Annex
LONDON 2012: THE TRUE COST OF THE OLYMPICS?
INTRODUCTION
1. In the debate about a potential London Olympic
bid it is essential that there is openness about the true costs
and benefits of hosting the Games.
2. We are repeatedly told by the bid backers that
the cost of the Games will be less than £2 billion, that
they will make a profit, that they will cost the taxpayer
less than £500 million and that they will leave as their
legacy an enormously improved sporting and transport infrastructure.
These claims are based on a report commissioned this summer by
Sport Minister Richard Caborn and Mayor of London, Ken Livingstone,
and on the experience from recent Games.
3. We should be very sceptical.
4. The cost/benefit report in question was undertaken
by construction engineers Ove Arup and property consultants Insignia
Richard Ellis. Ove Arup, you will note, are not economic forecasters.
They are, of course, winners of several awards for Sydney 2000
Olympic venues. As for Sydney and Athens, closer inspection of
their economics, including not just the costs met by the Organising
committees but also those borne by the public purse, shows a very
different picture. According to the AuditorGeneral of New
South Wales, Sydney 2000 ended up costing over twice the prebid
figures. In Athens, the extent of Government and EU spending on
infrastructure is so huge it's hard to establish an exact figure,
but total costs will be at least four times as high as the bid
committee's initial budget. The "Olympic Legacy" of
Athens is in fact being largely borne by EU taxpayers.
5. Before it backs any bid, the government needs
to do the following:
- Release the full Ove Arup report (not just a
summary) and the British Olympic Association's bid dossier as
other bidding cities have done, so that they can be properly scrutinised.
- Undertake and publish a credible, independent
assessment of the cull costs of the Games, including the impact
on public budgets in areas such as policing, customs, immigration,
social services and local government which are missing from the
Arup report.
- Publish an assessment of the infrastructure projects
(including, presumably, Crossrail) that will be essential for
London to hold the Games successfully, indicating whether or not
the associated investment is incremental to existing spending
plans, and the extent to which these projects will need to be
accelerated.
- Explain how it is going to finance the resulting
extra public expenditure. Will it be borrowed? Will it be levied
as tax, and if so from Londoners or from National Taxpayers. Even
taking only the direct operating costs of the Sydney Games, the
public subsidy provided by New South Wales would have been equivalent
to an average £187 oneoff charge on Londoners' council
tax (see below).
- Undertake market research among Londoners, once
the above information is in the public domain, to ascertain support.
- Require the British Olympic Association to publish
and adhere to a set of principles on ethical behaviour, community
involvement, transparency and good governance.
6. If, after a proper public debate, the public (and
in particular Londoners) want to proceed with a bid, then and
only then is it proper to do so. Otherwise stand by for another
unpopular and expensive White Elephant, by the same team that
brought us the Millennium Dome!
SYDNEY
2000: CONDEMNATION
BY
THE
AUDITOR
GENERAL
OF
NEW
SOUTH
WALES
7. When researching the costs and benefits of the
Sydney Olympics it is common to come across figures talking about
many billions of Australian dollars of 'business outcomes' and
infrastructure spending.[2]
All of these figures, however, are measures of spending, not the
value created by that spending, and they completely ignore the
cost of economic distortions caused by raising taxes. For them
a pound taxed and spent on the Olympics is always a full pound
of benefit—clearly an absurd position.
8. The best analysis of the costs and benefits of
the Games was undertaken by the AuditorGeneral of New South
Wales in 1998, and updated in 2002. This is what he found:
(a) When Sydney bid for
the 2000 Games, the bid committee estimated a total cost of $AUS
3.0 billion (£1.0 billion), of which just $AUS 363.5 million
(£125 million) would be borne by the public. By 1998, however,
when the AuditorGeneral of New South Wales first reviewed
the costs and benefits of the Games, it had become clear that
this figure was a huge understatement. He estimated that the true
cost of the Games was more like $AUS 5.9 billion (£2.1 billion),
of which the public would be paying $AUS 2.3 billion (£800
million).[3]
These figures excluded major infrastructure projects that had
been accelerated by the needs of the Games.
