Cancelling the Commonwealth Games won't come cheaply – Victoria now faces the legal consequences

The cancellation of the 2026 Commonwealth Games by Victorian Premier Daniel Andrews took all stakeholders – Commonwealth Games officials, athletes, sports bodies and local government officials – by surprise.

The Andrews administration will likely deal with the political fallout from not honouring its contract to host the games, but there may be legal and reputational damage ahead.

The principal reason given for pulling out of the games was financial. The Victorian government has said that based on its projections, the costs had ballooned from the initial projection of A$2.6 billion to more than A$6 billion. Such an investment could no longer be justified.

There were hints earlier this year that a significant reassessment of Victoria’s commitment to the games was taking place.

In the state budget for 2023–24, delivered in May, the treasury admitted the risks to Victoria’s economic outlook were greater than normal. The state has a growing debt burden, with net debt forecast to grow from about $135.4 billion in 2024 to $171.4 billion by 2026–27.

These projections mean Victoria’s net debt as a proportion of the state economy would, by the time the games were to take place in 2026, be approaching 24%. This is also going to be an election year in Victoria.

Victoria’s debt is due in part to long periods of lockdown during the COVID pandemic, which necessitated significant public spending. In some senses, the Commonwealth Games could be said to be a victim of long COVID.

Other reasons behind the cancellation

Behind the financial reasons for cancelling the games, there were a number of other factors in play.

First, it would be far easier in financial, contractual and reputational terms to not honour a contact with the Commonwealth Games Federation than it would be to pull out of an Olympics or a World Cup. The revenues generated by the Commonwealth Games in terms of sponsorships, broadcasting, ticketing and sports tourism are a fraction of those generated during one of the other two mega-events.

Second, in a sporting context, the largest sports in Victoria – Australian Rules football, the football and rugby codes and cricket – will largely be unaffected by Victoria not hosting the games. Other sports such as swimming and field hockey, for which the games are important in terms of participation, broadcasting and commercial exposure for the athletes, are easier for the government to let down.

Third, the blowback from regional Victoria, which was to be the hosting hub for the games, will be softened by the fact that investment commitments will still be upheld by the government. Some $2 billion will be directed to social and affordable housing and other infrastructure commitments in the regions.

Read more: For cities, hosting major sporting events is a double-edged sword

A breach of contract and likely settlement

However, the issue for government lawyers as they deal with the ramifications of walking away from the host contract is that, in strict legal terms, all of this context is irrelevant to the other party, the Commonwealth Games Federation.

In signing a contract, the Victorian government was saying it was willing and financially able to host the games. And the federation had the legitimate expectation the games would be delivered, as per the contract.

It is very unlikely this matter will end up in court – it will almost certainly be settled through compensation to the federation for breach of contract.

On damages, Katie Sadleir, the chief executive of the Commonwealth Games Federation, said expected revenues would be taken into account.

There are a series of clauses [in the host contract] that articulate the kind of cash flows that would have happened if the games had gone on.

There are likely also to be discussions on compensation for the reputational damage that has been done to the Commonwealth Games brand and for the logistical nightmare of searching for a new host.

Commonwealth Games representatives are likely to question the government’s projections of cost blowouts and ask whether they had been exaggerated to provide cover for pulling out of the contract. The initial cost projections were in line with the costs of recent games in the Gold Coast (2018) and Birmingham (2022).

Plus, independent reports suggested the Birmingham games resulted in a considerable net benefit to the English Midlands region.

Moreover, the federation is likely to stress that what the Victorian government did is highly unusual in the history of mega sporting events.

Another argument the federation could make: it was the government’s decision to host the games in its regional areas (thus entailing significant infrastructure costs).

According to John Coates, vice president of the International Olympic Committee, this regional model was never workable without federal support. Now, the fact it proved unworkable is a loss the Victoria government must bear.

Reputational damage for the games themselves

There is no doubt the Victorian government is currently in an uncomfortable spot. Victoria prides itself as being the sporting centre of Australia. It hosts the Boxing Day Test, followed by the Australian Open, the Formula One Grand Prix, the AFL Grand Finals and the Melbourne Cup. There will be some collateral reputational damage associated with this decision.

In the longer term, the Commonwealth Games are also now in a confronting position. The games are not as popular or prominent as they once were. Although the Olympics can carry it off as a commercial juggernaut, hosting a multi-sports event once every four years is difficult to sustain with ever-increasing costs.

Read more: 'Existential questions': is this the beginning of the end of the Commonwealth Games?

The sports world moves on quickly and to be blunt the appeal of the Commonwealth Games is struggling to maintain the pace. Even though the cancellation was a shock on Tuesday, the attention of the Australian sporting public was soon diverted to the next Ashes cricket test and the Women’s World Cup.

The inaugural edition of the Commonwealth Games – then known as the British Empire Games – was held in Hamilton, Ontario, in August 1930. A month earlier, the first edition of the men’s FIFA World Cup took place in Uruguay.

At the time, the events were of a similar magnitude. They are not anymore.

There is no doubt the centenary of the FIFA World Cup in 2030 will be a genuinely global celebration. The legacy of Victoria’s aborted 2026 Commonwealth Games may well be that the 2030 centenary edition struggles even to find a host.