Cash Crunch Causes Tension for Games Organizers

VANOC says international committee still must provide millions from
sponsors. The IOC says it has already given more than enough

STEPHANIE LEVITZ, Canadian Press, Monday, Aug. 24, 2009

Not long ago, it seemed like organizers of the 2010 Winter Games had constructed a gold-medal model on how to put on an Olympics.

New sports facilities in Vancouver and Whistler, B.C., were completed on schedule and on budget. The backdrop of the Games would be one of the most beautiful urban and alpine settings to ever host an Olympics, in a country that defines its identity by snow, cold and everything winter.

Yet with less than six months until the Olympic flame is lit in Vancouver, key knots in the plans for the 2010 Winter Games are slowly coming undone because of a worldwide recession seen as the worst economic slump since the Second World War.

No one is saying the budget for the 2010 Games won't be balanced. But at a time when the focus should be on the final few details, a multimillion dollar budget shortfall is fraying the close ties that bind Vancouver officials and the International Olympic Committee.

The IOC's co-ordination commission makes its final trip to Vancouver this week and will review transportation, accommodation, venue arrangements and plans for the opening and closing ceremonies, among other things.

But plans in some of those areas can't be finalized because of an issue that's become a key point of contention between the IOC and Vancouver organizers: $30-million worth of sponsorship money.

Vancouver's committee, known as VANOC, has repeatedly claimed it is owed a further $30-million from the IOC's take from major international sponsors.

Not so, the IOC says.

From the IOC's perspective, its contractual obligation to VANOC has been met and even surpassed, says Gilbert Felli, the IOC's executive director for the Olympic Games.

"We may have some more to come, but it's not an obligation of the IOC," Mr. Felli told The Canadian Press.

Mr. Felli and René Fasel, the chairman of the co-ordination commission, say the IOC has given more to VANOC than any other organizing committee.

"We have also taken over the host broadcaster role, which used to be paid for by the [organizing committee] itself," Mr. Fasel said in an e-mail, adding the cost of doing so is worth about $145-million
(U.S.).

"Since the beginning, we have also worked with VANOC to ensure that the core product was being delivered, and have pointed out when we felt that perhaps some 'nice to have' elements were unnecessary."

VANOC's claim comes from its 2009 budget, developed on the assumption that the IOC would be able to sign 11 international sponsors and give them $196-million towards their $1.76-billion bottom line.

That was despite the fact that during the bid phase for the Games, the IOC's forecast for sponsorship was about $127-million in 2002 dollars.

During the four-year period from 2005 to 2008 that included the last Winter Olympics in Turin, Italy, and last year's Summer Games in Beijing, the IOC had 12 worldwide sponsors that brought in nearly $900-million (U.S.).

Since then, major backers Kodak, Johnson & Johnson and Manulife Financial have dropped out, leaving just nine worldwide sponsors, the lowest number since the worldwide program was started.

"We were making budget forecasts that were based on a buoyant economy, on ongoing discussions with the IOC, on the performance in Beijing as it related to sponsors," said Renee Smith-Valade, vice-president of communications for VANOC, of the $196-million figure.

"We prepared our updated budget and then of course everything changed, the economy took a dive and everyone had to reanalyze and reassess every assumption."

With the countdown clock ticking, finger pointing over the $30-million has become a waste of time, said Richard Pound, a member of the IOC who sits on VANOC's board.

"The key is not whether $30-million comes from two phantom [worldwide] sponsorships, but how you fill that hole," he said. "There are lots of ways the IOC could do that."

Options could include the IOC giving VANOC a greater share of broadcast revenues for the Games or handing over more of their commission on sponsorship. Currently, it gives VANOC 16.67 per cent of every international deal.

There are other ways as well. When Canada unveiled its new Olympic hockey jerseys last week, the sweaters included a sleeve patch with the Vancouver Games logo. The IOC had to sign off on the uniform design, and the inclusion of the Vancouver logo will boost the revenues VANOC makes from merchandise sales.

