Commonwealth Games ‘never stacked up’, business case shows

The business case for the dumped 2026 Commonwealth Games last year predicted the event would potentially fail to generate any economic benefit even before the projected cost almost tripled within 18 months.

Financial workings, released on Saturday after the government reached a $380 million settlement with Commonwealth Games organisers, reveal the Andrews government was told it might generate only 70¢ in economic benefits for every $1 invested when it signed up to host the event at regional hubs.

The figures, which sparked fresh concerns about the state’s bid, found the best-case scenario would have delivered an economic dividend of just 60¢ for every $1 spent.

The analysis from early 2022 banked on wider economic benefits, including up to $38 million worth of “civic pride” the Games would foster in the community. Including that and other wider benefits, the business case expected a benefit-to-cost ratio of between 0.7 and 1.6.

The document informed the government’s decision to bid for the Games last year. On July 18, Premier Daniel Andrews cancelled the event saying the estimated cost had escalated from $2.6 billion to up to $7 billion.

Marion Terrill, the transport and cities program director at the Grattan Institute think tank, said on Monday she was surprised the government forged ahead given the figures in the business case.

“They always knew it was probably not going to be worth going ahead, but they still did it,” Terrill said.

“The worst case is much more likely than the best case. And the worst case, clearly, no matter what they did, it’s just no way near worth going ahead with.

“With these numbers, I’m very surprised they went ahead. Any realistic assessment would have said, ‘You’re looking at the worst-case number, not the rose-tinted glasses number. The worst-case tells us it’s just not worth it, don’t do it’. That’s before all these cost overruns came to light.”

RMIT Emeritus Professor David Hayward said the analysis also appeared to downplay the pricetag by counting government funding streams as revenue rather than as a cost.

Deputy Premier Jacinta Allan, the former minister for Commonwealth Games delivery, answers questions on Monday.Credit: Eddie Jim

Deducted from the cost was $173 million of state sport infrastructure funding and $161 million from the state’s housing program. Another $173 million from the Commonwealth and $16 million from local governments were also deducted from the cost to the state.

Hayward said that approach was questionable. He said the actual forecast cost would have been about $500 million higher than stated in the business case, which meant breaking even was the best-case scenario.

“Would you really go ahead with that?” Hayward said. “Even the best-case benefit-cost ratio looks pretty crummy ... This doesn’t stack up.”

He suggested the government might have calculated a political benefit to campaign on the Games in regional centres, including in marginal electorates, during last year’s state election.

Credit: Matt Golding

The 2022 business case was prepared with input from the Department of Jobs, Precincts and Regions, Visit Victoria, the Department of Treasury and Finance and consultants EY, MI Associates and DHW Ludas.

The analysis also relied on $228 million to $352 million worth of benefits for “avoided health costs and reduced productivity costs from increased physical activity”, and between $46 million and $97 million for “consumer surplus”: when the cost of a product is lower than the consumer is willing to pay. The business case also assumed the Games would bring an extra 1 million tourists to regional Victoria between 2022 and 2030.

“While the proposed model will deliver a range of benefits, it should be noted that the distributed model comes at additional cost that would not necessarily be incurred in a more centralised delivery model,” the document said.

Asked on Monday if the Games ever stacked up, Deputy Premier Jacinta Allan – who was also the minister for Commonwealth Games delivery – did not answer. Instead, she referred to extra costs that emerged after the business case was completed – from interest rate rises, COVID-19 and the invasion of Ukraine – that worsened the initial estimates.

“The $3 billion in estimated economic benefit that was in that initial business case just simply didn’t stack up against the costs that came in [afterwards],” Allan said.

Andrews on Saturday said the original analysis represented “strong value for money, more benefits than costs”.

Grattan Institute transport and cities program director Marion Terrill.

The planning document also floated the possibility of turning existing traffic lanes on roads into Games-specific priority lanes for some corridors between Melbourne and Bendigo, Ballarat, Geelong and Gippsland.

But within the hubs, public transport was proposed to be the only means of accessing the events for spectators, volunteers and staff.

The Games was expected to create thousands of jobs. The government says it is continuing with $2 billion worth of legacy projects in the regions, including $1 billion worth of social and affordable homes.

“The key reason we wanted to host the Games in the first place was to have those ongoing benefits,” Allan said.

A government spokeswoman did not respond to direct questions on Monday, but said: “When the Commonwealth Games needed a host city to step in at the last minute, we were willing to help – but not at any price, and not without a big lasting benefit for regional Victoria.”

Opposition major projects spokesman David Southwick said he would write to Allan to recheck the cost of all major projects given the Games exceeded its forecast budget so badly.

Opposition Leader John Pesutto renewed his calls for Allan to resign from cabinet as the minister responsible.

“Jacinta Allan and Daniel Andrews need to explain when they knew the Commonwealth Games had blown out,” Pesutto said.

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