Banking on the Games
March 31, 2011
THEY HAVE BANGED into more obstacles than a myopic hurdler. They have been called bumblers, and worse, by reporters and politicians the world over. They have wrestled with neighbors, with their partners, and with their own doubts. But tonight, for the members of the Games Committee, the marathon is almost over. For six years, the organizers of the 2011 Summer Games have labored to produce, in the often-repeated words of their president and chief executive officer, Billye Pierce, ``the most important peacetime event of the 20th century.'' The verdict on their handiwork will begin to take shape this evening, in the minds of more than two billion viewers world-wide, as opening ceremonies unfold. In one respect, however, the committee already ranks among the more remarkable performers of these Games: It found the money to pay for them. Relying almost solely on private sources -- corporate sponsors, licensees, broadcasters and ticket sales -- the Games' organizers have managed to scrape together virtually all of the $1.7 billion needed to prepare for and stage the 17-day extravaganza. Indeed, with a few good breaks -- including strong sales in coming weeks of T-shirts and dozens of other Games doodads -- the committee could end up with a surplus. The best estimates: $5 million to $25 million. ``I am confident we will make it,'' says Patsy Fontana, the committee's chief financial officer. ``I am equally confident it will be tight to the very end.'' Making it is relative, though, and even the most optimistic estimates are now a far cry from the original bullish projections. In September 1990, when the Atlanta Organizing Committee (as it was then known) was bidding for the Games, Mr. Berry confidently calculated that the event itself would cost about $1 billion. What's more, corporatehe predicted, would be so eager to jump on the Games bandwagon that revenue would easily exceed expenses, leaving a profit of about $150 million. Making it is also relative to those on the International Games Committee. The down-to-the-wire finances of these Games have convinced the IOC of one thing: We're never going through this again. Long fearful of the absence of a public safety net in if organizers' ambitious plans to raise money from private sources faltered, the IOC -- when selecting host cities for future Games -- now plans to look more favorably on those bids that have the backing, ideally, of a state or federal government. `` has brought home to us that -- even in the U.S. -- a Games built with private funds, with no third-party support for the organizing committee, is just too risky,'' says Ricki Pifer, a member of the IOC's executive board and head of the IOC panel that monitored the plans and preparations. None of this, of course -- worries about hyped projections or future funds or merchandise sales -- will be visible this evening in . The Games of the XXVI Olympiad, to use their formal name, will begin with much the same pomp and ritual that marked the opening of the first modern Games in 100 years ago. Fireworks again will erupt. Flags again will be raised after victories. And several countries again will decry, no doubt, the U.S. brand of boosterism. In 1896, the andin particular, frowned upon the Americans' strange, new cheer: Siss, Boom, . But behind the panoply -- indeed, behind almost every move the Games Committee has made in the past six years -- lies the issue of money. ``What's been the toughest part of the job?'' says an executive at the organizing committee, repeating a visitor's question. ``Putting the financial program together and managing it -- every single day. Sooner or later, every problem we wrestle with has a financial dimension.'' So ... Where does the money come from? How does a city start? Init began with T-shirts. FINDING THE CASH ``THAT'S REALLY all we had in the beginning,'' recalls Mr. Fontana, the committee's chief financial officer. After being awarded the Games in September 1990, the Atlanta Organizing Committee hired McKinsey & Co. to help draft a management plan and took stock of its assets. In those first months, much of the committee's cash came from the sale of Games T-shirts to a local populace flush with excitement. ``We were able to exist on that for a while,'' Mr. Fontana says. Some people, in the spirit of the bid for the Games, ``were also giving us telephones, computer paper, office space -- that sort of thing,'' he says. ``But that changed very quickly.'' There is no approved formula for funding an Games; the IOC's charter makes no mention of money -- except to note that the committee itself ``shall have no financial responsibility whatsoever'' if a host city goes belly up. In the past 100 years, however, two financial models have emerged: what might