Money talks: The impact of Victoria’s shock Commonwealth Games decision

This week’s stunning news that the Australian state of Victoria had pulled the plug on hosting the 2026 Commonwealth Games, ostensibly due to cost concerns, thrust the contentious issue of the financial sustainability of major sporting events back into the spotlight.

It had originally been estimated that staging the Games would cost Aus$2.6bn (£1.4bn/€1.6bn/$1.8bn). However, State Premier Daniel Andrews said this week that the projected costs had ballooned to more than Aus$6bn and suggested that the figure could even reach as high as Aus$7bn. He added that the total was “more than twice the estimated economic benefit” it would bring to the state.

“I’ve made a lot of difficult calls; a lot of very difficult decisions in this job. This is not one of them,” the unapologetic Andrews said during his shock announcement. “That is all cost and no benefit.”

A difficult call?

The Commonwealth Games Federation (CGF), which awarded Victoria the rights only last year, was apparently blindsided by the decision of Victoria’s administration.

“The numbers quoted to us today of Aus$6bn are 50% more than those advised to the Organising Committee board at its meeting in June,” the CGF stated in response to Andrews’ announcement. “These figures are attributed to price escalation primarily due to the unique regional delivery model that Victoria chose for these Games, and in particular relate to village and venue builds and transport infrastructure.

“Since awarding Victoria the Games, the Government has made decisions to include more sports and an additional regional hub, and changed plans for venues, all of which have added considerable expense, often against the advice of the CGF and Commonwealth Games Australia (CGA).

“We are disappointed that we were only given eight hours’ notice and that no consideration was given to discussing the situation to jointly find solutions prior to this decision being reached by the Government. Up until this point, the Government had advised that sufficient funding was available to deliver the Victoria 2026 Commonwealth Games.”

The CGF’s dismay over the funding stance was clear – particularly as Victoria appeared to tick all of the boxes as a host destination.

It is only 17 years since the state’s capital Melbourne staged the Games, considered to be the world’s second biggest multi-sport event. Besides, Australia’s southeastern quarter is a hotbed of major multi-sport events. In Victoria’s neighbouring state of New South Wales, Sydney hosted the 2000 Olympics. Further up the east coast, in Queensland, Gold Coast staged the 2018 Commonwealth Games, while Brisbane is preparing to welcome the Olympics back to Australia in 2032.

Financial turbulence

However, the CGF had reason to seek a safe pair of hands for the 2026 edition of its flagship event, given the turbulence of recent years.

Birmingham in the UK – originally lined up as the host of the 2026 Games – stepped in to save the day when the South African city of Durban pulled out of staging the event in 2017, two years after securing the hosting rights. Again, financial constraints were cited. The only other competitor in the original bidding contest for the 2022 Games, the Canadian city of Edmonton, had already halted its bid due to cost concerns.

Birmingham was only able to bring the Commonwealth Games to the West Midlands four years earlier than planned thanks to a £560m commitment from the UK Government and a further £190m from the local administration.

However, in the Australian Federal Government’s most recent budget in May, whilst Aus$1bn was allocated for the 2032 Olympics in Brisbane, there was no mention of any support for the 2026 Commonwealth Games.

It is also worth noting that, aside from Victoria, of the other destinations that had initially expressed an interest in staging the Games in 2026, Adelaide in Australia, Calgary and Edmonton in Canada, Cardiff in Wales and Kuala Lumpur in Malaysia all scrapped proposed bids due to worries over the associated costs.

Given this recurring theme, from the perspective of financial sustainability, what are the implications for Victoria, future major multi-sport event hosts, and the future of the Commonwealth Games?

The state

Firstly, there remain more questions than answers regarding the state administration’s stance on the financial sustainability of the Games.

Commonwealth Games Australia Chief Executive Craig Phillips’ opinion that the stated cost overruns outlined by Andrews were “a gross exaggeration” have been echoed by others, while the Grattan Institute think tank has said that “the supply and cost inflation can’t fully account for this massive increase in costs”.

CGF chief executive Katie Sadleir said: “If you look at the history of the Commonwealth Games, what was being proposed in the paper as a $6bn exercise is significantly more than has been the case in previous Games.”

