Feb 11, 2010

Sochi's Enron Economics

As all eyes turn to the start of the 2010 Winter Games in Vancouver, we thought it’d be a good time to check on the status of the 2014 Sochi Olympics.

The good news: according to Prime Minister Putin, "private" investors have agreed to pitch in $16.5 billion towards Sochi's construction costs.

The bad news: the total cost of the Games now tops $34 billion, leaving the Kremlin to cover $5 billion more than originally planned. The short-fall alone is enough to pay for half of the cost of the Nord Stream pipeline or pick up the tab for the entire financial bail-out of Dubai.

Strangely, the Kremlin has repeatedly stated that it expects to turn a profit on the venture. How it arrives at this conclusion is baffling.

Even if you doubled the current annual tourism revenue from the entire Krasnodar region, it would still take 103 years before the Kremlin & Co. break even on their up-front costs. And that doesn’t even consider depreciation, facility and infrastructure maintenance, and cyclical changes in the tourism market over the next hundred years.

Then again, once you get to the point where can bury a $5 billion loss and still claim to make a profit, the laws of rational economics have long ceased to be an issue.

Happy Winter Games, everyone!

2 comments:

Leopolis said...

Think of the costs of these games in pure bribes. That's even more staggering than contemplating their profit margins...

varske said...

Not every winter Olympics has facilities like a deep water port or a railway to the Abkhaz frontier but I'm sure they will be used later, unlike some Olympic facilities.