Olympic finances need city pledge
Group creating plan to assume risk
While the public debate over the Olympics has so far fixated on the city’s snowbound transit system and where sports venues should or should not go, local organizers have been quietly working on a less flashy but potentially more important aspect of the city’s bid: the guarantee.
In 2017, as the international competition goes forward, Mayor Martin J. Walsh will be expected to endorse Boston’s blueprint for hosting the 2024 Summer Games and with his signature make a promise that should the plan for a privately funded Olympics falter, the city — and its taxpayers — will step in and fix it.
This guarantee, which is generally required of finalists for the Games, has created difficult politics in other US bid cities, and it has become the rallying cry for opponents of Olympic bids.
To protect the city from loss, local Olympic organizers with Boston 2024 say they have already been working on an Olympic plan, to be finalized by mid-2017, that will reduce risk, indemnify the city, and convince Walsh that he can comfortably agree to be the backstop without significant risk to taxpayers.
Guaranteeing the Games “seems to always be an issue in the US,” said Ed Hula, founder and editor of Around the Rings, an Atlanta-based publication that covers the Olympics worldwide.
Unlike in many countries, the Olympics in the United States are not financed by the federal government and it can be politically unpopular to risk taxpayer money for a private event. Drawn-out wrangling over financial guarantees in Chicago damaged the city’s unsuccessful bid for the 2016 Games, specialists say.
But in the United States, the guarantee has been more of a political issue than a financial one.
“In general, taxpayers in the US have not gotten stuck with bills directly for staging the Olympics,” Hula said.
Still, there is no such thing as a risk-free Olympics.
“This is a big complex project, so there is going to be risk,” said Doug Arnot, an adviser to the US Olympic Committee who is helping Boston 2024 develop America’s bid for the Games. “What we can say is, we will take every step we can to manage that risk, to mitigate it, and relieve the potential for exposure to the city.”
The US Olympic Committee in January chose Boston to represent the United States in a contest for the Games that could match it head-to-head against some of the world’s most prominent cities: Rome, Paris, and Berlin.
The International Olympic Committee, which will choose the host for the 2024 Games in 2017, has not yet said what sort of financial guarantees it will ask of potential host cities, but in the past the committee has required that cities promise the Games will be built as outlined in their bids, or to a level equivalent, and that cities cover potential shortfalls in the Olympic operating budget.
Walsh said last week he is confident “the talented Boston 2024 team” will produce “a real solid business plan” with a credible strategy for the massive corporate fund-raising needed to help pay for the Games.
The mayor also referenced recent Olympic history in the United States, where the Games have been run successfully with modest venue plans, and Olympic operating budgets have finished in the black.
“US Olympics in the modern age have been paid for by private investments,” Walsh said.
Boston 2024 has released plans for a $9 billion to $10 billion Olympics. That figure includes $1 billion to $2 billion for security, expected to be picked up by the federal government and US taxpayers. Without that, no US city would be able to compete for the Games.
The costs also include a $4.7 billion, privately funded Olympic operating budget. Should Boston win in 2017, the operating budget would pay for organizing the Games during the seven-year run-up to the event, the construction of temporary sports venues, and the actual staging of the competitions for the Olympics and Paralympics.
Money to pay for operations would come from ticket revenue, corporate sponsorships and private donations, Olympic merchandising, and contributions from the IOC drawn from broadcasting fees and international corporate sponsors, according to the plan.
Steve Pagliuca, co-owner of the Boston Celtics and cochairman of the Boston 2024 fund-raising and finance committee, said Olympic revenue projections are between $4.8 billion and $5 billion.
“So far this is looking very doable, and doable with a cushion,” Pagliuca said.
Experts say the Olympic operating budget is generally low-risk, especially in the United States, the world’s largest economy, where sponsorships and ticket revenue would be expected to be higher than in most nations.
“In a market like America you would really have to screw it up not to make that section profitable,” said Michael Payne, who was the IOC’s director of marketing and broadcast rights from 1983-2004, in a Globe interview.
Potential risks would include an economic downturn cutting into corporate sponsorships or a terror threat that drastically reduces ticket sales.
Arnot said Boston 2024’s plans to address risk call for a contingency fund “greater than” the $450 million organizers of Chicago’s 2016 bid set aside in case of cost overruns. The local organizing committee has also begun discussions with insurance companies over policies to protect Boston from liabilities, he said. Chicago organizers bought insurance worth about $1.5 billion to protect the city against loss, according to media reports.
The Boston 2024 plan also calls for $3.4 billion in private construction for the Games, separate from the operating budget. This is the category of Olympic expenses where cities have gotten into trouble with funding failures, cost overruns, and escalating ambitions that drive up the price tag of the Games. For example, Vancouver, host of the 2010 Winter Olympics, had to step in to pay to finish the athlete’s village after the project lost its original financing in the midst of a real estate crash.
Local Olympic organizers intend to finance the developments — primarily the athlete’s village, stadium, and broadcast center — by working with landowners to attract private developers that would put up the money to build the facilities, which the developers would control as commercial ventures after the Olympics. Builders would post surety bonds to ensure projects are completed in time for the Games, according to Boston 2024.
“Before we break ground we will have an end user in place that will allow us the use of that building during the Games and they will take it over after the Games,” said John Fish, chairman of Boston 2024.
Allen Sanderson, a University of Chicago economist who was critical of financial projections connected to the Chicago 2016 plan, suggested Boston 2024 may not be able to field a competitive Olympic bid on the budget it has projected.
“If you could do it for that amount you might come close to breaking even,” Sanderson said. He questioned, however, if such a plan would be competitive with international cities, and whether local organizers will be tempted to add bigger and bolder facilities once they see the competition.
“They either have to build lots of things or they’re going to lose,” he said. “In reality, you’re going to be up against some city that’s willing to build and build and build, and when you start uttering the word ‘billion’ that’s where cities get into trouble.”