Go for Olympic host city gold - and go for broke too

If there were a gold medal for panhandling, the International Olympic Committee would be the clear winner.

This effective private monopoly has over the past 125 years convinced 62 cities, and often their national governments, to stump up ever-increasing amounts of money for the privilege of hosting a sporting binge for a couple of weeks.

International Olympic Committee president Thomas Bach, right, bumps elbows with AOC president John Coates and Queensland Premier Annastacia Palaszczuk. Getty

The Olympics have barely been beneficial to the host – most Games run at a loss, with massive cost overruns. Will Brisbane be any different?

Tokyo originally budgeted $US7.4 billion, but Japanese government auditors have said total spending tops $US20 billion ($27 billion), an almost 200 per cent blowout. A 2020 academic study by Bent Flyvbjerg, Alexander Budzier and Daniel Lunn at Oxford University put this into perspective.

Since 1976, the average overrun on Summer Olympics is 213 per cent and the median 120 per cent. Montreal (1976) had the worst result, with a 720 per cent increase over budget, resulting in a debt that took 30 years to repay. Rio (2016) was the next highest with 352 per cent.

The study suggests that there are fat-tail, unquantifiable, and unpredictable risks with the Olympics. One of the most significant is that the IOC's interests are misaligned with those of the host city. The IOC is effectively a franchiser. It gains income from broadcast and sponsorship rights, clips the tickets for 10 per cent and distributes the other 90 per cent to the host city (which gets 50 per cent), with the rest distributed to local Olympic committees and promotional schemes.

The 10 per cent is generous to say the least, with the IOC's 500 staff, representing 96 per cent of administrative costs, being paid an average of $274,228 a year in 2019.

Its income depends on as large and grand an event as possible, so as to stimulate the appetites of broadcasters and sponsors, and is directly proportional in size to this appetite. This leads to pressure on the franchisee, the host, to improve and expand what is delivered.

With no skin in the game, demands from the IOC escalate, while the host has little ability to mitigate the cost overruns – effectively the losses.

If you want to know what the IOC thinks of Olympic hosts, you need only look at the way Australian Olympic Committee president John Coates berated Queensland Premier Annastacia Palaszczuk in front of the media pack.

Coates is the ultimate insider. Not only is he presient of the AOC (a position he has held for the past 31 years), he is also vice-president of the IOC (since 2013), and reportedly earned $689,364 for his Australian role alone in 2015, a touch more than 50 per cent higher than the $427,500 earned by the Queensland Premier.