Meanwhile Victorian Opposition Leader John Pesutto has asked the state’s Auditor-General to investigate the development and suggested that the cancellation itself could cost the state’s taxpayers between Aus$1bn and Aus$2bn.

It certainly seems highly unlikely that Victoria will escape eye-watering costs associated with ripping up its hosting contract.

Michael Payne, the Chairman and CEO of Payne Sports Media Strategies who served as the International Olympic Committee’s Director of Marketing and Broadcast Rights for 16 years, told Global Sustainable Sport that the surprise announcement by Andrews looked like “political grand standing”.

“If costs have exploded it is because of Government’s desire for capital expenditure, not the sport operating costs,” Payne said. “It is totally unacceptable to announce cancellation without any prior discussion with your partner. You cannot just walk away from your hosting obligations without material cause. The lawyers will be busy unravelling this, and I would have thought the Government could be exposed to substantial damages claims.”

Event hosts

Payne added that it is important for organisers of multi-sport events to ensure there is a real legacy plan for capital expenditure – and if there is not one, such infrastructure changes should be temporary and removable after the spectacle.

“Start with being very clear what the actual cost of the event is, and separate it from all the capital infrastructure – sporting and non-sporting,” he said, before outlining how there are typically four separate budgets for such an event spanning event operations, capital infrastructure for sport, general capital infrastructure for roads and hotels, for example, and security. “It is the capital infrastructure that drives the costs and explodes the budgets, not the operating cost of the event.”

It is worth noting also that there is solid evidence of financial sustainability and a positive return on investment being achievable through major events – as long as there is a strong focus on sensible and transparent financial planning and event delivery. For example, the Birmingham 2022 Commonwealth Games contributed at least £870m to the UK economy.

Meanwhile, the organising committee for the Paris 2024 Olympic Games have committed to 95% of the facilities for the Games being either existing or temporary, guarding against infrastructure overruns and white elephant structures beyond the event.

Indeed, despite the difficulties associated with the financial sustainability of such events, Payne believes that there is an “ever-growing list of potential hosts lining up”, with emerging sporting powerhouse markets in Asia and the Middle East helping to maintain the momentum.

“There is no question that some groups and politicians have been intimidated by the potential cost when they read of the billions of dollars involved,” Payne said. “But once you break out the capital costs – which for a developed city may not be required at all – then the financial picture becomes much more realistic.”

Commonwealth Games

However, the impact of the latest setback on the future of the Commonwealth Games remains to be seen.

“The Commonwealth Games has struggled to find hosts for some time now. Birmingham was very successful, but as a multi sports event, it is not simple to deliver, and does not enjoy the blockbuster media and sponsorship deals that the Olympics does,” Payne added.

The list of potential hosts is squeezed by the timeframe involved. It was only last month that the CGF was marking 1,000 days to go until the start of the Games in Victoria, and with just three years to prepare, prospective host cities will have their work cut out to keep budgets under control in a volatile environment.

A possible return to Birmingham has been mooted by some observers, while Mayor of London Sadiq Khan’s spokesperson has said whilst a bidding decision would ultimately be taken by the UK Government, “London is the sporting capital of the world, with a wealth of experience in hosting major sporting events”. The spokesperson added: “The mayor stands ready to support a submission for 2026 and future global events.”

Against the backdrop of a cost-of-living crisis, stubbornly high inflation and a likely General Election over the next two years, there will be numerous considerations for the UK Government as it weighs up whether to bring the Games back to the country.

Meanwhile, following the Victorian Premier’s announcement, several other Australian states have been quick to distance themselves from a possible bid to host the event.

Such a predicament leaves the CGF with an unenviable task of finding a new host for 2026 whilst identifying a host city for the following edition of the Games in 2030.

“We are taking advice on the options available to us and remain committed to finding a solution for the Games in 2026 that is in the best interest of our athletes and the wider Commonwealth sport movement,” the CGF said.

However, it is clear that the potential cancellation of the Games must be considered a possibility.

In its near 100-year history, the event has only ever been cancelled during the Second World War.

This multi-sport spectacle is in choppy waters, though, and the purse-holders at administrations up and down the 56 member states of the Commonwealth will need convincing that their plans will navigate challenges successfully to deliver financial sustainability, rather than ruined balance sheets and reputations.