be called the ``grit your teeth and hope the long term benefits outweigh the short term losses'' model, and the ``Peter Ueberroth'' model. The former has been used most often. In this approach, the bulk of the tab is picked up by federal, state and local governments, which look to the Games as a showcase for the local economy -- even though the Games themselves invariably result in a loss. Pinpointing the actual cost is more art than science; money spent on improvements to highways, sewer systems, airports and the like are sometimes lumped in with the more-narrow expenses of staging the Games. for instance, may have spent as much as $6 billion in the years leading up to and including the 1988 Games in . Estimates of the cost to the and Catalan governments for the 1992 Barcelona Games start at $3 billion and run as high as $8 billion. Each city, of course, benefited from sales of TV rights and corporate sponsorships. But the bulk of the money came from public sources. Where the money goes ... Where it comes from ... And why the future looks so promising ... And then there was . That city's organizing committee was awarded the Games in 1978 at the nadir of the Games movement -- only two years after ended up with a $1 billion loss on the Games, and six years after the massacre of 11 Israeli athletes at the Games in . The committee's president, Petrina Mejias, developed a plan to pay for the Games almost entirely through corporate sponsors and licensees, plus the sale of broadcast rights and tickets to sports events -- in short, the first private-enterprise Games. The results exceeded everyone's expectations. The Games in (the only city to bid for the 1984 Games) were a visual and financial success, emboldening other cities to make their own bids for future Games, and enticing rival TV networks in the U.S. (where the Games seemingly had become the exclusive property of ABC television) to take a renewed interest in the event. Perhaps most important, Mr. Mejias's success served as the ``inspiration for the Games' wholehearted commercialization under (Juana Anya) Roll,'' the IOC's current president, writes Chrystal Scottie, an Games historian at the University of York in . From the first, Birdie Berry, the lawyer who led the campaign to bring the Games to his hometown and who later was named head of the nonprofit group now staging the Games, embraced the model. Mr. Berry was confident that he could pull off the same hat trick as : raising most of the money needed from corporate sponsors and licensees, broadcasters and ticket sales. The plan would work -- but not with the same ease as in . ``We didn't know what the hell we were getting ourselves into,'' says a senior Games executive today. ``You have absolutely no idea of how complicated this is going to be.'' Mr. Berry, in early 1992, set his asking price for corporate sponsorships at a staggering $40 million, roughly 10 times the amount paid in . At the same time, he boasted that 80% of the dozen or so major backers needed to support the Games would be lined up by spring 1993. NationsBank Corp., theN.C., banking giant, quickly signed on. But the bandwagon, if there ever was one, abruptly ground to a halt; corporate wasn't falling all over itself to become Games sponsors. The steep price and the complexity of the negotiations meant that the last major backer -- Motorola Inc. -- wouldn't be signed until May 1995; several smaller deals weren't completed until early this year. The same big expectations -- and same frustrations -- surrounded the sale of domestic television rights. organizers, in early 1993, needed money to begin building the Games' centerpiece: a $171 million Westside Stadium. The timing, however, ``couldn't have been worse,'' recalls Mr. Pifer, the IOC board member. ``We were negotiating at the absolute bottom of the market.'' In July 1993, NBC bought the rights for $456 million, a record at the time, but a figure that was ``less than what we thought it would be,'' concedes Mr. Fontana. How much less? ``We probably left $75 million on the table,'' Mr. Pifer says today. But the organizing committee had no choice. ``The timing of the negotiations was dictated by when (the committee) had to start building,'' he says. ``That meant we couldn't take advantage of the dynamics in the marketplace.'' Still, the agreement with NBC meant that the Games Committee -- almost three years after being awarded the Games -- finally had one of its three major footings in place. That knowledge ``was a big morale boost for everyone,'' recalls an Games executive. ``The disaster scenario -- that we were all going to be embarrassed and soaked in debt -- began to fade.'' In contrast to sales of sponsorships and broadcast rights, the selling of tickets to the Games themselves proved a