Friday, September 22, 2006

Hosting an Olympic Games – be careful what you wish for

The City of Chicago continues to move forward with an ambitious plan to host the 2016 Summer Olympics. If you carefully examine the tea leaves, the 2016 Olympics will be held in the United States and Chicago is the likely city (ahead of San Francisco and Los Angeles) to host a two week global party that leaves behind a legacy of financial problems for any Olympic host city. Over the last week, reports from Vancouver, the city set to host the 2010 Olympic Games, paint a very scary scenario for the residents of this British Columbia city.

B.C. Auditor General Arn van Iersel released a report last week stating the 2010 Olympics are going to cost $2.5 billion, and not the budgeted $600 million. The report, which has sent reverberations throughout Vancouver, suggested British Columbia taxpayers better get ready to assume an additional $1.5 billion to pay for the Games.

"Our review of VANOC's venue capital cost estimates, however, indicates there are risks that may result in additional costs to the province," he said in his report. "There are still many pressures facing the capital budget for the Games and risks inherent in the operating budget as well."

Van Iersel included every potential Olympic related expense in his report. The auditor-general included the $775-million Sea-to-Sky Highway upgrade in his figures, as well as $41 million for the B.C. government's Olympic Secretariat and $20 million to build roads into the Callaghan Valley, the route to the 2010 Olympic Nordic Centre.

"The highway was included in the bid book in the first instance," van Iersel told The Province. "The purpose of the secretariat, as we understand it, is to help the province manage its Olympic commitment and we think that's a fair cost to include."

The Sea-to-Sky Highway is a classic example of how government’s position projects in hosting an Olympic Games. The current highway between Vancouver and Whistler (about 75 miles) is a treacherous two lane highway. If Whistler is going to become a world class ski resort, it will only do so if the highway between Vancouver and the ski resort makes Whistler more accessible. What Van Iersel seems to be forgetting, it was inevitable the Sea-to-Sky Highway would be built. The Olympic Games might have been the catalyst, but the highway was going to happen irregardless.

"Way back when we were bidding for the Games . . . one of the things we looked at was the access to Whistler," John Furlong head of the Vancouver Organizing Committee told the media after the report was announced. "We had a conversation with the province about the road and the plans were to build it by 2012. The Games have triggered a timing change, that's all."

Chris Shaw of 2010 Watch, an outspoken critic of Olympic bookkeeping, said van Iersel's report was a case of "I told you so."

"It's the Enron-style accounting we have been warning about since 2002," said Shaw. 'The question is what are they going to do to make sure things don't get worse?"

While the Sea-to-Sky Highway expense makes sense, a number of other key items and mistakes made by Vancouver organizers fit more along the lines of other Olympics Games – bad planning and poor economic projections have only made a bad problem only a great deal worse.

The Vancouver Olympic Organizing Committee had budgeted $470 million for facilities. That figure was revised to $580 million last week; a figure few observers believe is realistic.

"Whether the revised enhanced [$580 million] budget will be sufficient to deliver a venue package that meets [International Olympic Committee] satisfaction is questionable," warns the federal report by Pacific Liaicon, a subsidiary of construction powerhouse SNC-Lavalin Inc.

It’s interesting that while Furlong is quick to point out British Columbia had been in the planning stages for the Sea-to-Sky Highway, he can only spin the spiraling venue costs.

"This is a very, very complex project," said Furlong, who said last week the Olympics will come in under its $580 million construction budget. "I believe that we have the confidence of the people of the province.” Remember as the head of the Vancouver 2010 Olympic Bid Committee, projected $470 million. Why anyone would have any faith in Furlong’s ability to deliver a revised facilities budget nearly 25% higher then his original budget makes no sense.

"It is . . . abundantly clear that VANOC is not far enough along on design, completion of Project Definition Reports, or tender and award of contracts for all their venues to be able to state unequivocally that they can deliver Olympic 2010 venues within the revised $580 million total budget," the report concludes.

"Whether the revised enhanced [$580 million] budget will be sufficient to deliver a venue package that meets IOC satisfaction is questionable."

Of greater concern are the suggestions that the facilities would be ready well before the Games, offering Canadian athletes a real competitive advantage at the 2010 Games and that isn’t going to happen.

"It should ... be noted that in the worst cast scenario, similar to Torino 2006, the venues could be delayed to just prior to the Olympic events," the federal report by Pacific Liaicon report says.

"This would ... result in Canadian athletes not being able to do practice runs on the actual Olympic venues as presently planned. In addition, another downside effect is that additional escalation that is presently not provided for in the $580-million [construction] budget would be incurred."