(b) The reason for the
huge discrepancy was that the bid budget was based on "only
those direct costs which have an additional cash effect on the
budgets of relevant agencies." In other words, the budget
had excluded many capital costs for facilities and infrastructure,
as well as, for instance, most of the costs of providing security,
which naturally fell on the public purse. The original budget
had also excluded costs which might crystallise after the Games,
for instance in the form of redundancy payments, as well as the
costs of disruption to public services. The original Sydney bid
budget did, however, include in its calculations all potential
revenues, including $AUS 600 million of putative increases in
tax income to the Government.
(c) In the words of the
AuditorGeneral: Limiting the costs to direct costs but allowing
revenues to reflect indirect revenues mingles incompatible concepts."
This sort of financial shenanigans is why it is important that
the plans and budget for a potential London bid are made public
in advance of any decision by the Government whether or not to
bid.
(d) The AuditorGeneral
also made a point of condemning the excessive secrecy which surrounded
the Sydney bid budget and the subsequent operations of the Games
Organising Committee. "One of the issues which has provided
a backdrop to this audit is the unnecessary secrecy which has
been associated with the preparations for the Sydney 2000 Games."
(e) In 2002 the AuditorGeneral
of New South Wales updated his audit, confirming that the Sydney
Games had ended up costing $AUS 6.6 billion (£2.3 billion),
and had cost the public purse somewhere between $AUS 1.7 and 2.4
billion (between £580 million and £830 million), depending
on your estimate of incremental tax revenues.[4]
9. A shortfall as modest as Sydney's for a London
Olympic Games would add a oneoff charge of £187 to
each London household's council tax.
10. The cost of a London Olympics would, however,
be far higher than those of Sydney. Firstly because of the enormously
underinvested state of London's sporting facilities and
transport infrastructure, and secondly because of the massively
increased cost of security since September 11th. Perhaps Athens
would be a better guide to what a London Games might cost?
ATHENS
2004: COSTS
SPIRAL,
SUBSIDISED
BY
EU BILLIONS
11. The absolute minimum cost of Athens 2004 is going
to be £6.5 billion, all but £1.1 billion of which will
be public money. Published estimates have been as high £9.4
billion.[5]
In order to arrive at an accurate figure, the following elements
must be taken into account:
- Budget of the Athens Organising Committee (£1.2
billion). The bid committee initially estimated ATHOC would spend
$1.57 billion (£1.0 billion) and generate a profit of $36
million (£23 million).[6]
Since then the Organising Committee budget has increased to Eur
1.96 billion (£1.23 billion), of which just Eur 235 (£149
million) will be public money.[7]
- The Greek Government's own Olympic budget (£2.75
billion). Prime Minister Costas Simitis has set aside a further
1.493 trillion drachmas (£2.75 billion) of Governmental spending
to cover Olympic venues and activities, including a rowing and
sailing centre and the athletes' village.[8]
- Infrastructure financing cost (£2.4 billion).
The success of Athens 2004 depends entirely on accelerated completion
of infrastructure projects costing a total of Eur 20.9 billion[9]
(£13.1 billion) as follows:
| | Eur
|
| Athens International Airport
| 2.5 billion
|
| Athens Ring Road | 2.5 billion
|
| Athens Metro Extension |
2.0 billion
|
| Pathe Motorway | 2.0 billion
|
| Egnatia Motorway | 2.3 billion
|
| Upgrading of Telecommunications
| 5.0 billion
|
| AthensHalkida suburban railway line upgrade
| 1.5 billion
|
| Rio Antiro Bridge | 750 million
|
| Water and sewerage programmes
| 375 million
|
| Health and welfare programmes
| 375 million
|
| Energy and gas projects
| 920 million
|
Bringing forward expenditure costs money. Assuming
these projects have been accelerated by an average of three years,
that is a hidden financing cost for Athens 2004 of £2.4 billion
(£13.1 billion x 6 per cent financing cost per year assumed
by Ove Arup x 3 years).
