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Fraser Bullock faces a world-class challenge: turn the scandal-plagued, debt-ridden 2002 Winter Games into a winner.
Roy Harris, CFO Magazine
September 1, 2000
As Sydney shoots for the gold with the most expensive and elaborate Summer Olympics ever — carrying a price tag of $5 billion — a very different financial strategy is playing out for the next Winter Olympics, half a world away in Salt Lake City.
Nestled below the peaks of Utah's picture-postcard Wasatch Range, the Salt Lake Organizing Committee (SLOC) has been working intensely to discover just what expenses are absolutely essential for the Games it will stage in February 2002. With that knowledge, it is prepared to produce a bare-bones event, if it must. "We're not trying to put on the best Games ever," says SLOC finance chief Fraser Bullock. "We're just trying to put on the Games."
Such austerity is a far cry from the spending frenzy that typically surrounds Olympiads. Nagano, Japan, for example, pumped out $2.7 billion for its 1998 extravaganza. That was twice the cost of the previous Winter Olympics, which are always much smaller than the Summer Games. But the budget for the Salt Lake City Olympics, originally budgeted at $1.55 billion, has been slashed to today, the number is down to $1.32 billion, and shrinking. Games were $379 million in the red when Bullock, who is also the SLOC's chief operating officer, took over as part of a new management team in early 1999; he's managed to slice $300 million from that deficit.
Why is SLOC settling for the bronze, so to speak? The main reason is the scandal that erupted in late 1998, after reports that members of the local group responsible for Salt Lake City's Olympic bid had bribed International Olympic Committee (IOC) members in order to bring the Games to their community. As a result, the budget given to Bullock when he joined SLOC reflected millions of revenue dollars unlikely to materialize.
To put the Games back on track both ethically and financially, Bullock and SLOC president and CEO Mitt Romney began cutting back. Strictly controlling the cost side of the ledger and keeping the books wide open, they figured, would help restore the confidence of sponsors, who typically pay for half the Winter Games; the government, which provides funds for transportation and security; and the general public, which will purchase tickets beginning on October 10. And while the jury is still out on whether the next Olympics will measure up to past blockbusters, they are, at least, on track to break even. "You can always make the numbers work, if you have the right discipline and the right focus," says Bullock.
The Long Road Back
Even on a tight budget, the world should still see an impressive Olympics, SLOC organizers insist. "Most of our expensive venues were built by God; they're these breathtaking mountains," says Romney, a 53-year-old Boston investment banker. The Utah capital, the largest city ever to host the Winter Games, already has much of the infrastructure in place to make things run smoothly in its magnificent natural setting.
Still, removing the taint of the bid-scandal won't be easy. The Justice Department alleges that prior to the June 1995 selection of Salt Lake City, two top Olympics officials paid $1 million in cash and gifts to members of the IOC to secure the designation. The money funded U.S. college educations for some of the IOC delegates' children. Other funds paid for their first-class travel or covered lavish gifts. The officials — Tom Welch, former president of the Salt Lake City Olympic Committee, and Dave Johnson, the ex-vice president — have denied any wrongdoing. But in August, the two were indicted on 15 felony conspiracy and fraud charges that carry a combined sentence of up to 75 years in prison.
Those charges stung the civic-minded community of Salt Lake City. And while the city managed to keep the 2002 Olympics, the scandal forced the ouster or resignation of several IOC officials and led to reforms that included a new international ethics code. It also led SLOC to clean house by naming Romney, the son of three-time Michigan governor George Romney, as CEO. Romney, in turn, tapped Bullock — a fellow Brigham Young University graduate with whom he had worked at Bain & Co. 20 years before — as his second-in-command.
The team faced an uphill battle. In the wake of the scandal, one delicate negotiation was broken off, with health-care giant Johnson & Johnson. Among the sponsors from Atlanta's Games, some of them already in SLOC's fold, John Hancock Financial Services Inc. and others grumbled about possible withdrawal. In addition, the federal government, which was scheduled to allocate hundreds of millions of dollars for the Games, balked.