Canada’s Winter Sports organizations reached their goal of finishing third overall at the Torino Games. Canada’s Federal Government is investing hundreds of millions of dollars in a self proclaimed “Own the Podium” program. A plan for Canadian Winter Sports athletes to dominate the 2010 Game one key component in that plan is to have the facilities finished well in advance of the Games. Anything less then ensuring Canadian athletes has every possible opportunity to excel at the 2010 Games is going to disappoint an entire country.

Poor planning and a lack of belief in the Canadian economy have cost organizers $150 million. Furlong and the bid committee projected a much weaker Canadian dollar when Vancouver was awarded the Games in July 2003.

"When the Games were awarded to Vancouver, the exchange rate could have been locked in at US $1 = $1.457, but steps to do that were not taken," noted the auditor-general. "As of the date of this report, the rate has fallen to US $1 = $1.125. That represents a loss for VANOC of approximately US $150 million for the broadcasting and international sponsorship revenues."

Furlong said VANOC received "a lot of expert advice" on whether it should have hedged its broadcasting revenues and "we followed the advice that we got."

As is the case with similar multi-sport events, the Vancouver Olympic Organizing Committee included a significant contingency fund in their budget to cover cost overruns. In a meeting on April 13, 2006, the senior vice-president, service operations and ceremonies indicated there was only about $13 million left.

"Unless VANOC can, under the IOC rules, divert part of their $2 billion operating budget to cover capital cost overruns including escalations, the Government of Canada may be facing an additional funding request before completion of the venues," the report states.

A poll conducted last weekend after the auditor general’s report was released suggested British Columbia taxpayers understand the Games are going to cost more.

"People don't want to see a pullback on the Games," said Evi Mustel of the Mustel Group market research group, which carried out the poll from Sept. 15 to 17.

"People also tend to agree with the argument that these infrastructure projects, such as the Sea to Sky Highway, were things that are needed and would be built anyway but were moved up in time for the Olympics."

Canadians and in particular Quebecers have their own unique understanding of how much an Olympic Games can cost. When Montreal was awarded the 1976 Summer Games in 1970, then Montreal Mayor Jean Drapeau's infamous quote, “The Olympics can no more lose money than a man can have a baby.”

However, with rampant corruption, and lack of financial controls, Montreal did indeed lose money, over $2 billion dollars (US), when it was all said and done. In fact, the Quebec government — afraid the province would be humiliated internationally — stepped in at the eleventh hour and essentially put the entire municipal Olympic organizing effort under trusteeship. The facilities would likely not have been ready in time for the games had this not happened, a reality trumpeted by the provincial government in a series of "Because of Quebec, we've done it all!" television commercials.

The 2004 Athens Games played like a classic Greek Tragedy. Originally budgeted at $5.7 billion, revised to $7.2 billion, final estimations for the Athens Games have costs somewhere between $8.5 and $12 billion. Generations and generations of Greek’s will be forced to pay for what was no more then a two week party.

The 2006 Torino Olympics were billions of dollars over budget. Stefano Bertone, a Torino lawyer and co-founder of the Turin Anti-Olympics Committee wasn’t surprised hosting the Olympic Games was an economic nightmare for the citizens of the Italian city.

"There is no intention from the promoters and the bidders and organizers to reduce the impact and dimensions of the Games, they want public funds handed them to build and build," Bertone said. "It has nothing to do with sports and friendship or peace."

The Games were forecast in 1998 to cost $616 million US and ballooned to more than $3 billion US. What the final bill is and how long it'll take for taxpayers to erase the debt is anyone's guess. There has been no cost-benefit analysis or audit.

TOROC originally forecast 1.5 million spectators, a figure downgraded last year to 1 million. Organizers are scrambling to reach the 900,000 mark.

Bertone has forged alliances with anti-Olympics watchdogs in host and bid cities worldwide, including Vancouver's No Games 2010 Coalition.

For Vancouverites, he has this message.

"There is clear indication, clear evidence of negative impacts," he said. "You are paying (for) with your taxes a monster which you don't know who it is and who it's working for."

Vancouver is a world class city and creating investing the needed infrastructures capital in helping to position Whistler as a world class ski resort (what might even be the premier winter destination vacation spot in the world) is good for the Canadian economy.

Claims by Furlong the Games budget is under control make no sense. Every Olympic Games held since the Montreal Games (with the exception of the 1984 Los Angeles Games) has been well over budget. Early in 1976, Montréalers were reminded to enjoy the opportunity of hosting that summer’s Olympics. Quebecers were told, enjoy the two week party, the economic hangover is one you’ll never forget.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The Vancouver Sun, the Vancouver Province and