Decisions taken by Boris Johnson as the mayor of London to convert the Olympic Stadium for West Ham United’s use cost almost £300m of public money and have saddled the stadium operator with annual losses of about £20m, a highly critical review has found.

The review, by the accountants Moore Stephens for Johnson’s successor, Sadiq Khan, concluded that the process “went awry” when Johnson ran a new bidding process in 2011 and all the financial risk and costs were taken on by the public sector. West Ham, a Premier League football club with its own Boleyn Ground to sell, won the bid to occupy the converted 60,000-seat stadium, but the £323m cost of conversion – a £133m overrun of the original £190m estimate – was almost entirely paid with public money.

The rent agreed for West Ham, £2.5m per year, does not approach covering the costs of operating the stadium, with which the new deal burdened the public sector. The current publicly owned operator, E20, is losing £10-£20m a year, the report stated – including losing £2.25m hosting West Ham to play football, which costs £4.75m a season.

Newham borough council, which loaned £40m towards the conversion of the stadium for West Ham, has accepted it will not see that money repaid and has withdrawn from the E20 partnership. Khan announced that he, through the mayoral body the London Legacy Development Corporation, will take control of the stadium and seek to staunch its losses.

“What has been presented is simply staggering,” Khan said, in scathing criticisms of Johnson. “Not for the first time, it reveals a bungled decision-making process that has the previous mayor’s fingerprints all over it.

“Boris Johnson clearly panicked when faced with legal challenges about West Ham and Newham’s joint bid to take ownership of the stadium and then decided to rerun the bid process with the taxpayer taking all the risks and footing almost the whole bill. You simply couldn’t make it up. The fact he also failed to properly examine the transformation costs or the entirely inadequate estimates for moving the retractable seats leaves us squarely in the dire financial situation we are in.”

Sadiq Khan said: ‘Boris Johnson clearly panicked when faced with legal challenges about West Ham and Newham’s joint bid to take ownership of the stadium.’ Photograph: Johnny Armstead/Rex/Shutterstock

The Moore Stephens review traces the history of the project from when London was granted the right in 2005 to host the Olympics, to the £752m total cost of the stadium and continuing losses. Originally in 2006, the Olympic Delivery Authority did not want to hand an expensively built public asset to a Premier League club, so commissioned a design for temporary seating to come down after the games, leaving a 25,000-seat stadium with an athletics track.

Johnson, who succeeded Ken Livingstone as the mayor in 2008, decided the reduced stadium plan was not a prestigious enough legacy and would cost public money to maintain, so scrapped it and the Olympic Park Legacy Company ran a competitive bid for its future use. Moore Stephens found that a proposal by Tottenham Hotspur to demolish the stadium and build a new one was quite sound, but was deemed unacceptable because the stadium post-Games was considered “an iconic venue” which should not be knocked down. Spurs’ proposed cost of £323m was to be met by the club commercially borrowing, naming rights and £35m public money. West Ham, then seeking £75m public money towards a £95m proposal for the stadium to have 60,000 seats and keep the running track permanently, were chosen. The club, not the public sector bodies, was to be responsible for the maintenance, development and operational costs.

That solution was scrapped completely after the decision was subjected to legal challenges, and a new bidding process was held in 2011. Moore Stephens identify as a crucial and costly change the decision then for the public sector bodies to take on the risk and costs of operating the stadium, charging West Ham only rent.

Spurs did not bid, Johnson having committed funding to helping the club redevelop at White Hart Lane, and the review says this left West Ham in a very strong negotiating position in “a very short list” of possible solutions. The review says Johnson should have used “no deal” as a negotiating tactic and reverted to the previous design, but he and the LLDC did not.

West Ham’s revised bid sought a much greater contribution of public money, now for retractable seating over the running track, which also meant the roof would have to be extended to cover those seats. The cost was projected by the LLDC, chaired by Johnson from September 2012 – the same figure as Spurs’ original proposal. West Ham’s contribution to the conversion remained at the level for the previous bid with the track retained permanently, just £15m; the LLDC paid £187.8m towards it; £291.5m in total came from public money. Johnson said at the time: “It is vital that I continue to be at the forefront of the decision-making, driving forward the huge task of delivery.”

The review criticises the deal as “not good” for the public, and finds the LLDC was too optimistic about the money it could make from naming rights and other commercial opportunities. E20’s losses are being borne by the LLDC, Khan said.

In response, a spokesman for Johnson did not directly address the criticisms made in the review, but criticised the original decision to have a reduced 25,000-seat solution for the stadium. He defended the decision to scrap the first bid under legal challenges, saying to continue would have led to “years of delay”. The spokesman also highlighted the legacy, of venues now in the hands of private operators, new housing and football in the stadium, saying: “The current mayor … knows no other city has an Olympic legacy like London’s – and that is down to Boris and his team.”

The report did not criticise West Ham for seeking the best deal. The club said: “West Ham United has played a significant part in the most successful regeneration programme in the history of the modern Olympics, however the stadium itself craves renewed leadership and direction and we welcome the mayor’s decision to step in and deliver this.”