The scandal left Bullock, who was enjoying a lucrative career at the roll-up firm of Alpine Consolidated LLC, feeling "chagrined and disappointed. That's not Utah; that's not us," he told himself. So, when Romney offered the $200,000-a-year SLOC position to him in early 1999, Bullock decided to take a chance at helping to turn things around. "We had two and a half years to rectify this," he says. "I knew Mitt was a superstar, but I knew he couldn't do it alone."
Cash Flow Rules
The position seemed tailor-made for Bullock, who at 47 still embraces ski jumping with the vigor of an 18-year-old. But the first thing Bullock learned about Olympics management was that it deals with a unique business model. "There's a different set of rules," he says. "You take the monthly P&L and the balance sheet and throw them out the window." The reason: everything is geared toward the end of the "project" that the 17 days of competition represents. "The only balance sheet that matters is at the end of the Games," he says. "Cash flow is my surrogate balance sheet."
Still, Bullock admits that he "didn't fully appreciate the magnitude of the deficit" before coming on board. Among revenue elements, for example, only the broadcasting portion — NBC's $445 million due to SLOC — was a known quantity. The $751 million amount budgeted for sponsorships "assumed that we would sign up sponsors far in excess of what had been done in prior Games." The culprit, he explains, was a 20-volume Bechtel Corp. study, commissioned by the prior SLOC team, that had been prepared by asking all operating divisions what they would need, then plugging in revenue numbers to match the totals.
Bullock knew that "creating a validated budget that's been scrubbed and scrutinized was the key to restoring confidence." On the income side, he slashed the budget for sponsor revenues of all kinds by 22 percent; they now stand at $587 million. Then, he "challenged all levels of cost" in the budget. On the first pass, he was able to eliminate $100 million of costs, or 6 percent of the budget total.
To wring out additional costs, Bullock recategorized all expenses as either must-haves, nice-to-haves, or non-necessities — what he calls a "tiered level of importance." Must-haves — including such "Tier One" requirements as the 400-meter speed-skating course, with safety padding and viewing stands — were assumed. But a high percentage of permanent seats, more expensive than temporary seating, became a Tier Two "nice-to-have" item. As for Tier Three items, "Under the system here, if anything is classified as a Tier Three item, you know it's probably toast," says Cathy Priestner Allinger, SLOC's managing director of sports.
Such classifications took care of a lot of overhead automatically. Travel to Lausanne, Switzerland, the home of the International Olympic Committee, was replaced by conference calls in most instances. The flow of free souvenirs to SLOC visitors was ended, and office flower arrangements were cut back, along with expensive "protocol" dinners. "We're not doing fancy lunches anymore, either," Bullock says. In addition, he told managers to eliminate contingency funds from their individual budgets. "I asked everybody for their padding," the CFO says.
Overall, cuts have been deep. Staff and administration reductions have amounted to nearly $40 million, or 12 percent. In addition, Bullock wrung a 17 percent savings of $13 million from food services when SLOC found a sponsor, Compass Group, to take over much of what had previously been considered a $20 million cost center, turning it into a money-maker for the organization. Similar cost-cutting trade-offs were made with sponsors in information technology and other areas.
Almost nothing, in fact, has been sacred — even the time-honored tradition of using volunteer staff. Originally, for example, Bullock set a target of 40,000 volunteers. But he soon learned that holding down the voluntarism level was a money-saving measure. "Volunteers, while they bring a tremendous amount of value, are also a tremendous expense, with uniforms, support, and feeding," he says. Bullock has since cut back the target to 26,000.
A Breath of Fresh Air
To secure the necessary cuts, Bullock realized he had to win the trust of Olympic staffers. There was no magic to this, in Bullock's mind. "People knew that we didn't have any choice," he says.
But Allinger, herself a 1996 silver-medalist for Canada in speed-skating, says that the way Bullock conveyed the message spoke volumes. "What impressed me was the way Fraser went about asking us to reduce spending by coming up with our own lists of priorities," she says. "He's never come in to me and said, 'Take this out of your budget.' He's a breath of fresh air."
