Olympic Finances Melt Down as Budget Falls Short

Brian Hutchinson, National Post Published: Friday, July 17, 2009

VANCOUVER -- Dave Cobb has his Games face on. Screwed on tight. Executive vice-president and deputy chief executive with Vancouver's 2010 Olympic Winter Games organizing committee (VANOC), he's the main numbers man, responsible for delivering six months from now a break-even mega-party.

Can he manage? His expression doesn't change.

Yes, he says, he can.

We hope. Like it or not, we are all invested parties. Whether by circumstance or choice, taxpayers and private sponsors have bet that an extravagant, international entertainment event will bring significant returns to Vancouver, to British Columbia, to Canadians.

Before the world economy soured, the odds at breaking even looked pretty good. Money flowed into VANOC coffers; relatively little was handed out. The committee's budget projections seemed about right. The Games' books could balance.

Corporations bought in, in a big way. Leading the pack was Bell Canada, wholly owned by BCE Inc.

In late 2004, when times were good, Bell committed a staggering $200-million to the Vancouver's 2010 Games, plus sponsorship rights to Turin in 2006, Beijing in 2008, and London in 2012. The deal included $90-million in cold, hard cash.

Bell also teamed with Rogers Communications Inc. to acquire broadcast rights to both the 2010 Winter Games and to the 2012 Summer Games. The consortium paid a record $153-million for these rights.

The rest of Bell's commitment was described in terms of services, such as the installation of 285 kilometres of fibre-optic cable between Vancouver and Whistler, B.C., and a new wireless link between the two centres.

VANOC's good fortune continued. In 2005, it secured still more lucrative sponsorship deals: A $110-million pledge from RBC Financial Group, which includes $70-million in cash and the rest in services; $62.5-million from Petro-Canada, including $18-million in cash; $53-million from General Motors of Canada, which includes $14-million in cash; $100-million worth of goods and services from Hudson's Bay Co.; and cash and services worth $68-million from home improvement chain Rona Inc.

Then came the global economic meltdown. None of the 2010 ­ sponsors has reneged, not even bankrupt GM. But some of the agreements now look profligate. Some analysts say expected returns to the company - advertising dollars especially - will have to be adjusted downward, perhaps severely.

Even small deals are hard to come by, now.

This week, after months of inactivity on the sponsorship front, VANOC announced it had signed up ALDA Pharmaceuticals Corp. The New Westminster, B.C., company will supply the Games with hand sanitizer and disinfectant cleaning products.

"These are products for the times we are in," offered John Furlong, VANOC's CEO. "Infection control" had to be introduced for the Games to avoid disruption from H1N1 and Norwalk viruses.

VANOC is still looking for sponsors and suppliers to round out its roster.

Meanwhile, expenditures are rising. According to ­VANOC officials, some companies have declined to bid for Olympics-related work; this has meant contracts are being awarded without a competitive process, driving up ­VANOC's costs.

Mr. Cobb has tweaked his forecasts. His operating budget, now $1.76-billion, is up 7% from 2007, and has increased significantly from the original $1.3-billion six years ago, when Vancouver made its winning Games bid.

The $1.76-billion budget doesn't include security costs. Originally estimated at $175-million, the security bill is now expected to top $900-million. About half will be spent on services provided by the RCMP. Taxpayers will pick up the entire security tab.

VANOC's budget doesn't include spending on infrastructure projects, such as new highways and transit initiatives, and an $883-million - and drop-dead gorgeous -Vancouver convention centre, built to coincide with the Games and to meet visitor and media requirements.

Vancouver ratepayers expect to be saddled with debt associated with an athletes' village downtown; completion of its interminable and allegedly shoddy construction is now a municipal responsibility, thanks to a private financing imbroglio triggered by the economic crisis.

Some of these extras - the new transit routes, especially - were needed and would likely have been built regardless of the Games. Vancouver will be better for all of them. No one ever promised they'd come freely, let alone on budget.

VANOC, on the other hand, remains zero-deficit committed. Speaking to reporters this week after a scheduled VANOC board meeting, Mr. Cobb did not move from that longstanding pledge. He did not project rock-solid confidence, either.

Certain assumptions have been made. Some budget targets seem ill-defined. For example, almost 14% of VANOC's total operating revenue is to come from nebulous "Other" sources.

In a terse note to its now-discarded 2007 budget document, VANOC said that "Other" revenue "comes from a variety of sources, some confirmed, and the rest from areas to be further planned and activated over the next three years." Among the "key areas targeted," the note reads, is "Internet revenue." A quaint notion, it now seems.

VANOC has still not indicated the source of half its anticipated $237-million "Other" income.

Mr. Cobb did acknowledge this week that there are gaps on the revenue side. Unsold international sponsorships account for a $30-million hole in the Games balance sheet.

It seems unlikely that these international sponsorships will sell; there's little time left for a new sponsor to get full marketing value for its money.

VANOC is struggling to sell a glut of unsold advertising inventory. Specifically, "out of home" billboard spots in communities surrounding metro Vancouver. The shortfall there is $12-million.

Premium ticket sales are languishing. Want to purchase a bells and whistles VIP package, starting at $145,000? There are plenty available. VANOC has sold only a third of its original target figure.

Mr. Cobb expects that ­VANOC will suck dry another $27-million revenue contingency fun before the Games have ended next February. The money will likely be spent to cover shortfalls in advertising revenue.

A $100-million contingency fund for Games venues has already been depleted; there's just $310,000 left in that kitty. Fortunately, construction on the venues is all but finished. But there's barely any margin left for changes or improvements.

About the only certainty is that VANOC will not spend less than $1.76-billion.

Things could be worse. Vancouver can count itself lucky not to be hosting the 2012 Olympic Summer Games, awarded to London, England. Organizers there think they can get the job done for a bit more than $17-billion.

National Post

bhutchinson@nationalpost.com

By the numbers

$1.3 Operating budget (2003) in billions.

$1.63 Operating budget (2007) in billions.

$1.76 Operating budget (2009) in billions.

75 Estimated sale of VIP (Vancouver 2010 Club) ticket packages, starting at $145,000 per package.

25 Number of VIP packages purchased.

$175 Estimated security budget (2003) in millions.

$900 Estimated security budget as of February 2009 in millions.

$647.5 Amount to be covered by the federal government in millions.

National Post