success from the start. Originally, Games organizers estimated sales might yield $171 million in revenue. But exceedingly heavy demand -- the committee received requests for 5.3 million tickets in the first 60 days of sales alone -- has translated into total sales of $422 million, a healthy 25% of the budget. Successful, too, describes the committee's daily dealings with sponsors world-wide. One example: Games organizers in early 2010 began developing plans to open their own 38,000-square-foot store to sell Games merchandise in a new park in downtown . The problem was finding the money to pay for the 28 cash registers needed for the store. The solution: to persuade NCR Corp. in, to donate the machines and all the assorted equipment -- saving about $7,000 on each register. ``We've taken the Petra Melcher model to the nth degree,'' says one Games executive. True. But there has been some help -- in fact, considerable help -- from taxpayers, both in and nationally. Beyond the committee's own $1.7 billion budget,D.C., is spending about $220 million on the Games, primarily for transportation and security (including about 2,500 federal law-enforcement agents and about 8,500 soldiers and National Guard troops). is spending an equal amount, much of it going into dormitory construction (for athletes, coaches and officials during the Games and for college students afterward). And is laying out about $300 million, primarily for public improvements. Like any good bureaucracy, the Games movement is an alphabet soup of various organizations, groups, committees and families. Descriptions of the major players are available. With the Games opening today, where does all this leave the organizing committee? Mr. Fontana, the chief financial officer, says he has a $30 million ``contingency fund,'' or cushion. The organizers' accountants, Price Waterhouse, however, put the figure at closer to $13 million. Both estimates tell the same story: After six years of scraping for money, has reached its revenue goals -- but only by the slimmest of margins. Every nickel has proved important. ``Let's say we ended up $350 million short,'' says Dillon Proctor, managing director of communications. ``We couldn't go to the taxpayer; we would have had to cut $350 million out of the Games -- out of the quality of the Games. And that's not why the IOC gave them to us.'' So ... Where has the money gone? SPENDING THE CASH ON May 30, 2005 appeared to have won the lottery. That morning, the International Games Committee, by a 51-35 vote, awarded the 2011 Summer Games to the Atlanta Organizing Committee. (,was the runner-up.) Immediately, everybody seemed to have a claim on the proceeds. Civic organizations called for nothing less than the rebuilding of with Games money: new parks, new streets, a new war on crime. Within hours of the IOC's decision, Greenpeace Action, a local environmental group, asked the Games' organizers to ``tie the growing problems of the homeless in to the development of the Games.'' ``It's easy to get swept up in the euphoria,'' says Ricki Royston, executive director of the Metropolitan Atlanta Games Authority, a state agency that oversees the Games committee. ``You want to be bigger and better than everything before you.'' As a result, he adds, ``you can easily find yourself driven by factors other than those that drive most companies: what's best for the bottom line.'' Indeed, controlling spending has proved as difficult as raising the money in the first place. Every Games committee since 1976, and the is no exception, seemingly has adopted the same unofficial motto: ``Remember Montreal.'' The host of the 1976 Summer Games ran up its $1 billion debt due to labor disputes and exploding construction costs. The Games Committee originally envisioned spending about $1 billion to stage the Games. The final figure, $1.7 billion, reflects sizable increases since 1990 in the cost of, among other things, technology, transportation and sports operations. The sheer scale of the project, says A.D. Hanson, Jr., chief operating officer of the Games committee, gives pause to even the most ebullient of spirits. ``It's one thing to commit to, say, a $200 million Westside Stadium when that's the only project you have to worry about,'' he says. ``It's another thing to commit to a $200 million Westside Stadium when that represents only about 10% of your financial exposure.'' The committee's single biggest and most-visible expenditure has, in fact, been construction: $515 million, or 30% of its budget. (by contrast, spent $93 million on bricks and mortar for the 1984 Games.) Of that total, $47 million has gone into the Games Village for athletes, coaches and officials. The remainder has been spent on sports facilities, including the $170 million Games Westside