Bullock also made sure he gave managers early proof that items would be added back from the central contingency fund if necessary. In one case, he reinserted a $135,000 charge for a special pedestrian bridge at the Soldier Hollow cross-country biathlon venue. Without the bridge, it turned out, athletes and spectators would be sharing venue access — something that raised security concerns.
Overall, says Cindy Gillespie, SLOC vice president, federal relations, "We've gone through quite a mind-shift." A veteran of the 1996 Summer Games staff, she notes that in Atlanta, "the overriding view was that our Games would be the biggest and greatest Games ever." But at Salt Lake City, staffers have bought into the idea of an "essentials-only" Games, she says.
Bullock has instilled that idea within other businesses. For three years before coming to SLOC, he made a fortune assembling companies from fragmented industries into three roll-ups for Alpine Consolidated, an outfit he co-founded in a nearby Utah town. And back in the 1980s, he served as CFO of troubled World Airways Inc. Both jobs, he says, provided numerous skills that have been applicable in his Olympic posts.
When he joined World 13 years ago, for example, he found a company that had moved away from its niche of providing contract flying services for the military and other airlines, and had started competing in scheduled service against a host of discounters. A consistent money-loser that was 90 days away from insolvency, he says, World was ripe for a turnaround. Soon, World secured $100 million in new financing, abandoned the commercial markets, and returned to its roots as a profitable contract carrier and cargo airline for three years running. It was, he says, the same kind of financial makeover the Salt Lake City Games needed.
The World experience also taught him to prize finance team-building, which is essential when the old crew has been associated with a losing operation. At SLOC, Bullock added the CFO title when the former finance chief left, giving him closer control of the team. He soon moved 11 financial analysts down to the operational level, so managers could see that "finance is not a threat, it's an asset, and we're not ogres trying to take money away."
At Alpine Consolidated, he had learned not to be daunted by an unfamiliar business line, whether it was travel services — Alpine's first roll-up — or the global delivery of world-class skiing and ice hockey competitions. "I knew I could enter an industry I knew nothing about and become conversant with it in 30 to 60 days," he says. "So when I came to SLOC, I said, 'Yep, I know nothing today, but in 30 days, I'll know that business."
Some suggest the new management team has already helped erase the stigma attached to the 2002 Games. Romney has calmed old corporate supporters and lured new ones, adding 24 sponsors or suppliers and swelling revenues by $178.5 million since January 1999. Meanwhile, Washington, pleased with Bullock's initiative to slash the federal transportation request from $140 million to $99 million, seems primed to approve the entire amount.
The Sydney Games are also expected to provide a needed boost. "After the Sydney Games are over, a lot more people are going to want to be involved with the 2002 Winter Games," says Peter Ueberroth, whose management of the Los Angeles Olympic Organizing Committee for the 1984 Summer Games is legendary. "The scandal will be more and more a footnote," adds Ueberroth, now managing director at Contrarian Group Inc., an investment firm in Newport Beach, California.
Current sponsors are impressed. "Certainly, one of the reasons we chose to renew our sponsorship was because Romney and his team are in place," says David D'Alessandro, president and CEO of John Hancock Financial Services, which last February agreed to continue through the 2004 Summer Games in Athens, in a deal valued at more than $50 million. Meanwhile, other companies are taking a second look. One is United Parcel Service Inc., a former sponsor still on the fence about reenlisting. The company's market research shows that "the public disassociated the problems [in Salt Lake City] from the Games themselves," says a UPS spokeswoman.
The public, however, is still the x factor. After a comparative sports-ticket pricing study typical of Bullock's meticulous approach, he recently installed a price boost into the budget that averages 11 percent. The 730,000 tickets will range from $20 to $425 for events, with opening and closing ceremonies costing as much as $885. "The prices are now much more at market level," says Bullock. But it's unclear whether sports enthusiasts will pay more for what's being billed as a trimmed-down Olympics.
Will they be profitable?
How trimmed down will they really be? Some observers believe the Salt Lake City Games could end up substantially in the black, given SLOC's success to date at cost cutting and revenue raising. They suggest that the bleak financial picture painted by organizers is as much a part of the Olympic tradition as tears on the gold-medal podium.
