How Big Is Cost Overrun for the Olympics?
All Games, without exception, have had cost overruns. For no other type of mega-project is this the case.
With Alexander Budzier and Daniel Lunn
Percentage cost overrun for the Olympic Games 1960–2016 is shown in real terms in the table below. Data on cost overrun were available for 19 of the 30 Games 1960–2016. Statistical tests of the difference between bid budgets and final costs show this difference to be statistically overwhelmingly significant. That is to say, cost overruns are overwhelmingly manifest for the Olympics, in statistical terms. — It should be mentioned that if the cost overruns had been calculated in nominal terms (including inflation) they would have been significantly larger. In this sense the numbers shown are conservative.*We find the following averages and medians for cost overrun in real terms:
- All Games: average cost overrun is 172 percent (median 118 percent).
- Summer Games: average cost overrun is 213 percent (median 120 percent).
- Winter Games: average cost overrun is 142 percent (median 118 percent).
The Olympic Games have the highest average cost overrun of any type of megaproject, at 172 percent in real terms.
Even though the difference between average cost overrun for the Summer and Winter Games is relatively large at 71 percentage points, the difference between the two types of Games in terms of cost overrun is statistically non-significant. In statistical terms there is therefore no difference between cost overrun in the Summer and Winter Games and the data may be pooled for statistical analyses, for instance in making more accurate reference class forecasts of budgets for future Olympic Games.
We further see that:
- 15 of 19 Games (79 percent) have cost overruns above 50 percent.
- 9 of 19 Games (47 percent) have cost overruns above 100 percent.
The vigilant reader may be skeptical that the lowest cost overrun of all Games was found for Beijing 2008 at two percent
Judging from these statistics it is clear that large risks of large cost overruns are inherent to the Olympic Games.
For the Summer Games, the largest cost overrun was found for Montreal 1976 at 720 percent, followed by Barcelona 1992 at 266 percent. The smallest cost overrun for the Summer Games was found for Beijing 2008 at two percent, followed by Athens 2004 at 49 percent. For the Winter Games, the largest cost overruns are Lake Placid 1980 at 324 percent followed by Sochi 2014 at 289 percent. The smallest cost overrun for the Winter Games was found for Vancouver 2010 at 13 percent, followed by Salt Lake City 2002 at 24 percent.
The vigilant reader may be skeptical that the lowest cost overrun of all Games was found for Beijing 2008 at two percent. China is known for its lack of reliability in economic reporting. However, the total cost of USD 6.8 billion and the cost per athlete of USD 622,000 for the Beijing 2008 Games are both higher than for the majority of other Summer Games. The reported costs are therefore deemed adequate for hosting the Beijing Games and we have seen no direct evidence that the official numbers have been manipulated and should be rejected for this reason. Like other observers of economic data from China we therefore include the numbers, with the caveat that they are possibly less reliable than numbers from other nations, given China’s history of doctoring data. Again, this means that our averages for cost overrun in the Olympic Games are conservative.
The high average cost overrun for the Games, combined with the existence of outliers, should be cause for caution for anyone considering hosting the Games, and especially small or fragile economies
We further observe about cost overrun in the Olympic Games, based on the data presented above:
- All Games, without exception, have cost overrun. For no other type of megaproject is this the case. For other project types, typically 10–20 percent of projects come in on or under budget. For the Olympics it is zero percent. It is worth considering this point carefully. A budget is typically established as the maximum — or, alternatively, the expected — value to be spent on a project. However, in the Games the budget is more like a fictitious minimum that is consistently overspent. Additionally, even more than in other megaprojects, each budget is established with a legal requirement for the host city and country government to guarantee that they will cover the cost overruns of the Games. Our data suggest the guarantee is akin to writing a blank check for the event, with certainty that the cost will be more than what has been quoted. In practice, the bid budget is really more of a down payment than it is a budget, with further installments to be paid later.
- The Olympic Games have the highest average cost overrun of any type of megaproject, at 172 percent in real terms. In comparison, Flyvbjerg et al (2002) found average cost overruns in major transportation projects of 20 percent for roads, 34 percent for large bridges and tunnels, and 45 percent for rail; Ansar et al. (2014) found 90 percent overrun for megadams; and Budzier and Flyvbjerg (2011) 107 percent for major IT projects, all in real terms. The high cost overrun for the Games may be related to the fixed deadline for project delivery: the opening date cannot be moved. Therefore, when problems arise there can be no trade-off between schedule and cost, as is common for other megaprojects. All that managers can do at the Olympics is throw more money at problems, which is what happens. Hosting the Games is like writing a blank check, in this sense.
- The high average cost overrun for the Games, combined with the existence of outliers, should be cause for caution for anyone considering hosting the Games, and especially small or fragile economies with little capacity to absorb escalating costs and related debts. Even a small risk of a 50+ percent cost overrun on a multi-billion dollar project should concern government officials and taxpayers when a guarantee to cover cost overrun is imposed, because such overrun may have fiscal implications for decades to come, as happened with Montreal where it took 30 years to pay off the debt incurred by the 720 percent cost overrun on the 1976 Summer Games (Vigor, Mean, and Tims 2004: 18), and Athens 2004 where Olympic cost overruns and related debt exacerbated the 2007–16 financial and economic crises.
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*) For the full story, including references and notes, see Flyvbjerg, Bent, Alexander Budzier, and Daniel Lunn, 2021, “Regression to the Tail: Why the Olympics Blow Up,” Environment and Planning A: Economy and Space, vol. 53, no. 2, Mar. 2021, pp. 233–260. Free pdf here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3686009