In addition, of course, the fact that these projects
have to be rushed through at once is contributing to enormous
inflation in the Greek construction industry, the unquantified
costs of which hit the rest of the Greek economy. Athens 2004
will use all this infrastructure at no charge.
Of course all potential 2012 host cities have a similar
list of required infrastructure investments. For example the figure
for San Francisco's failed 2012 bid was $31.8 billion. The real
question, for London 2012, of course, is what is the list of similar
projects required and who is going to pay for them: London, British
or EU taxpayers?
The real scandal of Athens 2004 is that the projects
generally referred to as the 'legacy' of the Olympics are in fact
being paid for not out of the ATHOC budget, nor even out of the
Greek Government Olympic budget, but out of the European Union's
regional development funds, but no one from the EU is auditing
them.
The majority of the Eur 20.9 billion costs are being
met by the Community Support Frameworks II and III for Greece
(Eur 18.5 billion and 26.6 billion respectively), with much of
the remaining funding taking the form of subsidised loans from
the European Investment Bank.
Amazingly, despite the huge sums being doled out,
the EU does not maintain a list of projects supported by CSF III.
Money is distributed to qualifying projects by selected local
"partnerships". They only inform the EU of the individual
projects when the whole programme is closed (ie all the money
is gone). CSF III is not expected to close until 2009. Until then,
the Greek Government can effectively direct the EU moneyhose
wherever it wants. The EU does not even have a list of projects,
let alone any financial information it could audit, for nearly
a decade.
CSF II was grossly misapplied by the previous Greek
Government. The EU is currently (behind a veil of secrecy) trying
to recover Eur 2.9 billion that was spent on nonqualifying
projects.[10]
And who is the EU Commissioner in charge of ensuring
that Greece can "absorb" (EU terminology) these multibillion
dollar sums without waste or fraud? None other than Michel Barnier,
President of the Albertville 1992 Olympic Organising Committee!
- The Cultural Olympiad (£74 million initial
cost). This is an ambitious monumental
roving showcase of Olympic and Greek culture.[11]
Resources to the tune of 40 billion drachmas (£74 million)
have already been allocated through the [Greek] state budget ...
to this amount one should also add the additional resources that
will be allocated during the 20012004 period through the
current budget, the Ministry of Culture lottery tickets, funds
for Ancient Olympia and the Olympic Youth Festival and Olympic
Education, not to mention the funds allocated for specific Ministry
of Culture activities with regard to the 2004 Olympic Games. These
funds are earmarked solely for activities and not for any infrastructures,
which will be covered by the resources derived from the 3rd Community
Support Framework."[12]
- Indirect costs (unquantified).
In addition to the costs listed above, Greek police, customs,
military, social services, health, environment and other public
services are having to deflect very substantial resources away
from other priorities because of Athens 2004. These public costs
have not been quantified. There are also costs to disruption of
business up to and during the Games, again unquantified.
LONDON
2012: KEY
QUESTIONS
12. So where does all this leave London? Before the
Government supports a London 2012 bid, the public needs answers
to the following questions:
13. What would be the real costs of the Games?
How can we believe the Arup figure for operating costs of £779
million when the cost of security alone for Athens is going to
be more than £400 million? What has been left out of the
Arup total cost figure of £1.8 billion in addition to most
security, customs, immigration, social services and local council
costs? How can it be so far below the total costs of either Sydney
or Athens?
14. What revenue assumptions are made in the bid
budget? Are the Arup figures predicated on higher TV licence
revenues than Athens or Beijing? Who bears the risk if the current
slump in advertising market continues? You can ask the Football
League what that feels like.
15. What new transport infrastructure will be
required? If a London Olympic bid is successful, there will
be a list of infrastructure projects to which the Government is
committed, including presumably Crossrail. These projects will
be given priority over other national projects. The public has
a right to what they are and what it will cost to prioritise them.
16. How would a London Games impact London Underground
PFI? A successful London Olympics would require considerable
upgrading of the London Underground. Is this included in the existing
PFI contracts? If not, how will its costs be covered? Will the
Mayor concede his power to run the tube to an Olympic transport
authority during the Games?
