1855, theater slang for "a failure," by 1862 acquired the general sense of any dismal flop, on or off the stage. Via Fr. phrase fiare fiasco
"turn out a failure," from It. far fiasco
"suffer a complete breakdown in performance," lit. "make a bottle," from fiasco
"bottle," from L.L. flasco, flasconem
). The reason for all this is utterly obscure today, but "the usual range of fanciful theories has been advanced" [Ayto]. Weekley finds it utterly mysterious and compares Fr. ramasser un pelle
"to come a cropper (in bicycling), lit. to pick up a shovel." OED makes nebulous reference to "alleged incidents in Italian theatrical history." Klein suggests Venetian glass-crafters tossing aside imperfect pieces to be made later into common flasks. But according to an Italian dictionary, fare il fiasco
used to mean "to play a game so that the one that loses will pay the fiasco,
" in other words, he will buy the next bottle (of wine). That plausibly connects the word with the notion of "a costly mistake."