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Police officers patrol near the Maracana stadium before a Confederations Cup soccer match in Rio de Janeiro on June 20, 2013. (PILAR OLIVARES/REUTERS)
Police officers patrol near the Maracana stadium before a Confederations Cup soccer match in Rio de Janeiro on June 20, 2013. (PILAR OLIVARES/REUTERS)

Matt Lundy

Brazilians have reason to protest the cost of Olympics and World Cup Add to ...

As many as a million people have flooded the streets of Brazil this month to protest everything from subpar public programs to government corruption, in what is the country’s largest display of public dissent in decades.

Many of them have targeted next year’s World Cup as symbolic of the government’s questionable priorities. The event’s hefty price tag – much of it bankrolled by taxpayers – is considered a prime example of wasteful spending.

It’s unlikely that criticism of Brazil’s sporting events will subside. Two years after the World Cup, Rio de Janeiro will play host to the 2016 Olympic Games. The mega-event double-header is supposed to anoint Brazil as a global superpower, much like when China hosted the 2008 Olympics. Instead, the events could wind up being a public-spending debacle that kills any good PR Brazil was expecting.

At current estimates, the upcoming World Cup will cost roughly $13.3-billion, with more than $3-billion earmarked for new and upgraded stadiums. The priciest of them is Brasilia’s Estadio Nacional, a 71,000-seat venue costing 1.5 billion reais (about $680-million), according to Bloomberg. So far, the venue has drawn spotty attendance and is considered a potential “white elephant” – that is, a useless building that sucks taxpayer dollars long after an event has left town. Cities that host mega-events are often full of them.

Another concern is quality control. Brazil has a reputation for building shoddy, overpriced infrastructure. Just last month, a soccer match between Brazil and England was cancelled when Maracanã Stadium – a World Cup and Olympic venue that underwent a pricey renovation – was ruled unsafe for play. (The decision was later overturned when the necessary documents were produced.)

Already, these problems sound familiar. In 2007, Rio hosted the Pan Am Games, whose organizers made a slate of promises, including new subway lines and a clean-up of polluted Guanabara Bay. Neither of those plans was executed. Not to mention that the athletes’ village – which became a residential property – started caving in within years, according to a Time Magazine article. The initial estimate for the Pan Am Games was $177-million. The final tally is believed to have cost as much as 10 times that figure.

Brazil can ill afford that level of error with the 2016 Olympics. When Rio bid for the rights, it presented a $14.4-billion budget to the International Olympic Committee, just a touch higher than the combined budgets for the three other finalists. The greater cause for concern is that every Olympics in modern history has overshot its budget by a wide margin.

Last year, a working paper from Oxford University claimed that every Olympics since 1960 has gone over budget, with an average overrun in real terms of 179 per cent. “The data thus show that for a city and nation to decide to host the Olympic Games is to take on one of the most financially risky type of megaproject that exists, something that many cities and nations have learned to their peril,” the researchers concluded.

Take London, for example. In the bidding process for the 2012 Games, London’s organizers presented a £2.4-billion budget. After winning hosting rights, the budget swelled to £9.3-billion. Critics believe the actual cost is billions higher.

Perhaps the Rio team is the first in recent memory to present a realistic budget for the Games. Then again, given the five-decade trend in budget overruns, and Brazil’s own spotty track record on event planning, it’s entirely possible the 2016 Olympics could cost billions more than advertised. After all, the budget for next summer’s World Cup was revised upward by about $1.7-billion.

But what about the economic impact of hosting these events? Is there a net gain to be made by spending billions on the World Cup and Olympics?

For the most part, research on mega-events believes they make a negligible (or unidentifiable) impact on long-term economic growth. “If a city is using an expectation of a financial windfall as justification for hosting the Olympics, past experience suggests that the host will be in for a rude awakening,” writes Victor Matheson, an economics professor at the College of the Holy Cross in Massachusetts, in the New York Times.

Likewise, the notion that mega-events lead to wild tourist influxes is largely a fallacy. The number of foreign tourists who visited the United Kingdom last August – the month in which the majority of the Games were held – actually fell by 150,000 people compared with same month the year prior. In Beijing, “the Olympic Games were a toxic event that crushed normal demand, both business and leisure,” said a 2010 report from the European Tour Operators Association.

On the bright side, some would argue that mega-events force governments to tackle much-needed infrastructure projects, like improvements to mass transit – something that Brazil’s protesters clearly want. Construction projects costing billions are tied to Brazil’s World Cup and Olympic vision, but as we’ve seen before, the country has a checkered history in making good on its promises.

Should either event meet a similar fate as the Pan Am Games, the public uproar could become deafening.

Matt Lundy is an editor at The Globe and Mail and a business writer who has specialized in the financing of major events.

 

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