Game Changer: Recession Recasts Olympic Spending
Supporters and Opponents of the Games Find New Ways to Justify, or
Criticize, Event's Huge Expense
By GEOFFREY A. FOWLER and MATTHEW FUTTERMAN
Wall Street Journal, Feb 10, 2009
For the cities hosting the Olympic Games, heavy spending is an unofficial
but required sport -- as is the debate about whether it's good for the
local economies. Some say it's hardly the time for lavish spending, while
others invoke the magic word "stimulus."
The 2010 Vancouver Winter Olympics, set to start one year from Thursday,
has been saddled by financing troubles for its athletes village, worries
about corporate funding and ticket sales, and growing local resentment
about the loss of resources that could have alleviated social problems
such as homelessness.
On Sunday, several hundred people gathered in Vancouver, British Columbia,
to protest the Winter Games by hosting their own "Poverty Olympics" at a
local school, featuring stunt events such as "skating around poverty" and
faux Games mascots such as Creepy the Cockroach.
Demonstrators marched Sunday through Vancouver, arguing that money spent
on the 2010 Winter Games would be better spent ending poverty.
"If the government made poverty and homelessness as big a priority as the
Olympics, they could make a big difference," said organizer Wendy Pedersen
of the Carnegie Community Action Project, which sponsored the event. By
her organization's calculations, the cost of the athlete village could
have funded more than 4,000 homes for the homeless.
As the Olympics has grown, so has the bill for the local organizing
committee and the pressure for additional private financing, something
that will likely become increasingly difficult to generate if the
recession deepens. Despite the increased spending -- and the perennial
friction it causes among residents -- some think the outsize expenditure
may help host cities avoid the worst of the recession in the same way
stimulus spending is meant to help afflicted economies.
"For both Vancouver and London these Olympics present golden
opportunities, because they are essentially the only companies hiring at
this time," said Gilbert Felli, executive director of the Olympic Games
for the International Olympic Committee.
The economic benefits of hosting an Olympics are debatable, especially
since 1992, when Barcelona began the tradition of using the Games as an
excuse to renovate a city and justify long-hoped-for infrastructure
improvements. Few events provide more exposure, and there is the benefit
of being known as an "Olympic city." But slaying the myth of local profits
and lasting value from the Games has become a biennial event for
economists.
Olympic investments likely peaked in China last year, when the communist
government used the Olympics to justify some $42 billion in infrastructure
investment and operations costs. Olympic organizers for the Salt Lake City
Games in 2002, the latest Olympics to take place in North America, boasted
of $76 million in additional income for the state and the city from 1996
to 2003, as well as some 12,600 jobs in 2001 alone. But according to a
2006 report from the University of Utah, all but 250 of the jobs created
by the Olympics disappeared after the Games. Studies of Calgary, Alberta,
after 1988 and Atlanta after 1996 showed that the Games had little effect
on those cities' rates of unemployment, inflation or income.
Vancouver recently received approval from its provincial government to
borrow $374 million to complete its athlete village after private-sector
funding for the waterfront project dried up. The $714 million project, led
by the Millennium Development Corp., was highly leveraged and based on the
assumption that the luxury apartments could be sold at a premium in
Vancouver's skyrocketing property market.
London's plans for the 2012 Summer Games have been met with similar
financial distress. When $2.07 billion in private investment failed to
materialize for the athletes village and an international broadcast
center, organizers had to begin dipping into a government-backed
contingency fund to continue construction.
As Vancouver prepares to celebrate its one-year countdown, its financing
issues are under a microscope. In 2007, city government provided a
completion guarantee for the project to Fortress Investment Group, a hedge
fund and private-equity company lending money to the project. In
September, Fortress stopped advancing funds to Millennium for
construction, leaving the city to foot the bill.
Mayor Gregor Robertson said in a Jan. 9 statement that the decisions to
guarantee financing for Olympic construction "taken by the previous city
government have put the city at enormous financial risk, even as we were
told in 2006 by our elected leaders that the Olympic Village would be
developed at no risk to the taxpayers."
Neither Millennium nor Fortress returned calls seeking comment.
Competition venues, paid for by the provincial and national governments,
have been completed, but organizers remain $8.2 million shy of their
$620.5 million target in corporate sponsorships to underwrite the Games's
$1.43 billion operating budget.
With sports sponsorships coming under increasing government scrutiny,
notably Citigroup Inc.'s $400 million naming-rights deal with the New York
Mets, the corporate sports marketing spigot is now viewed as all but dry.
Olympic sponsors such as Nortel Networks Corp. and General Motors Corp.
have been financially pummeled, raising the specter that they could
default on their commitments. It hasn't happened yet, but "that is a risk
we assess every day," said Dave Cobb, the executive vice president of
revenue, marketing and communications for the Vancouver Organizing
Committee. A GM spokeswoman says the company is "committed to providing
the transportation support to the Games." A Nortel spokesman said its
technology is already serving Games organizers and "our commitment to our
customers is unchanged."
Moreover, spectators facing tighter budgets because of the recession could
stay away from the Winter Games, or spend less than expected, though
organizers say early demand for tickets has been higher than they
expected.
Mr. Cobb says the organizing committee remains within budget, even though
inflation has increased costs since the city's 2002 bid for the Games.
Security for the event could cost as much as $800 million at the
government's expense. The expenditure comes as Canada is experiencing its
first national budget deficit -- totaling $27.76 billion in the fiscal
year starting April 1 -- in a dozen years.
Chris Shaw, a scientist at the University of British Columbia and leader
of an anti-Olympics movement, says the Games represent excess in a time of
need. "In the end, you are left with sporting facilities that very few
people will use, and a huge mountain of debt," he says.
In London, the government's $888 billion bailout package for the country's
banks has dominated headlines, making the mounting Olympic budget, which
was $5.78 billion in 2004 and is now $13.78 billion, seem like small
potatoes. As a result, the Games still have broad bipartisan support.
Under the original plan, contractor Lend Lease intended to sell by now the
$1.48 billion Olympic Village project and the $592.3 million media center
to developers. With no private investment, the London Organizing Committee
for the Olympic Games recently withdrew $682.6 million from a $3.99
billion contingency fund footed by taxpayers so construction can continue.
"We're still in talks to see how much private money will be there, but in
the current economy, private-sector funding is a lot harder to come by,"
said Joanna Manning-Cooper, a spokeswoman for the London committee.
As a result, the sort of public financing local organizing committees
tried to minimize is now morphing into the latest Olympic selling point.
Mr. Cobb says the Olympics are exactly the sort of economic stimulus the
city needs. "The money is going into projects that were already identified
as very important to the city, and are not 'make work' projects."
A December report by economists from the Royal Bank of Canada, a Games
sponsor, forecast a grim 2009 outlook for British Columbia. But the bank
predicted 2010 gross domestic product growth of 3.5%, with spending on
projects related to the Olympics as a contributing factor.
Write to Geoffrey A. Fowler at geoffrey.fowler@wsj.com and Matthew
Futterman at matthew.futterman@wsj.com
