Thursday, November 23, 2006

London Calling 2012: Staggering, runaway costs

Last week the City of San Francisco announced they were withdrawing their bid for the 2016 Olympic Games. Los Angeles and Chicago are the two remaining cities vying for the opportunity to represent the United States of America in bidding to host the first Summer Games that would be held on American soil since the 1996 Atlanta Games. Wednesday’s news from London, host for the 2012 Summer Games, served as a stark reminder regarding how careful cities should be when it comes to wishing they are capable of hosting an Olympic Games. Six years ahead of the Games, the costs to British taxpayers has surpassed $13.3 billion, and are heading for a final cost in excess of $20 billion.

Even scarier the current budget still excludes final security costs, VAT (facility costs), and decontamination costs, which could add at least a further $3 billion The running costs of the Olympics, expected to be raised entirely from private finance and sponsorship, are set at a further $3.89 billion, but these may also increase according to a report in the Times of London. Projected expenses associated with the London Games have surpassed $18 billion.

When it comes to the costs associated with hosting an Olympic Games, history should have warned British citizens what they were getting into when London defeated Paris 54-50 to be awarded the 2012 Games on July 6, 2005.

In September, the 2010 Vancouver Olympic Organizing Committee announced projected costs associated with the next Winter Olympics are going to be $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," the province’s auditor general 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."

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 forecasted 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 scrambled to reach the 900,000 mark.

How scary have things become in London? The City of London was awarded the 2012 Games 15 months ago. In that short period of time projected costs have more than doubled. Recognizing the costs of the Games where spiraling out of control, engineer-in-chief, Jack Lemley walked away from the project.

Sir Roy McNulty, the acting chairman of the Olympic Delivery Authority (ODA), responsible for the infrastructure of the Games, told The London Independent: "There were issues between Jack and the ODA and other stakeholders. There was a mismatch that led to serious differences and it was in everybody's interests that he return to the US."

Games organizers aren’t taking any chances, dealing with the direct fallout from a 100 percent increase in costs in just 15 months, the revised budget includes a further 60 percent contingency fund. London Mayor Ken Livingstone realizing he’s a passenger on an out of control train and called the billions of extra dollars built into the budget -- "absolutely, breathtakingly ridiculous"

"If you start out on this huge infrastructure project and say it might overrun by 60 per cent, everybody bidding for contract knows you have set aside this huge pot of money for when they screw up," he said. "That sends all the wrong signals."

Mayor Livingstone may be correct in his assessment, but when the bills are all totaled for the London Games, Londoners are going to have to deal with an Olympic Games that will cost more than $20 billion, the definition of financial suicide for a city and a country.

Conservative MP Hugh Robertson, opposition critic Olympics minister, told the London Independent: "The hidden story of today is why the Chancellor seems to have reneged on commitments of VAT and contingency he should have signed up to at the time of the bid. He should stop posturing about [hosting] the 2018 World Cup and concentrate on setting a transparent and accountable budget for the Olympics."

For this part, the Tessa Jowell British government’s Culture Secretary (responsible for the Games) did her best to regain control of an Olympic budget that was clearly poorly planned on the part of Sebastian Coe and the committee that bid for the 2012 Games.

"Six years out, it would be foolish to rule anything in or anything out," Ms Jowell said. "I am telling the [select] committee that this project is under control. Just because the Government has underwritten the costs doesn't mean we are going to step up to the plate and write a cheque [to the organizers]."

Only a fool would believe the “project” that Ms. Jowell talks about is under control. Ms. Jowell has little if any direct responsibility for what must some of the worst budget event planning in history, but for her to suggest a budget that has more than doubled in just 15 months, has seen its chief engineer quit, doesn’t even include security yet (at that will cost more than $2 billion when all is said and done), you’d have to believe you had become part of that great Abe Lincoln quote – “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”

The costs of the many facilities needed for what is a two-week event is driving the budget engine. Sir Stephen Geoffrey Redgrave a British rower who won a gold medal at five consecutive Olympic Games from 1984 to 2000, as well as an additional bronze medal in 1988 suggested to The Manchester Guardian, what’s done is done.

"It's disappointing. The government was involved in the budgeting side. They should have known there was going to be a VAT situation." Then at last some passion. "Remember what the Olympics can do for a country as a whole."

But does that excuse a city or a country to bid for an event, with a lasting legacy of debt that will last for generations of British citizens? Absolutely not.

Sebastian Coe suggested to The Guardian it was important to consider the bigger picture and remember what former Olympic hosts had to say after they had hosted the Games.

Coe recalled Barcelona host of the 1992 Games "They went for it. They were brave - and look at the legacy." And he reminded me how we'd sat through the Sydney opening ceremony together. "The Aussies were ripping the piss out of the Olympics until about halfway through that ceremony. Then it dawned on them - 'Hang on, this is rather good'"

Exactly how shortsighted is Sebastian Coe? As ‘great’ as the 2000 Sydney Games where, Sydney’s Olympic Park located 45 miles outside the cities downtown core has been nothing more than a money pit, losing tens of millions of dollars in the last six years. And Sir Coe, you aren’t brave if you bid for and host an Olympic Games, you’ve just made a terrible decision.

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. Londoners have six years to experience how out of control the budgeting for an event can become, two weeks to enjoy the event, and generations of British citizens forced to pay taxes on an event the country will rue the day they decided to bid for an Olympic Games.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The Times of London, The Manchester Guardian and the London Independent

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