Saturday, July 9, 2016

Rio Olympics 51% Over Budget


Brazil’s Olympic costs running 51% over budget, report warns

Oxford university study says total cost of games still modest compared with past events
The Engenhao stadium in Rio de Janeiro © Bloomberg
Brazil’s Olympic Games are running 51 per cent over budget with an expected cost blowout of $1.6bn, even as the country is sinking under its second year of recession, a study from Oxford university has found.
The study warned that even with its expected massive overspend, the total cost of Brazil’s games at $4.6bn was still modest compared with the outlay of some previous hosts, such as London and Barcelona, making the Olympics one of the riskiest investments a city could make.
“When Rio decided to bid for the Olympics, the Brazilian economy was doing well,” said the study led by Professor Bent Flyvbjerg, of Oxford’s Saïd Business School. “Now, almost a decade later, costs were escalating and the country was in its worst economic crisis since the 1930s with negative growth and a lack of funds to cover costs.”
The study’s conclusions, which were vigorously denied by the Rio 2016 organising committee, come as Brazil is facing multiple crises.
The Olympics host state of Rio de Janeiro is struggling with a financial crisis that is limiting its ability to pay police salaries and keep hospitals open while at the national level, leftwing president Dilma Rousseff, has been suspended impending an impeachment process.
The financial crisis striking the Rio state government is so severe it warned last month of a potentially calamitous security situation during the games, forcing the equally cash-strapped federal government to stump up more funds.
The Oxford study looked at 15 editions of the summer Olympics, since Rome in 1960, and 15 of the winter games. It concluded that hosting the event was the most costly and financially risky “megaproject” a city could undertake.
It found an average cost overrun of 156 per cent in real terms, the highest of any type of megaproject in the world, with no edition of the Olympics during the study period having met its budget and nearly half exceeding it by more than 100 per cent.
The most expensive summer games were London 2012 at $15bn and winter games Sochi 2014 at $22bn. The average cost of hosting the summer games was $5.2bn and the winter games $3.1bn.
“Host governments and the International Olympic Committee have not been transparent about the true cost and cost overrun of the games,” the study said. “For example, the UK government claimed that the London Games came in under budget, but the real cost overrun for London was 76 per cent, or $6.5bn.”
However, the Rio city government of mayor Eduardo Paes said the cost of the games was in fact $4.1bn, 35 per cent less than the $6.4bn projected in the original bid. Of this amount, slightly more than half was the budget of the Rio 2016 organising committee, which was 100 per cent privately funded.
The other half was the city`s investment in sporting facilities, such as the arenas and athletes villages, which were 60 per cent privately funded.
Education workers hold a rally in Rio demanding better labour conditions and protesting the money spent on the Olympics © AP
The Rio 2016 organising committee said it ran a “balanced budget”, undertaking cuts if the need arose, and anticipated no cost overruns.
“This report serves only one goal; to speculate on an overrun and create negative publicity,” Rio 2016 said.
The report acknowledged that the Rio games had brought the cost of the Olympics back to the historical average after the blowout events of London and Sochi.
The projected cost per athlete of Rio was $400,000 compared with an average of $600,000 and a high of $1.4m for London. The worst cost overrun was Montreal in 1976 at 720 per cent and the lowest Beijing in 2008 at 2 per cent for the summer games.
“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,” the report warned, saying a requirement that governments guarantee payments for cost overruns was equivalent to writing a blank cheque.
Such cost overruns left Montreal with 30 years of debt and in the case of Athens helped plunge Greece into its near decade-long financial and debt crises.
Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from and redistribute by email or post to the web.