Chicago’s Olympic bid: An expensive proposition

The Windy City would face a tough financial challenge in hosting the Olympics, experts say, but it’s well prepared with stadiums, infrastructure.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — With help from hometown heroes like the Obamas, Chicago is aggressively lobbying to host the 2016 Summer Olympics. But making the games profitable would not be an easy win.

Chicago is competing with Tokyo, Madrid, Spain and Rio de Janeiro in wooing the International Olympic Committee in Copenhagen. A decision is expected Friday.

Chicago 2016, the organization leading the effort to host the games, expects a cost of $3.8 billion, including a “rainy day” fund of $450 million in case of unforeseen increases.

But there’s good reason to be skeptical of that projection, said Robert Livingstone, producer of GamesBids.com and a leading expert in the Olympic selection process. Host cities routinely overrun their Olympic budgets, he said.

“It’s going to be more expensive than we think it’s going to be, because it typically is,” Livingstone said. “I think every [host] city is going to lose money. It’s not an efficient event.”

The bidding process alone is costing Chicago about $100 million, even if it doesn’t win, Livingstone noted.

An argument often made by host city advocates is that presenting the international spectacle is good for a local economy. But such “trickle-down effects,” like benefits to local businesses, are “almost impossible to measure,” Livingstone said.

“I think a lot of people look at the Olympics, and they try to justify it by how much money it adds to the economy,” said Livingstone. “[But] if you’re in this to make money and improve your economy, you’re in it for the wrong reasons.”

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Report questions financial benefits of 2016 Olympics

The Chicago 2016 Olympic bid team’s assertion that a Summer Games would pump $13.7 billion into the city’s economy will be challenged Thursday when an independent analysis says new spending is likely to be about one-third that amount.

Anderson Economic Group LLC projects the Olympics would trigger only $4.4 billion in additional tourism and infrastructure spending in Chicago and Cook County, and said even this figure could turn out to be too high.

“If private financing for infrastructure is not realized, and donations and ticket sales revenues fall short of targets, our estimated economic impact would be reduced as taxpayers see the benefits offset by higher taxes,” the report stated.

The East Lansing, Mich.-based company, which has a Chicago office, took on the analysis at the suggestion of Steve Frayne, who runs a Web site called “A Balanced Discussion” at www.Chicago2016.com. He acquired the domain name in 2004 and is in a legal battle over it with the Chicago 2016 bid organization.

While the study will be posted on Frayne’s site, Anderson said it conducted the work on its own dime and has no direct relationship with Frayne.

In its analysis, the firm used official bid data, but adjusted some downward. For example, it estimated only the numbers of visitors above what Chicago normally would get in summer, adjusted revenue estimates to reflect only money coming from out of town, and tweaked expenditures to reflect only what would be spent locally.

It also built in an assumed cost of $500 million, the amount of the city guarantee, in case the private financing for the athlete’s village construction didn’t pan out or sponsorships didn’t come through as planned. The Chicago 2016 bid team has said it is extremely unlikely the city guarantee would have to be tapped.

Chicago 2016 said Wednesday that it stands by its own report issued earlier this year, which projected an impact of $22.5 billion in the entire state and the equivalent of one year of work for 315,000 people.

“That study, like the one released today, reinforces the economic legacies that we’ve seen play out in past host cities,” said bid spokesman Patrick Sandusky.

But one outside observer said the Anderson study hits closer to the mark.

“You want to look at the net effect and this group did a better job,” said Allen Sanderson, a sports economist at the University of Chicago. “At the end of the day, the impact number is likely to be between zero and their number, as opposed to between their number and $22 billion.

“If we do things well, there will be a positive impact,” he said. “If we do things poorly, zero is an optimistic outcome.”

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Mayor Daley: Only an Olympic ‘earthquake’ would shake down taxpayers

BY FRAN SPIELMAN – City Hall reporter

Mayor Daley said today it would literally take an earthquake or a tornado for Chicago taxpayers to be left holding the bag for the 2016 Summer Olympic Games.

Three days before traveling to Copenhagen to sign the host city contract, make a final sales pitch and put Chicago’s fate in the hands of the International Olympic Committee with its Oct. 2 vote, Daley expressed confidence that the blank check from local taxpayers would never be cashed.

“They have been very, very fiscally responsible in regards to their presentation. I really believe that. Unless … ,” Daley said without completing the sentence.

Unless what? What would it take to put taxpayers on the hook?

“An earthquake or something or a tornado,” he said. “I really believe that, because we don’t have to build all of these facilities. That’s the difference. Just the savings at McCormick Place is enormous. The savings of having the United Center. The savings of having park land so you don’t have to buy land. In other cities, they have to purchase land. That is a huge plus for us.”

The City Council initially authorized a $500 million Olympic guarantee, only to have the IOC insist that it wasn’t good enough. Chicago had to match the full government guarantees promised by Madrid, Tokyo and Rio de Janeiro just to stay in the game.

