Bankruptcy

Alchemy? Finance Chief Helping Turn Salt Lake into Gold

2002 Winter Olympics may actually show a profit.
Roy HarrisSeptember 6, 2001

When the 2002 Salt Lake City Winter Olympics begin this February, there will be no shortage of stories about athletes who have overcome adversity to compete in the Games. Few tales, though, will be as dramatic as the comeback that the Salt Lake Organizing Committee (SLOC) itself pulled off. Deeply in the red when COO and then-CFO Fraser Bullock joined CEO Mitt Romney’s management team in early 1999, the Winter Games now seem to be on a smooth run toward a gold-medal performance.

According to numbers provided to CFO.com by Bullock and the new CFO he named in February for SLOC, 34-year-old Brett Hopkins, the projected revenue shortfall currently is a rapidly evaporating $46 million.

That’s out of a total budget that has been held tightly to $1.313 billion. The gap was $379 million in early 1999, when $464 million had been committed by sponsors, and there were worries about whether some of those might cut back or drop out as a scandal developed over payments that former organizers had made to win the Olympics for Salt Lake City.

Today, new sponsors have been added, and the committed total of sponsor money has reached $562 million. When sponsor contributions from SLOC’s link with the U.S. Olympic Committee are included, the total soars to $850 million, Bullock says. “If you compare that to Atlanta, which was a Summer Games and thus much larger, they raised $484 million from sponsors,” he adds.

Other major revenue elements for the Winter Games are broadcasting ($443 million), ticketing ($180 million), and licensing and other income ($82 million).

Buying More Banners

Officially, Hopkins and Bullock maintain that the Salt Lake Games are on a pace to break even. Others suggest, however, that Olympic planners typically make conservative projections—and that the Games could well produce a big surplus. Surpluses are largely turned over to the surrounding community for permanent improvements to local athletics.

In contrast to the most expensive Winter Games ever, the $2.74- billion 1998 Olympics in Nagano, Japan, Salt Lake City’s $1.313-billion budget may suggest that Utah’s Games will have the look of a bargain- basement affair. SLOC, of course, is doing what it can to keep the event glamorous, without overspending as other venues have done in the past.

And Bullock tells CFO.com that a recent deal was struck with the International Olympic Committee (IOC) to provide an additional $8.8 million just for site enhancement under a novel contingency fee arrangement. The agreement calls for a 5-percent royalty that SLOC must pay the IOC to now be considered a contingent fee. SLOC will spend the money on such things as large banners to cover skyscraper exteriors and other surfaces with banners and signage of athlete photographs.

The 5-percent fee will be paid to IOC only if SLOC has the $8.8 million in surplus when the two weeks of Games end on Feb. 24.

Surmounting Obstacles

The payoff-scandal was the defining event early in the planning of these Olympics. Two former SLOC organizers are charged with making illegal payoffs to help win the Games for Salt Lake City years ago. (The trial has been delayed until after the Games, and some people think the charges could eventually be dropped on the basis of some preliminary court rulings.)

That hurt sponsorships, and led to a strategy by Romney and Bullock of trying to convince sponsors that SLOC would establish fiscal responsibility as a way of proving that the Games would also be conducted ethically. (See ” “The Budget Olympics,” CFO, September 2000.)

The strategy has been working, and organizers now how hope that the Games will be remembered more for the athletic performances.

Indeed, the biggest loss of a company commitment was dot.com- related, not scandal-related. After Quokka Ventures, the Internet sponsor for the Games, filed for bankruptcy-court protection and withdrew from its plan to provide the Olympic Website, Microsoft Corp. stepped up.

Expenses have gone up, of course. Bullock notes that the number of athletes coming to Salt Lake has increased, which means more must be spent on the Olympic village. For one thing, $4 million had to be added to the budget to provide additional power for the village.

Bullock and Hopkins are especially proud of the risk-management work they’ve done. “We developed literally hundreds of lines of risk and attached a probability to each one,” says Bullock. “We found that the risk exposure about matched the contingency we had available”—currently $117 million.

Among the Olympic risks: too much snow. “What happens if we have an extremely heavy snow? What’s the risk for that?” Bullock asks, noting that SLOC has studied average snowfalls for several years back to help them determine tht risk. If snow is heavier, “one of the big costs areas will be in our snow-removal department, he says. “At this point we’re saying, we need to have that in our budget.”

Salt Lake Organizing Committee (SLOC) Financial Overview
  Original Forecast
(Sept. 1999)
Yr-Ago Forecast
(Sept. 2000)
Current Forecast
(Aug. 1, 2001)
EXPENSES (in $ millions)
Staffing/Admin $318 $278 $306
Operations 297 238 245
IT 274 222 192
Venues 536 441 452
Contingency 136 140 117
TOTAL 1,551 1,319 1,313
REVENUES (includes cash and value-in-kind)
Broadcast 445 443 443
Sponsorships (committed) 464 537 562*
Ticket Sales 162 180 180
Licensing/Other 100 79 82
TOTAL 1,171 1,239 1,267
Revenue Shortfall 379 80 46

* Total is $850 million, including amounts sponsors have committed through SLOC’s link with the U.S. Olympic Committee.
SOURCE: SLOC