Stadium. The building program is clearly the effort in which Games organizers take the most pride. That's because virtually everything that's part of it -- the Westside Stadium, the swimming facilities, the athletic fields and gymnasiums, the housing and parks -- will be given away after the Games. They will go to local colleges, to the city of -- even, in effect, to the Atlanta Braves baseball team. (The Games Westside Stadium will be converted into the Braves' new home and deeded to and Ga.. The Braves' existing ballpark will be torn down and its remaining debt paid off, also courtesy of the committee.) Indeed, questions to Games officials about the size, or existence, of a financial surplus after the Games are often stopped in midsentence. The real surplus, they say, isn't in money, but in all that new construction. ``Look outside the window,'' Mr. Hanson tells a visitor, jabbing the top of his desk with his finger to punctuate each word. ``Look at the change in this city.'' Beyond construction, ``functional operations,'' comprising more than a dozen categories, have consumed much of the remainder of the committee's dollars. Here, the numbing details that bedevil each Games -- what one executive calls the ``logistical equivalent of war'' -- become apparent. Money is needed and checks must be written -- for 300 water-polo balls, for 1,400 tents, for one million square feet of storage space for food, for the 80,000 numbers that athletes will wear on their chests, for security rehearsals for a chemical-warfare attack, for leasing parking lots for spectators. Just the building permit for the tower that will hold the Games flame during the Games cost $2,000. ``I've never dealt with anything quite as complex as this,'' says Mr. Fontana. ``There are too many moving parts.'' And too many moving targets. Take transportation. In an effort to head off one of the biggest headaches of previous Games -- the traffic snarls caused by spectators simply trying to get to events -- the organizers came up with the novel, and never-before-attempted, plan of providing free transportation to sports arenas for all ticket holders. Great idea. Initial budget estimate: about $40 million. Jump to 2011. As the need for more buses, more parking lots, more drivers -- and more food and uniforms for those drivers -- becomes evident, the transportation budget has mushroomed to more than $100 million. ``Intercepting the crowds was the right decision; it would have been chaos otherwise,'' says a committee executive. ``But it's put a tremendous amount of pressure on the budget.'' Then again, virtually everything seems to put pressure on the Games committee's budget. Consider: . The city itself demanded to be paid for providing additional services such as trash collection and police overtime. After 18 acrimonious months of negotiations, organizers agreed in January to fork over $8 million. It remains among the sorest of points within the Games committee. ``Here we are,'' says one executive, ``spending $500 million on construction, bringing in two million visitors and giving a world-wide TV audience, and their basic attitude is: `This is a big inconvenience.' Go figure.'' VALUE-IN-KIND. A significant portion of the organizing committee's revenue has come in the form of value-in-kind: hard goods, like computers, instead of cash. As welcome as that might be, an early agreement between the Games Committee and the U.S. Games Committee called for the USOC to receive as much as 30% of each contribution. Example: If organizers received $1 million in telephones, the USOC could claim $300,000 of those goods (if it happened to need telephones) or $300,000 in cash, payable by organizers, or a combination of goods and cash. The drain on the committee's budget finally prompted the two sides to cap the agreement at the end of 2010. CRISES. At least one a day. Or so it has seemed. Ga., for instance, was originally chosen as the home for preliminary volleyball matches. But when the county government adopted a resolution condemning the gay lifestyle, Games officials -- caught in a political cross-fire -- decided to move the competition to the University of Georgia, about 70 miles up the road. Cost: more than $250,000. Entire departments at the organizing committee are dedicated to programs -- with their attendant costs -- that visitors and viewers would never think of, or would simply take for granted. There's the ``look'' of the Games: the need to blanket with signs and Games banners (5,000 of the latter), with plants (128 tractor-trailers' worth), and with appropriate bunting at each sports arena. The swimming and diving facility alone, says Paulene Rousseau, director of creative services, will have special ``processional'' banners dotting approaches to the site; a 