That prompted the mayor’s June about-face at an IOC meeting in Switzerland that touched off a political firestorm at home and took the rest of the summer to put out.

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Chicago 2016: Agility key in insuring Olympics

Executives looked at insurance coverage for every conceivable disaster, but must remain flexible

By David Greising

Look closely at Chicago’s Olympics bid and it is clear there is a big difference between assurance and insurance, and without insurance, all the assurances in the world would not make a difference.

Insurance, in the end, is the only reason any rational person can support Chicago’s Olympics bid. Insurance policies guarding against nearly every imaginable catastrophe — from games cancellation to terrorism to tornadoes — are all that stand between Chicago taxpayers and potential deficits that could suck billions out of their pockets.

Assurances only go so far. Chicago 2016 says it can raise $705 million in tickets — the highest since the Sydney Olympics. It’s a reach, but doable.

Chicago 2016 expects $1.8 billion in sponsorship revenue. The number is unprecedented, but the Civic Federation and experts in sponsorship have said the number is not impossible.

Assessing Chicago 2016′s insurance coverage is the flip side. To accurately judge insurance risks, people with boundless optimism about all other aspects of their venture must become creatively gloomy. To miss a dark thought is to expose the Chicago Games — and Chicago’s taxpayers — to untold losses.

Insurance does not dwell in suppositions and debates. It dwells in the world of carefully constructed codicils and unanticipated eventualities. The person who fails to anticipate the eventualities will, no doubt, get tripped up by one of the exclusionary codicils.

In this world where syntax can be the difference between profit and disaster, Chicago 2016 Chairman Patrick Ryan has traveled almost without peer.

To a man with a hammer, every problem looks like a nail. To a former insurance executive with an Olympics to sell, insurance became the tool to close the deal.

Because Ryan spent his career at Aon Corp., a company whose main line of business is constructing custom-tailored policies that match exotic risks with creative protections, he naturally came to a view that insurance could answer all questions about the risks of a Chicago Games.

Now that we know the answer, it is time to focus on the key question: Is Chicago 2016 buying enough and the right kind of insurance to guard against all conceivable risks of a Chicago Olympics?

After studying the policies put forward by Chicago 2016 and taking into account the statements by critics, experts, insurance veterans and Olympics officials, the answer begins to emerge. Chicago 2016 seems to have guarded against nearly every risk that comes to mind — at least today.

The committee expresses a desire to adjust as new risks emerge. But it never is possible to say all conceivable risks are covered.

Chicago 2016 will buy $1.2 billion in key coverage. In response to public concerns, the bid committee at the last minute changed the way the insurance is staged. The bid committee now is committed to a plan by which Olympics organizers would have to burn through a $450 million budgeted surplus, plus $1 billion in insurance payments, before tapping into taxpayer guarantees.

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Questions Swirl Around Perceived Olympic Insurance Shortfall

Taxpayers still at risk

By STEVE RHODES

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You know that great insurance package that Pat Ryan put together to protect Chicago’s taxpayers in case an Olympic Games here costs more than projected?

It’s got more holes than the Cubs’ roster.

As Crain’s notes this morning, the riskiest item on the Chicago 2016 docket — building the Olympic Village — isn’t covered at all.

Olympic Villages are notoriously expensive and riddled with problems.For evidence, just look at Vancouver which is hosting the Winter Games. That city’s government has had to step in and save the project with taxpayer money despite promises it wouldn’t need to do that.

In fact, the Vancouver Games – like so many before them, including the now-infamous London Games – have had a budget “meltdown”, in the words of the Calgary Herald.

Ryan’s patchwork of insurance policies are no bulwark against the laws of Olympics physics.

For example, Crain’s reports that the policies – which have yet to be secured – would only cover $1.1 billion of the projected $3.8 billion operating budget for a Chicago 2016 Games.

Insurance against construction overruns will only cover the first 10 percent; not a good bet in Chicago, where overruns historically come in two or three times that.

And plenty of items in the budget will not be insured – from projected sponsorship dollars to projected private donations. If those fall short, the gap will have to be filled somehow. That’s why that blank check from taxpayers is sitting there, just waiting to be filled in by Ryan, signed by the mayor and cashed by Chicago 2016.

“It’s a leap of faith,” Ald. Joe Moore (49th) told Crain’s.

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Inside the bid: Your money

Beijing Spent $40 billion on stadiums, subways and airports for the 2008 Olympics

(WLS) — The International Olympic Committee’s vote on which city will host the 2016 Games is now just 12 days away.

ABC7 Chicago begins a three-night look at how an Olympics in Chicago could impact city and suburban residents. Reporter Ben Bradley has crunched the numbers on Chicago’s Olympic budget and investigates the prospects for profit from the Games.

