The October event was the lavish opening of the first part of Neom, a planned metropolis defined by cutting-edge technology and psychedelic architecture, a cornerstone of the country’s plan to pivot its economy away from oil.

The truth for the project was less glamorous.

The relatively simple, low-rise development, known as Sindalah, was over three years late and on track to cost nearly $4 billion, three times its initial budget. Hotels were unfinished, high winds disrupted ferries and golf, and much of the site was still under construction.

Saudi Crown Prince Mohammed bin Salman, Neom’s mastermind, was a surprise no-show. Neom board documents say the party cost at least $45 million. Many Neom staff viewed his absence as a sign of disapproval.

Weeks later, Neom’s boss of six years, a former crown prince favorite, left the project and a new crew of executives was installed to turn Neom around.

After spending more than $50 billion, the crown prince’s sci-fi-inspired dreams—an arid-mountain ski resort, a floating business district, and the Line, the 106-mile-long pair of Empire State Building-height skyscrapers that is Neom’s centerpiece—have collided with reality.

Costs have soared, delays are ubiquitous and a decision last year to reduce Neom’s first phase threatens to deprive the desert city of the critical mass of inhabitants needed to make it a modern business hub.

Behind Neom’s problems: a dance of mutual delusion in which the crown prince pushed for fantastical plans—and executives shielded him from the full scope of challenges and costs, according to former employees and a more than 100-page internal audit of the project presented to members of Neom’s board last spring and reviewed by The Wall Street Journal. 

The audit report, labeled “final draft,” found that executives, at times aided by the project’s longtime consultants, McKinsey & Co., plugged unrealistically rosy assumptions into Neom’s business plan to justify rising cost estimates. The audit found “evidence of deliberate manipulation” of finances by “certain members of management.”

In a sign of the massive ambitions of the project, a draft board presentation from last summer pegged the capital expenditure required to build Neom to its “end-state” by 2080 at $8.8 trillion—more than 25 times the annual Saudi budget—and $370 billion for its first phase by 2035. The Saudi state is funding the lion’s share of Neom’s initial costs, although officials hope private investors will eventually share the burden.

A Neom spokeswoman said the Journal was “incorrectly interpreting” and misrepresenting the figures. She declined to provide additional detail.

Neom “champions excellence, professionalism, diversity and ethical conduct,” she said, and has policies requiring staff to uphold those values. The project’s “priorities are intact and the project remains on track, demonstrating tangible progress,” she said, adding that schedule and cost adjustments are common practice for large projects.

The Saudi government didn’t respond to questions about Neom or the crown prince’s involvement in the project.

A McKinsey spokesman said the firm ensures “compliance with the rules that govern international commerce.” He said any claim that it “has been involved in the manipulation of financial reporting is false.”

Saudi officials have begun referring to Neom as a generational investment that will bear fruit in decades to come—dropping descriptions that cast it as an economic engine starting in 2030. The country has long said its economic plan, Vision 2030, was filled with highly ambitious targets. Even accomplishing a portion would be a success, officials have said. 

Other parts of the crown prince’s economic plan have transformed the country. Millions of women have joined the labor force. The private sector has grown to contribute nearly half of Saudi’s gross domestic product, according to the International Monetary Fund, and smaller megaprojects in Riyadh have made faster and more visible progress.

Neom, however, was meant to be the anchor. Launched in 2017, the concept was to build from scratch an international hub with fewer social and legal strictures than the rest of Saudi Arabia. 

The crown prince compared the project to Egypt’s pyramids. He said it would mark a “civilizational revolution” and hold nine million people by 2045. 

The crown prince chairs the boards of Neom and sub-boards of all of the projects within it, and his approval is frequently needed for architectural choices. A fan of videogames and sci-fi movies, the crown prince pushed the idea of “zero gravity” architecture that looks like it defies physics, some of the former employees said.

A feature known as the chandelier—essentially an empty glass building more than 30 stories tall—is planned to hang upside down from a giant steel bridge in the Line. It was designed by Marvel film designer Olivier Pron, who was brought in because staff knew the prince liked his movies, some of the former employees said.

