Olympic Cost Over-runs: So What Else is New?

From the Toronto Globe and Mail:

Vancouver — Increasing venue costs — often the curse of the modern Olympics — have hit the 2010 Winter Games in Vancouver.

The committee responsible for organizing the Vancouver Olympics announced Friday that its venue construction costs have risen by 23 per cent to $580 million from $470 million.

To cover the $110-million cost jump, the organizing committee, known as VANOC, has asked the provincial and federal governments for an extra $55 million each.

And this is with four years to go yet! VANOC CEO John Furlong said,

Our pledge is to limit taxpayer investment in these venues to $580 million. We will stop at nothing to responsibly manage the risk of cost increases.

Really? Stop at nothing? How about you and the VANOC directors pledging your personal assets, including your house(s) and car(s) and pet(s) and memorabilia collections as collateral?

The Olympics have different economic impacts than professional sports teams:

  • They draw many visitors, who inject considerable spending into the local economy.
  • But at the same time, these injections are transitory, having no lasting economic impact.

I probably shouldn’t go out on the limb like this, but I hope the gubmnts turn them down. Only when gubmnts turn down such requests will planners and organizers become more realistic with their estimates. And so long as gubmnts bail out Olympic organizers, the planners have an incentive underestimate the costs and overestimate the revenues in their initial bid proposals.

What would happen if the gubmnts said “No”? Would the games be moved? Would the games be cancelled? Would the organizers scale back on their plans? Would the IOC sue VANOC for breach of contract?

Regardless of the answers to these questions, it is not at all clear that the taxpayers of Canada, especially those outside Vancouver, are (or should be regarded as) the least-cost bearers of the risk that their would be cost over-runs, for whatever reason. Planners and CEOs and Directors are supposed to assess risk and incorporate it into their proposals and decisions. It would be inappropriate and inefficient to fob this risk off, onto distant taxpayers.

Anyone care to hazard a guess about whether VANOC will get the money and then “need” more sometime over the next four years?

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Author: John Palmer

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