Why Sochi is hosting the most expensive Olympics ever

Winter Olympics are generally less expensive than their summer siblings. That won’t be the case in Sochi, where the Winter Games are slated to be the most expensive in history. The price tag? Roughly US$51 billion. That’s about $10 billion greater than the previous high (for the 2008 Beijing Olympics), and a whopping $39 billion higher than Russia’s initial estimate for Sochi.

Understandably, some are wondering why such an extravagant sum is attached to the Winter Games. Here’s a breakdown of why the Sochi Olympics are the most expensive to date.

The Olympics are always way over budget

Sochi organizers are hardly the first to overspend. In fact, every Olympics since 1960 has gone over budget, with average cost overruns of 179 per cent in real terms, according to an Oxford University paper from 2012. “No other type of megaproject is this consistent regarding cost overrun,” the Oxford researchers note.

One theory for blown budgets is that host cities have little (or zero) experience in running such a large-scale sporting event. “Of the thousands of people engaged to work on the programme, few of them will ever have been on a Games committee in the past,” says Allison Stewart, one of the researchers.

Not to mention that initial budgets are basically a joke. “A budget is typically established as the maximum – or, alternatively, the expected – value to be spent on a project,” the paper says. “However, in the Games the budget is more like a fictitious minimum that is consistently overspent.”

Olympic bids are generally ambitious, and meeting expectations is a pricey endeavour. Inevitably, issues arise (e.g. security concerns, construction delays and transit demands) that can only be solved by throwing more money at them. That's certainly been the case in Sochi.

Corruption allegations

Russia’s opposition leader has alleged that up to $30 billion in Olympic money has been embezzled. “The scale of graft in the Olympic budgets defies the imagination,” he writes in a co-authored report. The opposition leader’s report relies on shaky logic, but regardless, it does draw a direct link between President Vladimir Putin and the recipients of lucrative contacts, some of whom are close allies and childhood buddies of the president.

Further, Russia is notorious for its culture of corruption. A recent Businessweek feature uncovered a system of kickbacks tied to construction contracts for the Sochi Olympics. In one case, a man claims he was offered a contract to lay a water line at an Olympic site – but on the condition he pay back 20 per cent to state officials.

For his part, Putin has dismissed any notion of corruption. "I do not see serious corruption instances for the moment, but there is a problem with overestimation of construction volumes," he told reporters in January.

The transformation of a city

By all accounts, Sochi needed a pricey facelift before its Olympic close-up. One necessity was a link between Sochi and Krasnaya Polyana, the mountain resort where ski and snowboard events are hosted. The result was a 50-kilometre road and rail project costing $8.7 billion – more than the total cost of the Vancouver Olympics. For that price, the road could have been paved with a centimetre-thick layer of beluga caviar, one magazine estimated.

The ski resort also needed massive development. Just five years ago, Krasnaya Polyana was little more than “a few streets of ragged wooden houses,” the Financial Times reports. Thousands of new hotel rooms have also been built to accomodate the influx of athletes, spectators and media.

Construction woes

It turns out Sochi was not the easiest place to build the Olympics. There was no flat area large enough in the city to build stadiums and arenas. Therefore, the main cluster of Olympic venues is located in the Imereti Valley, an area of flood-prone land about 20 miles from the city centre. The problem? Persistent flooding caused an embankment near Olympic Park to collapse. It needed to be rebuilt several times, a source told Businessweek.

There’s also the drama surrounding the ski jump facility, costs for which have soared from $40 million to $265 million. (The official who oversaw the facility’s construction was fired, with Russian authorities opening a criminal case against him.) Again, the land was perhaps ill-suited for a sports venue. Sources told Businessweek that organizers “didn’t carry out the necessary geologic tests before construction began.” The venue is located on unstable soil, and in 2012 a landslide took place on the ski jump hill.

The price of safety

Security costs for the Olympics are often underestimated. Take the Vancouver Olympics, for example. The initial security budget was $175 million. The final total was roughly $900 million. It was the same story two years ago in London, where the final security budget exceeded £1 billion – at least 600 per cent greater than the first estimate. More than 30,000 security personnel were deployed at the London Games, along with Royal Navy vessels and spy planes.

Expect even tighter security in Sochi. In a video posted in January, an Islamic militant group threatened to strike the Winter Olympics, saying “there will be a present” for tourists. The group also took credit for twin suicide bombings in the southern city of Volgograd that killed 34 people in December. Russian authorities have also been searching Sochi for three “black widows” – women potentially seeking retribution after their Islamist militant husbands were killed fighting Russian forces.

Reports have estimated that anywhere between 50,000 and 100,000 police, security agents and army troops will be in Sochi, sporting an array of high-tech surveillance gear and weaponry. With the world’s attention on Sochi, and with Putin ready to prove Russia’s might on the global stage, it’s likely that no expense will be spared to keep athletes and spectators safe.