While the lion's share of their financial problem is linked to sponsorship, it's not the only challenge facing Vancouver organizers.

Among others:

Olympic rules require an organizing committee to own billboard ad space on the routes to and from sports venues to prevent non-official sponsors from cashing in on the Games. VANOC was forced to buy $40-million worth of outdoor advertising from billboard companies, but is so far around $12-million short in reselling the
space.

VANOC has sold only about a third of its 75 VIP corporate hospitality packages, worth $285,000 each.

VANOC's troubles run the risk of spinning off into other areas touched by the Games.

The Olympics promised to contribute as much as $10.4-billion in economic benefits to British Columbia.

Later this fall, the federal and provincial governments are expected to release updated economic-impact studies on the Games.

They'll show that until the fall of 2008, the Olympics were mostly making good on their economic promises. But since the collapse of the economy, all bets are off.

A recent decision by VANOC to ask the private and public sectors to donate staff to the Games so organizers don't have to hire 1,500 temporary workers will drain any potential economic spinoff from new jobs.

Fewer restaurants are being booked wholesale by companies looking for hosting opportunities, and marketing agencies are reporting their clients are scaling back plans.

While no one is doubting the fans at the 2010 Games will be passionate, what has long-time Olympic observers puzzled is that the passion isn't spreading around the world.

The 2010 Olympic mascots have toured the world and international media continue to visit Vancouver in the run-up to the Games, but large spirit-boosting events are few and far between.

The venues, the location, the ways the Games are improving the city, these are all things that people should be talking about, said Ed Hula, the editor of Around the Rings, an Olympic newsletter.

"All those kinds of little things that can be talked up here and there, there just seems to be nobody who is interested in picking up the cudgel and running with it," he said.

There was no major event to mark the six-month countdown, and when asked, Jacques Rogge, president of the IOC, agreed the Vancouver Games could use a higher profile.

"I agree ... that a bit more promotion would be useful," the president told Around the Rings in a recent interview.

But Mr. Fasel said he still believes VANOC will be able to deliver the services required to put on the Games, and that's what concerns the IOC more than anything.

"There hasn't been any change in my expectation for these Games because I remain confident that Vancouver will put on top-notch Olympic Winter Games," he said.

VANOC is loathe to talk about what operational items might be on the chopping block for the Games and phrases the discussion in terms of "creative solutions."

Options include having the IOC buy some of the services from domestic sponsorship deals (such as using Air Canada tickets for IOC travel), scaling back hours at venues during the Games, and retooling plans for the nightly medal ceremonies.

No one is giving Vancouver organizers a free pass because of the economy, said John Furlong, VANOC's chief executive officer.

"We're still expected to rise to the occasion," Mr. Furlong told The Canadian Press in a recent interview. "That's what we have to do, that's what our team believes they have to do, and that's what they are trying to do."

But there are only a few more weeks for both sides to pull and push their point of view in the tug-of-war that's become Games planning. That means this week's meeting will be key in moving both parties to the centre line.

"By the time you get to four and five months before the Games, you have to say, 'Okay, we have got to pull the trigger now,' " Mr. Pound said.

"Even if we were to get more money after this, it might not be possible to apply it as effectively as we'd hoped."

Budget breakdown

A quick look at the financial plan for the 2010 Winter Olympic Games

Revenue
IOC contribution $447,009,841
IOC international sponsorship $196,355,999
Domestic sponsorship $756,815,478
Marketing royalties $197,349,079
Value-in-kind transfers to venues $11,800,000
Ticketing $260,449,608
Licensing and merchandising $53,818,519
Paralympic revenue $40,000,000
Other revenue $237,546,367
Revenue contingency $27,000,000
Total $1,755,849,733

Revenue, marketing and communications $170,413,924
Sport and Games operations $246,998,052
Service operations and ceremonies $616,018,338
Technology $391,861,523
Work force and sustainability $140,233,220
Finance $126,572,342
Contingency $50,131,044
Foreign exchange loss $13,621,290
Total $1,755,849,733