By John Considine
The release of the Anglo Irish Bank tapes in the summer of 2013 revealed the bank’s strategy for securing public funding (here). Anglo executives decided to look for €7bn even though they knew they would probably need more. Their strategy was revealed in the following quote from the tapes "... that number is seven (€7bn) but the reality is that actually we need more than that. But you know the strategy here is that you pull them in, you get them to write a big cheque ... and they have to support their money.”
Do those seeking to attract mega sports events take the same strategic approach or is it optimism bias that causes them to consistently understate the cost of the project? It is difficult to say whether the answer is optimism bias or strategic claims. However, there is little doubt that there is consistent understatement of the costs. This point is illustrated in a working paper from Said Business School by Bent Flyvbjerg and Allison Stewart (here). Their paper examined every Olympic Games since 1960 and it shows that every (yes, every) single games ran over budget. The average cost overrun is 324% in nominal terms and it is 179% when inflation is removed.
Flyvbjerg & Stewart throw much cold water on the claims that London 2012 came in on budget. This is a point taken up by Financial Times journalist John Kay. Kay traces the evolution of the cost estimates that were commissioned by the Department of Culture, Media and Sport. It started in 2002 with Arup estimating the costs at £1.8bn. A year later PwC estimated the costs at £3.1bn requiring a public subsidy of £1.3bn. The bid submitted to the International Olympic Committee in 2005 put the costs at £4.2bn. By 2007 the costs had risen to £6.5bn.
Irish sports people should not be surprised by the findings of Flyvbjerg & Stewart. In October 2000 the Taoiseach (Prime Minister), Bertie Ahern, presented a €293m figure to the Dail (parliament) on the total costs of building a National Stadium in Abbotstown. In January 2001, he apologies to the Dail for omitting another €68m in costs. In February 2002 the consultants HPR estimated the cost of the project at €890m. The stadium was not built.
The Punchestown Equestrian Event Centre was built. In 1999 the original proposal sought 100% public funding for a €6.9m Centre. In June of 2000 a revised proposal was submitted for €12.78m. The proposal was approved. A further €1.5m was approved in late 2001 – bringing the issue to the attention of the Public Accounts Committee.
Why the consistent underestimate of costs to the public purse? There is probably a bit of optimism bias and a bit of strategic behaviour.
When it comes to major sporting events then the least we should look for is a full and transparent explanation of how the costs of the sporting events are estimated. If not we are likely to get underestimates like the €7bn provided by Anglo Irish Bank. And, lest we forget, the Anglo executive claimed (here) he pulled that €7bn figure "out of his arse”.
Flyvbjerg & Stewart throw much cold water on the claims that London 2012 came in on budget. This is a point taken up by Financial Times journalist John Kay. Kay traces the evolution of the cost estimates that were commissioned by the Department of Culture, Media and Sport. It started in 2002 with Arup estimating the costs at £1.8bn. A year later PwC estimated the costs at £3.1bn requiring a public subsidy of £1.3bn. The bid submitted to the International Olympic Committee in 2005 put the costs at £4.2bn. By 2007 the costs had risen to £6.5bn.
Irish sports people should not be surprised by the findings of Flyvbjerg & Stewart. In October 2000 the Taoiseach (Prime Minister), Bertie Ahern, presented a €293m figure to the Dail (parliament) on the total costs of building a National Stadium in Abbotstown. In January 2001, he apologies to the Dail for omitting another €68m in costs. In February 2002 the consultants HPR estimated the cost of the project at €890m. The stadium was not built.
The Punchestown Equestrian Event Centre was built. In 1999 the original proposal sought 100% public funding for a €6.9m Centre. In June of 2000 a revised proposal was submitted for €12.78m. The proposal was approved. A further €1.5m was approved in late 2001 – bringing the issue to the attention of the Public Accounts Committee.
Why the consistent underestimate of costs to the public purse? There is probably a bit of optimism bias and a bit of strategic behaviour.
When it comes to major sporting events then the least we should look for is a full and transparent explanation of how the costs of the sporting events are estimated. If not we are likely to get underestimates like the €7bn provided by Anglo Irish Bank. And, lest we forget, the Anglo executive claimed (here) he pulled that €7bn figure "out of his arse”.
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