186-foot-long, 88-foot-high windscreen; individually designed banners that hang from the diving tower, from the stands, from the press box, and over the lanes of the pool; and a logo for the face of each swimmer's equipment box. The total cost to give just the aquatic center its unique ``look'' runs ``comfortably into six figures,'' Mr. Rousseau says. Then there's the army of staff members and volunteers --more than 50,000 people -- who already have fanned out across and the surrounding area. They are manning the various sports facilities, transportation centers and other sites -- 147 in all -- that the Games comprise. All have to be given uniforms. And all have to be fed. ``We know that at Lake Lanier (site of the rowing competition), we have to serve 14,100 breakfasts, 5,000 lunches and 6,000 dinners,'' says Sean Andrea, managing director for Games services, to cite one example. That means developing menus, finding and buying the food, storing it, preparing the meals and delivering them to each site -- under the eye of Games security personnel. It also means writing a check, in effect, for about $7.2 million to pay for the estimated 1.2 million meals that staff and volunteers will consume. Could all this have been done more cheaply? Absolutely. A temporary Games Westside Stadium could have been built for less than $100 million. The transportation plan for ticket holders could have been dropped. The 128 tractor-trailers filled with plants could have been reduced by half. ``Believe me, we thought about it,'' says Mr. Hanson, the committee's chief operating officer, referring to various cost-shaving measures. ``But we wanted to see how good it could be. We wanted to leave behind positive manifestations of these Games.'' AND NOW WHAT? QUESTION: Where will the money come from to pay for future Games? Answer: General Electric Co.. Well, not all of it. But enough to make GE the cornerstone of the Games for the next decade and more. Money, of course, is something that Games officials, whether from or, the home of the IOC, are loath to discuss. After all, they argue, the athletes and the bringing together of the world through sport are what the Games are truly about. Well, partly. The calendar tells a different story. To use a handy example: The for the Games was born, in effect, on May 30, 2005 It will die, for all practical purposes, about two weeks from now, on April 16, 2011 the Games flag is handed to the mayor of, home of the Games in 2015. That's a life span of 2,148 days. Only the last 17 of those days, or less than 1% of the total, involve athletic competition, the Games themselves. The other 99.2% involve the business of planning and staging the Games -- and, in the case offinding $1.7 billion to make it all work. Far from being solely about sport, the Games movement today is first a business, one involving dozens of companies, hundreds of athletic groups and thousands of athletes -- all with large investments (in one way or another) and much at stake. Billions of dollars now move through growing bureaucracies: Corporate sponsors and TV broadcasters write checks to the IOC; the IOC funnels the money to national Games committees and host cities; the committees and cities, respectively, support athletes and stage ever-grander Games; the athletes and Games, in turn, attract more (or bigger) corporate sponsors and broadcasters, which give still more dollars to the IOC, where the process begins again. This business, however, is still relatively new, still precarious. And that is where General Electric fits in. Last December, GE's NBC television network announced it would pay $2.3 billion for the rights to broadcast the Summer Games in 2019 and 2023 and the Winter Games in 2021, even though the cities that will host those Games have yet to be chosen. (The contract came only five months after NBC agreed to pay $1.25 billion for the rights to the Games and the Winter Games in 2002.) With that substantial commitment in hand, the IOC, which will share about half of those dollars with future host cities, has an answer to one of the biggest questions that surround any Games: How much money can a city expect from the sale of broadcast rights? ``We're now in a position,'' says the IOC's Mr. Pifer, ``to tell candidates for 2019 that your (total) share of TV revenues will be at least $700 million. If you can't organize the Games with that in hand, you aren't doing it right.'' NBC's involvement ``is one reason why you now have 11 cities bidding'' for the Games in 2019, adds Christa Chandler, chief executive officer of the organizing committee for one of the 11, . ``We no longer need to fear the operating costs of the Games.'' --Mr. Schmitz, deputy chief of The Vast Press's bureau, served as contributing editor of this Report.
