Spiralling costs a major risk for Paris Olympics

The French capital has set a relatively modest budget of 6.6 billion euros ($7.9 billion), but London in 2012, Athens in 2004 and Sydney in 2000 all saw their budgets for hosting the Summer Olympics at least double from the time of their bids to the final bill.

The budget-busting reached its peak with the 2008 Beijing Games for which costs ballooned to a vertiginous 32 billion euros, more than ten times the original budget.

Vladimir Andreff, a sports economist at Paris’ Sorbonne university, described Olympic budget inflation as “the curse of winning an auction”.

“In theory, the winner of an auction is the most optimistic participant and the one prepared to outbid everyone else,” said Andreff, one of three experts who contributed to a financial impact study commissioned by the Paris bid team.

“And when there are a lot of competing cities, the winner is trapped.”

– Habit of underestimating –

Map of Paris showing Olympic Games sites

In an attempt to impress the International Olympic Committee in the bidding process, candidate cities have a habit of underestimating certain costs — as London did for the 2012 security bill — and overestimating potential economic benefits.

After evaluating the Paris bid last month, the IOC said in its report that while costs for security, preparing venues and installing temporary infrastructure “may be understated”, they “could be offset by potential expenditure reductions in other areas”.

However, Jean-Pascal Gayant, economics professor at Le Mans University in northern France, is sceptical.

“I find it very hard to imagine that the bill for 2024 will be below that for Athens and London,” he said.

The official cost of the London Games rose to 8.77 billion pounds, or 9.8 billion euros/$11.6 billion at today’s exchange rates, from an initial bid estimate of around half that figure.

Andreff, the Sorbonne economist, estimates the actual bill for London was almost 10.9 billion euros.

The spiralling costs of organising an Olympics was the main argument put forward by opponents of the French capital hosting the Games for the first time since 1924.

But the Paris bid team has repeatedly insisted that its 6.6 billion budget is feasible.

– ‘Sheltered’ from financial crisis –

Bernard Lapasset, the co-head of the organising committee, said the bid was “sheltered” from changes to financial conditions in the future because 95 percent of the venues already exist.

Bernard Lapasset, the co-head of the organising committee, said the bid was “sheltered” from changes to financial conditions in the future because 95 percent of the venues already exist

The organising committee budget is basically financed by the Olympics themselves — the estimated 3.37 billion euro cost will be paid for with the IOC’s contribution of 1.45 billion euros and income from sponsorship and ticket sales.

Paris is planning to use the Stade de France, built for the 1998 football World Cup, as the main Olympic Stadium, whereas London and Athens both had to build stadiums.

Paris only has to construct three sites — the athletes’ village, which at 1.3 billion euros is by far its most expensive item, a media centre and an Aquatic Centre.

The total bill for permanent venues is estimated at three billion euros, of which the French state and local authorities will pay half of that figure, and the other half will come from private investment — the athletes’ village will be partly privately financed.

One concern for Paris is that its bid was based on the sports in the 2016 Rio Olympics. Since then, surfing, climbing, softball/baseball, karate and skateboarding have been added to the Olympic programme, meaning they might require the construction of venues not currently in the bid estimate.

But the biggest headache for host cities remains the cost of transport infrastructure to bring hundreds of thousands of spectators to events.

“In the past, the big cost increases came from non-sporting infrastructure. That was certainly the case for Athens and Barcelona (which hosted the 1992 Olympics),” Andreff said.

He warned it would be an expensive mistake to use the 2024 Games to try to accelerate a long-term project already under way to improve transport networks in the greater Paris area.

“When you speed up investments, they cost more,” he said.