Neom executives made plans to build 10 miles of the Line by 2030. This meant constructing the equivalent of all the office buildings in Midtown Manhattan three times over in a decade. It would require significant portions of the world’s available steel and window glass.

Costs would be a challenge. The remote construction site had virtually no labor, no sizable port, few roads and insufficient electricity. The design involved an amusement park built 1,000 feet up and theaters suspended in the air between the parallel towers. 

They made the numbers work on paper by saying the Line would cost less a square foot than tall skyscrapers in Riyadh, some of the former employees said. Planners assumed economies of scale would bring prices down.

Former managers and executives within Neom said they routinely considered projections completely unrealistic. Some refused to sign documents attesting to aggressive schedules and targets. Plans were pushed ahead regardless.

The original architect of the Line, Thom Mayne of Los Angeles-based firm Morphosis, wanted to express concerns to the crown prince about the Line’s high costs. Neom executives rejected his requests, according to one of the former employees.

Bids on early work from contractors ran high. One way executives hid rising costs was to beef up profit assumptions, according to the internal audit and some of the former employees. 

The crown prince encouraged Neom to use a commonly used investment metric known as the internal rate of return, essentially the percentage of an investment that comes back in annual profit. If a hotel costs $1 million to build, and is worth $1.1 million a year later, it would have an IRR of 10%.

At Trojena, the planned ski resort, a fall 2023 review found that costs had surged by over $10 billion, according to an internal presentation reviewed by the Journal. That caused the IRR to fall to 7%, below the project’s target of around 9%.

To cover the gap, estimates for the rate at an “inventive glamping” site were readjusted to $704 a night, up from $216, according to the presentation. A “boutique hiking hotel” room was pegged at $1,866 a night, up from $489. The changes helped to push the IRR up to 9.3%.

The audit said Antoni Vives, who oversaw the broad vision at Neom and then ran Sindalah, justified rising costs with higher assumptions on revenue, rather than reassessing them as too expensive. He told colleagues and McKinsey consultants in an email before a key meeting that “we must not proactively mention cost at all.”

Dissent was also quashed. A Sindalah project manager was “removed after they challenged cost estimates,” the internal audit report found.

An attorney for Vives said that work at Neom “was done with total honesty and with the ambition that the project demands, in addition to absolute loyalty to the leadership of the country.” 

McKinsey helped to create “models to help improve the IRR calculation,” the audit said. The firm validated financial projections for Sindalah after a separate adviser refused to do so, according to the audit. 

The auditors recommended further investigation into potential conflicts of interest because McKinsey served both in planning and in validating the projects. 

McKinsey’s fees at Neom have topped $130 million in a single year, according to people familiar with the fees. 

The McKinsey spokesman said the firm has “strict protocols to prevent conflicts of interest in our engagements.” He added McKinsey was “not responsible for Sindalah’s integrated financial reporting.”

The Neom spokeswoman said the organization has “improved its internal controls and governance, particularly around procurement and managing third parties.”

A key driver of costs has been the Line’s 1,640-foot height. Engineering and construction challenges make it hard to build profitable supertall towers anywhere, let alone in the remote desert. Neom staff repeatedly urged executives to reduce the height to around 1,000 feet to save on costs.

At a Neom board meeting last spring, the crown prince “clarified the inappropriateness of reducing the height” of the tower, board minutes show. Cost savings should be found elsewhere, he said.

The head of the country’s wealth fund, Yasir Al-Rumayyan, suggested instead to use “new technologies to reduce the labor force.” 

Officials mothballed the portion of a rail line that involved digging an 18-mile tunnel through a mountain. They delayed the first piece of the Line, which had already been reduced to 1½ miles from 10 miles planned earlier. The current aim is to open the first half-mile chunk—topped by a stadium to host World Cup matches—by 2034.

“We’ll start to go vertical—hopefully—at the end of this year,” Denis Hickey, who oversees the development of the Line, said at the World Economic Forum in Davos, Switzerland, in January.

At Sindalah, the island resort remains unfinished. Restaurant workers have been reading books to pass the time without guests to serve, people who worked at the resort say. The golf course and hotels, four months after the party, still aren’t open to the public.