Olympic spending is out of control – but it can be fixed

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The Olympic motto is supposed to translate as faster, higher, stronger. A more accurate reading would be fatter, more expensive, more dysfunctional.

The Rio Olympics that lurched into life on Friday provide a perfect example of the Frankenstein nature of the contemporary Games. This summer's extravaganza is an out-of-control monster – a lavish, money-bleeding circus held by an economically devastated nation governed by a scandal-ridden ruling class.

Which is to say it's pretty much right in line with the most recent Winter Olympics in Sochi.

If he were still alive, Pierre de Coubertin would weep. He organized the first modern Olympics in 1896 in hopes that amateur sport could promote international peace and understanding. The starry-eyed idealist had no clue his creation would one day degenerate into a highly politicized playground for pharmaceutically enhanced athletes. Or, for that matter, a branding exercise for Brazilian and Russian corruptocrats.

The Olympics movement is now synonymous with runaway spending and massively expensive facilities left to decay after three weeks in the spotlight. Tighter controls on spending and more democratic processes could put a brake on the worst abuses.

But will such reforms actually take place? If they do, it will only be because taxpayers around the world wise up.

Slowly but surely, voters are clueing in to the real cost of the Olympics. In 2013, a Bavarian referendum rejected a plan for Munich to hold the 2022 Winter Games. Last year, both Boston and Hamburg, Germany, tore up their bids for the 2024 Summer Games after vocal opponents cast doubt on the sunny cost estimates being peddled by bidding committees.

The skeptics were smart to question the official figures. Between 1960 and 2012, the price of holding an Olympics usually soared to more than double whatever organizers originally claimed it would cost, according to Bent Flyvbjerg and Allison Stewart of the Said Business School at Oxford University.

The size of the overruns varied, but not a single Olympics, Winter or Summer, came in on budget. "The Games overrun with 100-per-cent consistency," the researchers wrote in a 2012 paper. "No other type of megaproject is this consistent regarding cost overrun. Other project types are typically on budget from time to time, but not the Olympics."

The Rio Games are keeping that dismal tradition alive. They are on track to cost $4.6-billion, or $1.6-billion (U.S.) more than originally estimated, according to an update in July by the Oxford researchers.

Don't count, though, on hearing much about the huge overrun. Prof. Flyvbjerg notes that host governments and the International Olympic Committee typically airbrush budget blunders out of existence.

The British government, for instance, likes to boast that the 2012 London Games came in under budget despite being the most expensive on record, at $15-billion. The claim doesn't stand up to scrutiny.

"In 2005, London secured the bid with a cost estimate that two years later proved inadequate and was revised upwards around 100 per cent," Prof. Flyvbjerg says. "When it was revealed that the final out-turn costs were slightly below the revised budget, the organizers falsely, but very publicly, claimed that the Games were under budget. Such misinformation is unethical in our view."

Just as questionable are repeated assurances by organizers about huge payoffs from playing host to the Games.

Most economic-impact studies for sporting events simply tot up the spending that will occur at the event and multiply it to reflect the ripple of money through the local economy. But Victor Matheson, an economist at College of the Holy Cross in Worcester, Mass., found in a 2006 paper that many of those spending estimates are exaggerated.

The estimates also ignore the money that would have been spent anyway: If the Olympics were not taking place in Brazil right now, hotels and restaurants would still be open and at least some tourists would still be buying dinners and drinks – without requiring a centavo of public investment in massive new stadiums.

Adjust for such factors and the benefits of holding big sports events fade away. "While sports boosters routinely claim large benefits from hosting mega-events, the overwhelming majority of independent academic studies of these events have shown that their impact appears to be limited," Prof. Matheson wrote.

So how can the Olympics movement curb its financial sprawl? One simple reform would be a strict ceiling on new construction, the source of most of the past cost overruns.

If bidders were forced to focus on existing facilities and had to limit their building to, say, $1-billion of new stadiums or pools, it would be far easier to stick to a budget.

To be sure, restricting new construction would tend to limit the possibilities for future Olympic hosts to a handful of big cities already equipped for big sports competitions. But the construction limit wouldn't be onerous if it were combined with another reform – a requirement that the Games be held by at least two cities, preferably in different countries.

Not only would this spread the cost of the Games, but it would restore the original Olympic vision of using sports as a bridge to international understanding.

Finally, in an ideal world, the IOC would require future sites to be approved by referendums of local voters.

Organizers should have to stand up and make the case to ordinary people that an Olympics in their town wouldn't leave big bills for taxpayers to pick up, but rather real, lasting benefits. What a welcome change that would be – especially if the promises proved to be true.