17. How will new infrastructure and facilities
help London? Will the athletes' village help solve London's
affordable housing crisis? Will new infrastructure be in the right
place to solve London's wellknown transport problems?
18. What liabilities will Londons taxpayers underwrite?
According to the Olympic Charter, host cities have to underwrite
the total cost of the Olympics. Based on potential costs of £5
billion and three million households, that is equivalent to every
London household writing a £1,670 insurance contract. Could
this liability not be shifted to the capital markets?
19. How will the public expenditure be funded?
Even a public funding requirement as small as Sydney's would be
equivalent to a £187 oneoff surcharge on Council Tax
for Londoners. How will the full public costs be funded—will
it hit only Londoners or the whole country? Note that even the
optimistic economic scenarios rely on huge public spending, later
recouped through tourism—which relies on higher taxes followed
by a treasury windfall some years later.
20. Who will run the bid, and any eventual Games?
In Sydney, the chairman of the Games Committee was a Cabinet Minister.
Is that appropriate? How will other members of the Committee be
selected? How will the views of the public be incorporated into
plans?
21. Where does new Wembley National Stadium figure
in all this? The project's delay and much of its cost related
to providing an athletics track. But is Wembley, or is it not,
an Olympic site? If it is, then shouldn't its £161 million
public subsidy be added to the Olympic budget?
22. Would a London Games require new public order
legislation? Under the Olympic Charter the Mayor and Government
have to guarantee that large swathes of London will remain advertising—and
protestfree during the Games. Will this require new legislation?
Will recent antiterrorism legislation be used to uphold
this commitment?
23. How will the public be assured that a London
bid is clean? In the wake of Enron/WorldCom (not to mention
the recent Olympic bribery scandals) it is absolutely essential
that a London bid and any resulting Games are clean, transparent,
ethical and open. The IOC is still an unelected body completely
lacking in modern governance. What safeguards will the government
put in place to ensure a London bid committee is different? How
will the Government ensure transparency and high ethical standards?
How will the public scrutinise the award of London Olympic contracts?
Who will audit Olympic expenditure by Bid and Games Committees,
Government, Local Authorities and the GLA?
24 December 2002
2 Business and Economic Benefits of the Sydney 2000
Olympic Games, Price Waterhouse, April 2002 Back
3
The Sydney 2000 Olympic and Paralympic Games Performance
Audit Report by the Auditor-General of New South Wales, 1998,
available at http://www.oca.nsw.gov.au/resource/fin_cont_report.pdf Back
4
Cost of the Olympic and Paralympic Games Auditor-General's
report to Parliament 2002, available at
http://www.audit.nsw.gov.au/agrep02v2/costofolympicgames.pdf Back
5
Athens 2004 is 'Back on Track', Tom Knight, Telegraph,
4 May 2001
http://www.telegraph.co.uk/sport/main.jhtml?xml=/sport/2001/05/04/soolym05.xml Back
6
Report of Bid Committee into expected benefits Athens 2004, 22
July 1997. Summary available at the Greek Embassy to Washington
DC website http://www.greekembassy.org/press/newsflash/1997/July/nflash0722d.html Back
7
Athens 2004 official website http://www.athens.olympic.org Back
8
Olympics budget to stay at 1.5 trillion drachmas, government
decides, ANA, Athens, 16 January 2002
http://www.greekembassy.org/press/newsflash/2002/January/nflash0116e.html Back
9
Infralympics Athens Conference Material, November 2000 http://www.hirc.gr/events/infra/Org_New_Infra_Brochure.pdf Back
10
Kathiemerini, 8 June 2002, EU pressing Athens for huge refund
http://www.ekathimerini.com/4dcgi/_warticles_politics_100005_08/06/2002_17381 Back
11
Cultural Olympiad 2001-2004 website http://www.cultural-olympiad.gr Back
12
Helenic Ministry of Culture website http://www.culture.gr Back
|
