Mega-events: Are they worth the costs and effort?

8/13/2019 Mega-events: Are they worth the costs and effort?

1/3

Managing EssentialsManaging EssentialsManaging EssentialsManaging Essentials InternationalInternationalInternationalInternational

MegaMegaMegaMega----events: Are they worth the costs and effort?events: Are they worth the costs and effort?events: Are they worth the costs and effort?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 committeesees 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 projectLondon 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. Inaddition, 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


2/3


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 witha spirit of friendship, solidarity and fair playis 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


3/3


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

Documents

Mega-events: Are they worth the costs and effort?