The announcement of major capital projects in the sporting world is usually met with significant excitement and energy. Press and sector interest is high and ‘naming rights’ are fiercely marketed to leading global brands. Iconic architecture offers a glimpse of an exciting future for fans and the community, with owners equally fired up by the prospect of forging a legacy. How – from this glittering start – do sports projects end up with such a sorry track record?
It is not uncommon to see sports projects alongside headlines of blown budgets, missed opening dates, and bitter contractual disputes. Having provided expert testimony in countless projects that have ended in dispute, our experts know this only too well. And it is reinforced by the data too: In “How Big Things Get Done,” authors Bent Flyvbjerg and Dan Gardiner rank Olympic Games projects amongst the worst performers for cost overruns – ahead of nuclear power, defense, and even IT projects.
What is it about sports projects that makes them so hard to get right?
Part of the answer lies in the underlying purpose of the organizations responsible for their delivery. A football club might have a strategic need for a major capital project – a new stand or stadium, for example – but its core purpose and expertise is in running the club. The same applies to a prospective host city developing a multi-use facility to support a bid for a major competition. Construction is not a core business for these organizations and a significant capital investment may be the only time the owner will manage a major project. They are “accidental developers.”
And they do not just have to contend with delivering something big and expensive that sits well outside their normal area of business. The complexity and risks associated with major project delivery have increased significantly in recent years. Today, owners of major projects face rampant construction inflation, a severe talent shortage, and fragile supply chains, all of which increase the risk of overruns and delays.
What are the pitfalls that catch out so many accidental developers?
First is the illusion of risk-free construction: the (incorrect) perception that through contractual skill and cunning, risk can be fully offloaded to third parties. Because fixed-price contracts have been agreed upon with stiff penalty regimes in place, the owner bears no risk. This holds so long as nothing changes, but capital projects are not delivered in perfect, predictable conditions and the unexpected is inevitable. And reputational risk is one that can never be transferred – if things go wrong, it is the owner that will take the heat.
Second, an over-reliance on third parties: because an experienced contractor and project team have been engaged, there is little else that needs to be done by the owner. An experienced supply chain certainly increases the odds of success, but this philosophy overlooks one crucial point; the need for owners to face off effectively with their new-found supply chain. They may not need to learn how to mix cement, but they should know enough to ask the right questions, know what to look for, and make the right interventions. In short, they need to be intelligent clients.
The third and final pitfall is optimism bias: that is the almost irresistible tendency for over-optimism about how the project will play out. In the early stages of major projects, there is a common tendency to overstate the benefits and downplay the risks. So prevalent is this issue that public sector projects are forced to account for it in project budgets. Without a dose of realism, it is all too easy for excessive optimism to take hold, often rendering projects undeliverable within a set of unachievable parameters.
So, what to do?
While the prognosis for sports projects may seem grim, they are not all destined for distress. There are three key steps that owners can take to tilt the odds in their favor and increase the likelihood of a successful outcome:
- Getting smart: by plugging the expertise gaps in their oversight bodies – bolstering their boards with capital project expertise – owners can ensure that they are able to discharge their responsibilities adequately and provide appropriate “critical friend” challenges to their delivery teams and supply chain.
- Investing early: assessing delivery strategies early ensures that owners make proactive and informed choices in relation to the options available to them, build the appropriate capability to manage the risks that major projects bring, and avoid inadvertently foreclosing on options.
- Assuring delivery: independent assurance plays an important role in business, and the same philosophy applies to major capital projects. Independent scrutiny – periodically and around crucial decision points – is key in ensuring that risks and performance are reviewed objectively.
Major sporting projects have the potential to create something special. They bring people together in a way that few other projects can; they have the power to regenerate communities and leave a legacy for the future. By getting their delivery right, they can be remembered for all the right reasons.
© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.