Can 2010 Games Avoid Financial Crash?

DAVID EBNER AND ROD MICKLEBURGH

From Saturday's Globe and Mail, December 6, 2008

VANCOUVER — As stock markets dive, companies go belly up and economic fears stalk the land, overseers of the 2010 Winter Olympics have revised their budget, and the new document is full of sober reminders that what seemed fiscally fit just six months ago is no longer so buff.

The result – to be unveiled before the Vancouver Olympic Organizing Committee's blue-ribbon board of directors on Tuesday – is designed to ensure that the biggest peacetime event in Canadian history keeps its financial head above water. The proposed budget contains a significant increase in VANOC's original, $100-million contingency fund to prepare for economic dangers ahead, and serious cost-cutting to pay for it.

Restraint measures already implemented or projected include travel cuts; reducing tens of millions of dollars in printing costs by putting more material online; boosting the number of available seats in B.C. Place to raise extra cash; and hiring fewer employees for the Games than previously planned.

In a joint interview with The Globe and Mail ahead of next week's board meeting, VANOC president John Furlong and the No. 2 man, executive vice-president Dave Cobb, talked candidly about the economic challenges they face and what the organization is doing to cope.

“We know that the environment is changing. You can feel it. You can see it,” Mr. Furlong said. “No rock has rolled in front of us yet, and maybe it won't. But we need to demonstrate that we're ready for it. Notwithstanding what's going on out there, the public expects us to get to the finish line, no matter what. And we have to demonstrate that we can do it.”

Mr. Cobb said VANOC has no choice but to increase its contingency fund, set aside to cover unexpected expenses.
“The contingency that we will put before our board is significantly greater than what we intended to have at this time. … It's the responsible thing to do, to build a bigger cushion within our budget to be able to deal with the volatility that's out there.”

While neither official would spell out just how much of a boost is needed, they said there is no extra money to cover the increase, so it must be financed by slashing expenses. What was once hoped, during the good times, to be a healthy surplus over budget expectations in domestic corporate sponsorships has been scaled back to the original target of $760-million.

“We have to exploit every revenue opportunity that we have and squeeze the best value out of every single dollar we spend,” Mr. Furlong said. “It would be naive to think we could wander through this and not be affected by it.”
As an example of spending cuts, Mr. Furlong mentioned VANOC's contingent to the recent Beijing Olympic debriefing in London. The organization sent only 10 delegates, instead of the 30 originally scheduled to go. “That cut our expenses by 65 per cent,” he said.
VANOC, like everyone else, has been watching GM Canada go begging for a government bailout in Ottawa.

The auto company has committed about $70-million to VANOC, including the supply of 4,500 vehicles at Games time. VANOC says GM has already provided more than half of its original commitment, putting the potential shortfall at less than $30-million.

The company refused to speculate about what could happen if it doesn't get the government money. “As far as we're concerned, we're pushing forward as a viable organization. Our commitment to the Olympics is sound and 100 per cent,” said spokesman Stew Low.

Corporate sponsors are vital to VANOC's financial health, with nearly $1-billion earmarked to cover the bulk of its $1.63-billion operating budget. About $200-million is due from the International Olympic Committee's own sponsorship plans.

But the IOC still has two empty slots in a roster of corporate names that is supposed to total 11, yielding a potential shortfall also in the neighbourhood of $30-million.

“If they don't [fill them], we'll sit down with the IOC and figure out what we're going to do,” Mr. Cobb said. “They want us to deliver fantastic Games as much as we do.”
Emmanuelle Moreau, a spokesman at IOC headquarters in Switzerland, said the Olympic movement is not immune to the current global economic difficulties. She added, however, that the IOC already has more money from sponsors in its 2010-2012 program than it did for 2006-2008, and she assured VANOC officials that they will “receive their share of IOC revenue as planned.”

Other struggling domestic sponsors include Nortel Networks Corp., whose stock is down 95 per cent this year; Teck Cominco Ltd., down 89 per cent; and Air Canada, down 84 per cent.

Fortunately for VANOC, the commitments appear secure. Vancouver-based Teck, a heavily indebted mining company, is paying $15-million in cash over five years and it is “absolutely not” at risk, said spokeswoman Sarah Goodman.
“As one of the few large companies in Vancouver, we see this as an opportunity to support the home team,” she said. Teck is also supplying the gold, silver and bronze to the Canadian Mint to make the official Olympic medals.
Air Canada would have to stop flying airplanes not to be able to deliver for VANOC. For its sponsorship, undisclosed but likely worth $15-million, the airline flew Canadian Olympic team members to Beijing and will do the same for Vancouver and London in 2012. It is also donating $600,000 to the Canadian Paralympic Committee.

Nortel's exact sponsorship isn't disclosed, but the company is in the $3-million to $15-million category as an “official supplier,” providing the network equipment that underpins all communications at the Winter Olympics. About three-quarters of it has already been delivered, according to the company.

So far, VANOC has $748-million of its $760-million domestic sponsorship target in hand or committed. Organizers are in “serious discussions” with several potential new sponsors and one could be signed on by the end of the year, Mr. Cobb said – although the weakened economy has ended all talk of soaring past its budgeted goal.

The Games' biggest sponsor, Bell Canada and affiliates including The Globe and Mail and CTV, is in for at least $200-million. That represents the largest corporate sponsorship in Canadian history.

Bell and its affiliates are paring back, slashing thousands of jobs this year as they struggle to increase longer-term profits. But there is no risk to VANOC, said Loring Phinney, Bell vice-president of Olympic and corporate marketing: “We are a very stable organization.”
Meanwhile, VANOC's long-stated ambition to finish most of its venues by this fall, before economic calamity struck, is paying off, and will help the organization come through the turbulent times relatively unscathed, according to Kevin Wamsley, an Olympic historian and professor at the University of Western Ontario.

“Vancouver will have some issues but not nearly to the extent London will,” he said, noting that past Olympics have not seen large sponsors bail out despite bottom-line difficulties.

The last Winter Olympics in Canada, hosted by Calgary in 1988, had similar challenges, occurring in the midst of a severe slump in the oil business and just four months after the huge stock-market crash the previous October. But the Games were a success. No sponsors, including hurting oil companies, withdrew.

In fact, many businesses are now looking to the 2010 Games as a boon to surviving the current downturn.
Jock Finlayson, executive vice-president of the Business Council of British Columbia, said the Olympics will keep hotels and restaurants busy in a province where economic growth is forecast to be a nominal 0.6 per cent in 2009, rising to 2.7 per cent in 2010.

The Olympics alone could account for 1 per cent of economic growth, or more than one-third of the projected total in 2010, Mr. Finlayson said. “The additional spending will be very welcome.”

Arthur Griffiths, the prominent Vancouver businessman who helped bring the Olympics to Vancouver, was even more enthusiastic about the Olympics acting as a balm for economic ailments.

As he put it: “There isn't a city in North America that wouldn't kill to be in the position Vancouver is, having the Olympics here in 2010, during the current economic crisis.”