After the Bell: Hosting the Olympics and a devil on my shoulder

The Paris Olympics opens on Friday and whenever and wherever the opening ceremony begins, a little devil sits on my shoulder and whispers in my ear. What it says is this: “South Africa should do that thing…”

It’s a travesty that no African city has yet won the right to hold the Summer Olympic Games. It’s impossible not to put on one’s full righteousness ensemble and pontificate on the subject in a censorious way.

Happily, a little angel is whispering in my other ear. That angel says, “Just read the damn data and thank your lucky stars that South Africa — or any other African country — has managed to miss out on this particular hospital pass.”

Why is it that the Summer Olympics is so often a financial calamity? Yes, of course, SA managed to host very successful rugby, cricket, and soccer World Cups. But they are single-sport events. Stellenbosch University economist Johan Fourie, in his Our Long Walk blog, points out that the Paris Olympics will feature 329 events in 32 sports. A century ago, there were  3,089 athletes from 44 countries; today there are about 10,500 athletes from 209 countries.

“Today, host cities are responsible for creating state-of-the-art infrastructure, ensuring sustainability, and managing complex logistics, making the modern Games a far more demanding — and expensive — endeavour,” says Fourie.

According to a Saïd Business School study, of a sample of 3,022 megaprojects, 27% were on budget or better; 2.8% were on budget and on time; while only 0.2% of projects were on budget, on time and on benefits.

Some of the projects were not just over budget but ridiculously, absurdly, shockingly over budget — even the ones we think of as successes. The Suez Canal was 1,900% over budget; the Sydney Opera House was 1,400% over budget, and, relevant to this article, the Montreal Olympics was 1,300% over budget.

The problem of complexity has many facets. Because the projects take a lot of time, almost by definition the cost/benefit appraisal is sketchy. The duration also means it’s hard to accurately estimate costs.

There is another problem: high early-stage sunk costs tend to create project lock-in. From that point onwards, the project contractors hold the whip hand over the project originators. SA’s two mega coal power stations, Kusile and Medupi, are good examples of this tendency — everybody from employees to consultants to contracting engineers to suppliers can hold the project hostage and bump up prices.

“Many case studies demonstrate a propensity towards ‘optimism bias.’ In summary, megaprojects are too easy to start and too difficult to stop,” the study finds.

One of the most obvious flaws is the fact that they are megaprojects in the first place. Because they are megaprojects, there is a good chance they were politically, rather than economically, motivated. The desire for headlines on the part of politicians is a big reason megaprojects happen — and the reason they often fail.

“The desire for a project to claim the accolade of being the first, the highest, or the longest almost regardless of cost; the desire for politicians to build a ‘legacy’; or the commercial interests of stakeholders who stand to benefit from involvement in the project delivery masks a more forensic assessment of likely costs and the project dividends,” according to the study.

A good example is the constant striving to build the world’s largest skyscraper. Dubai’s Burj Khalifa is still the world’s tallest building even though it was completed 14 years ago. However, even after all this time, about 30% of the building stands empty.

But despite these problems, Fourie is still in favour of SA bidding for the 2040 Olympics. I think the same little devil whispering in my ear is whispering in his.

A big factor in the argument in favour is a new study that shows it could be done pretty cheaply in Cape Town.

First, the main stadium, that huge and deserted monstrosity on the Foreshore, is already built. The study suggests that 84% of the required venues either exist or could be temporary, even based on the maximum sports programme scenario.

“The Ancient Olympics persisted through revolutions and societal upheavals; sport has that ability to unify people around a long-term vision. In the era of coalition politics, an Olympic Games might just be what we need to build faster, higher and stronger,” writes Fourie.

There are other advantages too. Recent studies show that far from attracting tourists, net tourism often declines during big sporting events as people not involved in the tournaments avoid the destination for fear of high prices and terrible traffic. But historically the Summer Olympics have tended to be something of an exception and tourism during the Games goes up by about 18%.

There are two other reasons why the Summer Olympics is an anomaly. The first is that since it is a repeated event, many of the planning, logistics, and financial problems have historical precedents which can be used by subsequent event hosts. The second reason is that costs are increasingly mitigated by rising television revenues.

Between the 2005-2008 quadrennium and the next four-year cycle, stretching from 2009 to 2012, the International Olympic Committee’s broadcast rights earnings jumped by 50%. In every successive “quad”, as it is known, global broadcast rights income has gone up by around 9% and is now around $3-billion. About 90% of that goes to the host city.

The interesting thing about the Games’ finances is how varied they are: the 2008 Summer Olympics in Beijing cost $44-billion; London in 2012 cost a total of $14-billion, of which taxpayers contributed about $4.4-billion. Paris was planned so that it would cost taxpayers nothing, but in reality, they will probably pay about $4-billion.

You can see the finances are becoming less burdensome because the number of cities bidding has increased. In total, 13 cities are bidding for the 2036 Summer Olympic Games, including, interestingly, two cities that didn’t previously exist, Nusantara in Indonesia, and the New Administrative Capital, outside of Cairo in Egypt. Great way to create a global brand!

On balance, I am going to go with the devil. Come on Gayton McKenzie, this is exactly your kind of thing. Put together a task team. Cape Town is one of the world’s great cities; it deserves a shot. DM

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