Abstract
Host city bidding for the Olympic Games appears to constitute a form of pro-cyclical irrational investing that leads to multi-billion dollar economic and financial shortfalls and budget over-runs with 100% consistency. The utilisation of Minsky’s Financial Instability Hypothesis (FIH) and Credit Cycle to the Olympic Bid Cycle sheds valuable light on the irrationality of these practices, highlighting a move from stable (hedge) to unstable (speculative) and unsustainable, precarious (ponzi) financing over the life-cycle of an Olympic bid. Application of Minskyian theory to the Olympic Bid Cycle carries important insights for practitioners and policy-makers, extends the analysis of Olympic-Games studies to the post-Classical economics realm, and addresses a wider theoretical call for the utilisation of Minskyian theory outside of a financial markets context. The article concludes with recommendations for further research.
Highlights
When speculative positions must be financed, the terms on which they are refinanced may be unsustainable ... but it is still better to refinance, and defer the day of reckoning, than to admit defeat.The process of bidding for, and hosting the Games, appears to constitute a form of pro-cyclical irrational investing that leads to multi-billion dollar economic and financial shortfalls and budgeting overruns (Flyvbjerg & Stewart, 2012)
The process of bidding for, and hosting the Games, appears to constitute a form of pro-cyclical irrational investing that leads to multi-billion dollar economic and financial shortfalls and budgeting overruns (Flyvbjerg & Stewart, 2012)
Summary Entering into an Olympic Bid Cycle appears to constitute a form of irrational investing that leads to economic and financial shortfalls and overruns with 100% consistency (Flyvbjerg & Stewart, 2012)
Summary
When speculative positions must be financed, the terms on which they are refinanced may be unsustainable ... but it is still better to refinance, and defer the day of reckoning, than to admit defeat. As the presence of profit opportunity leads to new activities and innovations (in the case of the 2008 financial crisis, securitization of subprime debt: “boom” and “euphoria” phases of Minsky’s Cycle), further stimulating growth, agents become less risk-averse and likely to take on more debt, increasing speculative positions At this point, many “hedge” units become “speculative”, where their indebtedness means that their cash flow would enable them to service only the interest on a loan. Secured by Government guarantees, Olympic bids tend to end with the inevitable taxpayer-funded bailouts ( to the post-2008 bank bailouts) as budgets have moved too far from fundamentals to secure a coherent and realistic profit At this point, many “speculative” financing units have become “Ponzi” financial structures, where interest payments alone exceed the units’ cash flow, leading to refinancing or liquidation and/or taxpayer-funded bailouts (e.g. Montreal’s 1976 Olympic Games where the cost overrun reached 796%). The cost of the Games was a significant contributor to the countrys’ economic malaise
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