When Chicago won the right to host the 1904 Olympics, citizens were told it would cost $200,000.

Then, there was talk of a new lakefront stadium, and the budget more than doubled. But before much money could be spent, the Games were moved to St. Louis.

A century later, the opportunity to host the Olympics is back, and concern about cost continues.

“I would never bankrupt the city of Chicago,” Chicago’s Mayor Daley said.

Anti-Olympics groups like to point out Vancouver’s politicians made the same pledge for the 2010 Winter Games.

“On time, on budget,” one Canadian politician said.

When asked, “If it isn’t?” The politician responded, “It’s going to be.”

One recession and one Vancouver mayor later:

“The Olympic Village is a billion-dollar project, and city taxpayers are on the hook for all of it,” Vancouver Mayor Gregor Robertson said.

At $4.8 billion, Chicago’s budget is the least expensive of the cities competing to host in 2016. Rio de Janeiro projects to spend $13.9 billion, using the Games as impetus to build a new airport, mass transit and other infrastructure.

“If we’re lucky, we break even. That’s not all bad. You can have a pretty nice party and still break even,” said Univ. of Chicago economist Allen Sanderson.

Sanderson is a skeptic when it comes to Olympic financing. Beijing, for example, spent $40 billion on stadiums, subways, and an airport but still claims to have posted a $250 million profit. That’s because Olympic math means infrastructure projects like airports don’t count against the Olympic budget, the rationale being infrastructure is built for a city not the Games.

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Olympics fundraising drive a game of giving or take

By Melissa Harris - Tribune reporter

Chicago 2016 Chief Executive Patrick Ryan says he has been turned down only once while raising $72.8 million for the city’s quest to host the Olympics — by a man whose attitude he described as “negative” and his excuse “flimsy.”

By many measures, Chicago 2016′s fundraising success, coming during a recession, has been striking. Should Chicago win the race to become host city on Oct. 2, observers debate what such a mammoth effort, raising $35 million a year for the next seven years, will mean to the city’s other cultural institutions. They wonder what it will take to sustain such a high level of giving and what the long-term effect will be.

“Do I think there will be substantial new money given to the Olympics? Yes,” said Harry Kraemer, former chairman and chief executive officer of Deerfield-based Baxter International Inc. and a professor at Northwestern University’s Kellogg School of Management. “But there’s only so much money to go around, and $35 million incrementally without having an impact on other areas, that would be doubtful.”

Chicago 2016 as host city would set out to raise more than $250 million from private and corporate donations. A portion of that money would come from selling post-Games naming rights for buildings, such as the proposed velodrome and aquatics center. The International Olympic Committee bans such advertising during the Games. Unlike other countries, U.S. host cities rely more heavily on corporate sponsorships.

The Civic Federation, a Chicago-based government think tank, described 2016′s fundraising goal as “aggressive but doable” because it mirrors giving thus far and has been achieved previously here. The Art Institute, for instance, collected $411 million in five years for its Modern Wing, which opened in May. The city raised more than $200 million in seven years from private sources for Millennium Park.

Still, Chicago 2016′s fundraising comes as the country works its way through a recession, which nationally has crimped giving, according to Indiana University’s Center on Philanthropy. Specifically, the center has found a substantial year-over-year decline nationally in donations of $1 million or more.

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Calculating the bid’s true costs

Mayor Richard Daley likes to say his dream of bringing the Olympics to Chicago won’t be a drain on taxpayers’ wallets and pocketbooks.

“Tax money isn’t paying for it. There’s no tax money whatsoever,” Daley said earlier this year. “We are very strong in that position … in the regard to having that be sponsored by the private sector and others.”

The 2016 Olympic bid committee states that the $4.8 billion estimated cost would be paid for with contributions from wealthy donors, corporate sponsorships, television rights and ticket sales to ceremonies and sporting events.

But the reality is more complicated than that. Hundreds of millions of dollars in local, state and federal tax money already is committed, from acquiring land for the proposed Olympic Village to helping construct sporting competition venues.

As Chicago’s team prepares for the International Olympic Committee’s Oct. 2 selection of a host city for the 2016 Summer Games, nagging questions persist among residents who are feeling squeezed by a tough economy and worried about just how much they may be on the hook.

“I think there is a healthy skepticism out there about whether we can really trust what they tell us about no taxpayer obligations,” said Robert Baade, an economics professor at Lake Forest College. “Do you think anybody believes that?”

The mayor’s office acknowledged Tuesday that public money would be spent on a number of projects. But Kate Sansone, spokeswoman for the mayor’s office, said a number of the projects need to be done anyway and the Olympics would help pay for them.

“Many of the projects … are part of the city’s long-term goals to enhance the quality of life for residents in the areas of housing, transportation, green space and sport,” Sansone said. “These are projects that would not be able to be accomplished without … the infusion of funds generated by hosting an Olympics.”

