politics

A shorter version is cross-posted at The Conversation.

There is a law-like tendency with which the costs of large scale international events such as the Football World Cup and Olympic Games far outstrip the initial forecasts of planners. Optimism bias is observed in the systematic occurrence of cost overruns in organisation of the Olympics – averaging over 200% between 1976 and 2012. The spiralling of costs for the upcoming Sochi Winter Olympics is no different, rising from $10 billion in the original bid to $50 billion according to some estimates. This runs counter to a growing sensitivity of organizers to the many risks associated with putting on these grand spectacles. Today, mega-event managers are typically in the business of compiling extensive lists of prospective hazards and threats to inform their strategies and operations. Despite pressure from authorities such as FIFA and the IOC, the costs of these events continue to grow and the array of risks that organizers face continues to proliferate. Why? 

While there have been cost overruns ever since the first modern Olympic Games in 1896 the recent explosion of the mega-event industry has exposed event planners to new pressures and temptations. Commercialisation has brought money flooding into sport and made such mega-events desirable once again to ambitious politicians and governments in search of personal credit or an economic boost. It has also increased the financial liabilities at stake should things go wrong. Significantly, the recent trend of mega-events moving into emerging markets – such as the Football World Cups due to be held in Brazil in 2014 and Qatar in 2022, and the upcoming Winter Olympics in Sochi – has given rise to a new set of risks. Indeed, the changing world of the mega-event industry suggests that the governance of mega-events may become increasingly problematic in future, for a number of reasons.

Bidding Wars and Showcasing: Despite continued upward pressure on event costs, mega-events remain a sought after prize for city, regional and national governments looking to showcase their economic and/or political power on a global stage. Bidding competitions fuel the optimism bias in planning, pushing expectations skywards, and once preparations are underway the pressure to impress a potential global audience of billions can encourage a mind-set among political overlords that ‘no expense be spared’ in designing and delivering the event – with such mega-projects often serving as expressions of political ambition and fiat.

Lack of Infrastructure: Staging mega-events in emerging economies with under-developed infrastructure and facilities has implications both in terms of cost and event delivery. The high price tag for the Beijing 2008 Olympics, put by some at around $40 billion, was linked to the huge sums that were invested in the infrastructure (even the security bill for the event was highly inflated by installation of a vast CCTV surveillance system that remained in place in Beijing after the event). The high cost of the Sochi Winter Olympics has similarly been put down to lacking most of the needed infrastructure, requiring it to be built from scratch. As mega-events increasingly are awarded to emerging markets in which infrastructure development is needed, and part of the deal, total costs will rise – as will the propensity for cost overruns, as the associated portfolio of mega-projects also grows. This local context is crucial, since the two Olympics typically presented as being textbook cases of financial restraint are US-based Games which necessitated minimal infrastructure or venue construction: Los Angeles 1984 and Atlanta 1996.

Corruption and Construction Standards: In comparison to advanced democracies, emerging economies tend to suffer from higher levels of corruption, which are a potential issue in containing construction costs, procurement and breaches of venue safety (such as allegations relating to EURO 2012 in Ukraine and Sochi 2014 which has been associated with organised crime and stolen funds). Corruption is highly problematic for the governance of mega-events, since organisations like the IOC rely upon ‘value-based’ brand that events are built upon. Less tightly regulated markets also lead to poor construction standards and worker safety, especially when organizers are running behind schedule with a deadline that cannot be missed. In the run-up to the Delhi 2010 Commonwealth Games, the collapse of a footbridge close to the main stadium highlighted the chaotic state of preparations and unfinished venues and infrastructure. Construction standards of stadiums in Brazil have been the focus of concerns ahead of the 2014 World Cup and 2016 Olympics. Shocking reports about the treatment of migrant workers in Qatar ahead of the 2022 World Cup highlight poor safety standards and worker exploitation commonly linked with weakly regulated labour markets in emerging economies.

Globalisation of Risk Portfolios: As mega-events have increasingly expanded their global reach, becoming embedded in the cycle of global economy and society, they have increasingly become vulnerable to complex interdependencies of states and economies. Threats to international sport from illegal betting and match-fixing, for example, are a product of globalised forces, in the activities of criminal networks that operate across borders and exploit global audiences (and betting markets) for major events. Human trafficking and ticketing fraud similarly are risks that face event organizers which require joined-up responses.

Democracy and Weak States: With mega-events increasingly being awarded to authoritarian regimes, such as Qatar and China, or weak states that cannot fully control their borders and populations, there is increased risk of disruption both from democracy campaigners on the one hand, and terrorists on the other. For example, the 2011 Bahrain F1 Grand Prix was postponed and later cancelled due to civil unrest and pro-democracy protests. Militarized zones are often used to secure mega-events, but lead to the dispersal of unrest and terrorist activities to other regions, such as terrorist attacks in the Xinjiang province in China in the lead up to the Beijing Olympics and the Volgograd bombings in Russia ahead of Sochi. The award of mega-events to countries with poor human rights records and weak state institutions is another problematic trend in terms of the risks facing event organizers and transnational sporting authorities. Human rights abuses associated with preparations for the specific event represent a major headache for bodies such as the IOC and FIFA who are often left defending the indefensible.

Growth in the mega-event industry and its movement into emerging markets has left it facing an array of new and often poorly understood dangers. Over the next ten years, the world’s largest events – the Olympic Games and the FIFA World Cup will be held in a number of emerging economies – in Brazil, Russia and Qatar (and in recent years major events have been staged in China, South Africa and India) – against a backdrop of fast-changing global risks. The shift towards emerging markets offers exciting opportunities for major sports events to reach new audiences and be modernised in a way that is more in fitting with the 21st century and both the Global North and South, in place of the traditional Western dominance of international sports events. They also, however, present serious problems in terms of their governance and spiralling financial and human costs that are interlinked with the selection of host cities and countries with limited physical and state infrastructure, weakly regulated markets and poor records in human rights.

For more detailed analysis of Olympic bid budgets see Chapter 4 of Olympic Risks, and for an analysis of the budget for London 2012 see ‘Why costs overrun: risk, optimism and uncertainty in budgeting for the London 2012 Olympic Games’, Journal of Construction Management and Economics 30(6): 455-462.

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