"The whole idea of disclosing too much can be detrimental to your objective," says former Atlanta Olympics CFO Pat Glisson. Now COO of King & Spalding, an Atlanta law firm, Glisson notes that as the search for sponsor support continues, it benefits an Olympic committee to sound poorer than it really is.
Still, Bullock maintains that the goal remains simply to put on the Games. That's one reason the budget has built up a $139.9 million line for contingencies — a ticket-sales shortfall, for example. And if additional money comes in, he says, it will be used for such things as making the opening ceremonies less Spartan, or for other items in the "nice-to-have" category.
"Our objective," insists Bullock, "is to break even — not a dollar under, not a dollar over our budget."
Salt Lake Organizing Committee CEO Mitt Romney seems almost to welcome the avalanche of controversy facing him as chief organizer for the 2002 Salt Lake City Winter Olympics. "The Games would be tarnished forever if the past were buried," according to the once and probably future politician. "One of the great characteristics of our country is that we will call for a full accounting of wrongdoing, even if it embarrasses us."
But even Romney didn't expect the kind of embarrassment that now seems possible. In one likely scenario, the federal trial of two indicted local businessmen could start just weeks before the Games themselves in February 2002 — describing for a worldwide television audience how more than $1 million in payoffs were allegedly made to help win the Games for the Utah capital in the first place.
The press has reported that there was an intense effort by Olympic officials and Utah politicians to get the parties to settle and avoid the glare of publicity. Instead, the trial will offer sordid details of the alleged corruption, while giving the defendants — the former president of the Salt Lake City Olympic bid committee, Tom Welch, and his onetime chief lieutenant, Dave Johnson — the hearing they seek. In a statement, Welch lamented that "we and our families must go through the agony of a criminal trial on the eve of the Games because we did what we, and many other people, thought was absolutely necessary."
The organizing committee has released all the papers from its files that may be related to the scandal, including one known as the "geld document." It purports to contain lists of influential members of the International Olympic Committee (IOC), with details about the personal needs that might be met to win their vote — including geld, German for money.
The Justice Department charges that in the months prior to June 1995, when Salt Lake City was awarded the 2002 Games by the 15-member IOC, Welch and Johnson accepted envelopes stuffed with thousands of dollars from a "potential sponsor." The receipts were allegedly part of a scheme to influence the votes of IOC members. More than $1 million in cash payments allegedly ended up benefiting the families of IOC members, and Welch and Johnson personally. No IOC members were indicted, but 10 have resigned or been expelled since the scandal broke in November 1998.
A Front-Row Seat?
One might think that after spending a year and a half helping set up the 2002 Winter Olympics, CFO Fraser Bullock might be entitled to a close-up view of a few chosen events. But the freestyle aerial-skiing enthusiast — "I'll ski anything, anywhere," he says — figures that if he sees any sports at all, "it will be in passing."
Bullock concedes that the "CFO's position is pretty much on autopilot once the Games begin." As COO as well, though, between the February 8 opening ceremony and the February 24 closing, Bullock says he will be focused "exclusively on assessing the performance of our operational team. I'll be all over the place, at various hot spots and venues, looking into delay issues, weather issues, and the like."
Even if he were to take a seat to watch, say, the men's aerials finals on February 19, he'd have to plunk down between $45 and $95 for a seat under his own rule that Salt Lake Organizing Committee executives aren't entitled to free tickets. He believes it's the first time the Games have charged their own organizers for seats, but says that "you just don't want any question about any sense of impropriety at all" at an Olympics already scorched by scandal.
When the Olympics close, the CFO job gets busy again, as Bullock plans to supervise an intense period of asset monitoring. From conversations with officials from previous Games, especially Atlanta's 1996 Summer Olympics, he learned that "there's a notorious history of all kinds of assets walking off the venue" — often in the hands of contract personnel or volunteers. "We will have a controlled exit that is 100 percent inspected," he says, noting that SLOC hopes to realize $20 million to $30 million in liquidation of equipment.