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Rio Olympics Costs Rise by 25 Percent to 7 Billion Reais

Brazil’s operating budget for the 2016 Summer Olympics in Rio de Janeiro has increased by 25 percent above initial estimates to about 7 billion reais ($2.91 billion) as a result of new sports and inflation.

The original spending plan was for 5.6 billion reais, mostly funded through sponsorships and an International Olympic Committee grant.

The Rio 2016 organizing committee has “undertaken a line-by-line critical analysis of the budget, to balance known spending commitments and be able to meet new obligations as they arise,” the organizing committee’s chief executive officer, Sidney Levy, told reporters. “We are striving to achieve a zero contribution of public funds to the committee.”

Chief Operating Officer Leo Gryner blamed the higher costs on the addition of new sports to the Olympic program and the country’s increasing prices, which he said had grown 39 percent between January 2009 and December last year.

Rio 2016 said it will raise money through sources including sponsorship, ticket sales, licensing and a grant from the IOC. Organizers said they have already raised 70 percent of the total required. In the initial plan organizers had secured subsidies totaling 1.4 billion reais from local and national governments.

“There was a negotiation process with the government and they signed off our budget,” Gryner told reporters. “They said, ‘OK, this is a good use for the 7 billion reais you raised. You are going to spend that. Everything else will be covered by us.’”

Gryner acknowledged Rio 2016 was able to scrap the need for public funding by transferring several operations. including a requirement for a city-wide radio communication system, to government bodies.

The budget released today is the smaller of the two for the games, with the infrastructure spending plan -- estimated at 23 billion reais during the host bid -- to be released next week.

Spending on sporting events became a political issue after millions of people took to the streets last year to protest the government’s spending priorities.

Political Pressure

“When the public comes along and says, ‘Don’t spend all this money and, if you do, we’re counting where you’re spending,’ it tightens all of the pressure,” Andrew Zimbalist, an economist at Smith College in Northampton, Massachusetts, said before today’s announcement.

While both budgets were to be released last April, politicians in South America’s biggest country spent months debating the plans. The government hasn’t updated the budgets since 2009, when it won the right to be the first South American city to host the games.

Olympic budgets are always underestimated as part of the years-long competition to win the games, said Zimbalist, an author of 12 books on the business of sports. He said public pressure in Brazil means officials will try to keep the budgets as low as they can.

The U.K. in 2007 more than tripled to 9.3 billion pounds ($15.5 billion) the spending plan for the 2012 Games after underestimating costs to clean up the Olympic Park site and construct venues.

Currency Value

In dollar terms, the budget increase has grown only slightly following a significant fall in the value of Brazil’s currency. Since the start of 2010 through yesterday, the dollar has gained 27 percent on the real.

Rio’s operational budget is made up of revenue from sponsorship, tickets, merchandising and a grant from the IOC that includes a portion of global television and sponsorship income.

The budget for infrastructure projects, such as new roads, railroad lines and arenas, will be split between national and local governments and will be announced Jan. 28. Brazil is also spending to stage soccer’s World Cup this year.

The budgets were delayed as local governments and national politicians debated how projects should be funded, and by the August resignation of the head of the Olympic Public Authority, which coordinates the efforts of the three levels of government.

Thomas Bach visited Brazil this week for the first time since being elected president of the IOC in September. The German met with Brazil’s President Dilma Rousseff before traveling to Rio, where he gave a talk to local organizers and lunched with the city’s mayor and governor. Bach said after his meeting with Rousseff that he felt confident the games would be a success, though he repeated concerns about the pace of work.

‘Great Progress’

“We’ve seen great progress in the last couple of months,” he said. “The organizing committee has worked extremely well. But on the other hand, the president also made it clear that time is key and we don’t have any day to lose.”

Brazil’s national auditor said in September that organizers had spent only 92 million reais, or 5.5 percent of the 1.67 billion reais budgeted for the three years through 2012.

A tender for one of the most controversial projects, the canoe slalom venue in northern Rio, hasn’t begun, with responsibility being switched from state to city government. Concerns also persist about the polluted Guanabara Bay, the iconic location for sailing events.

To contact the reporter on this story: Tariq Panja in Rio de Janeiro at tpanja@bloomberg.net

To contact the editor responsible for this story: Christopher Elser at celser@bloomberg.net

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