The Civic Federation, a nonpartisan group that studies government, found that the Chicago 2016 bid committee has a reasonably sound financial plan, but said City Council oversight was crucial.

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One step closer to City Council approval of Olympics host city contract

By Hal Dardick and Kathy Bergen

A City Council committee today approved an ordinance that would authorize Mayor Richard Daley to sign the Olympics host city agreement that would leave taxpayers on the hook if there are major cost overruns for the 2016 Games.

The contract would require the city to cover cost overruns beyond the $750 million already backed by the city and state. Olympic organizers say insurance policies would protect the public, making it unlikely they would even dip into the $750 million.

To some extent, today’s vote was symbolic—aldermen already approved a measure in January that gave Daley approval to sign the host city contract.
But Daley then encountered some summer opposition after he said while overseas in June that the city would financially guarantee the Games. Aldermen said they had approved no such thing—though their assent was included in their January vote to back a $500 million city financial guarantee.

Daley responded by saying the Council would take another vote before he signs the contract in advance of the Oct. 2 IOC vote to pick which of the four finalists gets to host the 2016 Summer Games.

The full council is expected to consider the Olympics ordinance on Wednesday.

Chicago 2016 President Lori Healey called the vote an critical step for the bid as it moves toward an Oct. 2 vote in Copenhagen, where the International Olympic Committee will choose between Chicago, Madrid, Rio de Janeiro and Tokyo.

“I think the spirit of partnership that we exhibited with the City Council is one that’s really important, and even coming down to the disagreement over one word,” she said. “I mean, we got 99.9 percent of the way there.”

The bid committee is aiming for unanimous support from the full council Wednesday, Healey said. “We want to go to Copenhagen with support. We got almost all the way there.”

“No matter what,” she said, “there’s a believe that our committee is prepared to be transparent and open all through this process, if we’re selected to win.”

“I think tomorrow, no matter which way we look at it, the City of Chicago shall stand behind the bid, and we will all be there, and we want to make it clear,” Ald. Robert Fioretti (2nd) said to a round of applause after the vote.

Also part of the proposal are provisions that would disclose contract details about the 2016 Olympics but not require stricter oversight by the inspector general that one alderman requested.

The proposal, introduced by the city’s top lawyer, Mara Georges, says the City Council “may” direct the inspector general to review quarterly reports from the Games’ organizing committee.

Ald. Manny Flores (1st) wanted the measure to say “shall,” which would make it a requirement, not an option.

The same may vs. shall dynamic played out in another provision to allow–but not require—public interest organizations to analyze the Olympics for the council.

Georges said alderman had requested “discretion” on the issue, explaining the reason for using the word “may.”

Alds. Bernard Stone (50th), Freddrenna Lyle (6th) and Helen Shiller (46th) spoke in favor of maintaining council “discretion.” Mandating outside oversight would amount to “ceding our authority,” Shiller said.

Ald. Joe Moore (49th) disagreed, saying that without outside oversight “the City Council would take on the role of a clerk.”

An attempt to make the inspector general oversight a requirement lost on a 24-3 vote. The three council members voting on the losing side were Ald. Richard Mell (33rd), Moore, and Ald. Eugene Schulter (47th).

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Olympic plan protects taxpayers

STATEMENT FROM THE CIVIC FEDERATION -

The Civic Federation was pleased to read that David Greising agrees with the conclusion of our review of the 2016 Olympic Bid: that if the operating budget is professionally managed and subject to careful oversight, the plan provides adequate protection to taxpayers (“On deeper inspection, Olympics pitfalls abound,” News, Aug. 28).

However, we disagree with his interpretation of our analysis of the potential downside risk of the operating budget, which examines several possible revenue shortfalls and cost overruns.

Greising states that the individual shortfalls identified in our report do not constitute doomsday scenarios. He is correct, but when he adds up all of the individual scenarios to create an $864 million deficit he is in effect modeling a “doomsday worst case scenario.” Such a scenario is by definition not a reasonable risk, but a worst possible outcome.

The Civic Federation’s goal in the report was not to examine the unlikely event of a catastrophe, but what is reasonable based on the experience of previous Host Cities and other comparable events.

Finally, Greising is correct that the proposed insurance for the Games does not cover problems in the performance of the team running the Bid.

That is why the Federation and L.E.K. state that the contingency fund of $451 million, which does protect against such problems, and the insurance together constitute adequate protection for taxpayers.

As the Civic Federation states in our report, it is impossible to eliminate all risk from any event, but government, businesses and non-profits can identify possible risks and work to mitigate them.

This is what the Federation and L.E.K. believe the Chicago 2016 Olympic operating budget can do if it is professionally managed and given the appropriate rigorous oversight by the Chicago City Council.

— Laurence Msall, president,

the Civic Federation, Chicago

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