The Olympics: Downhill Run?
For almost three years, a cloud has been hanging over the Winter Olympics scheduled to begin in Salt Lake City in February. First, a bribery scandal erupted that roiled the entire Olympic Movement. Then, sagging economies at home and abroad diminished commercial prospects. And now, in the wake of September 11 and in the throes of the anthrax scare, Salt Lake must contend with unsold tickets, travel fears, corporate pullbacks, and increased security risks. The upshot: The Games are on shakier financial footing than organizers care to admit.
The signs, literally, are everywhere. Cruise along Interstate 80, the highway connecting Salt Lake to the rest of the U.S., and billboards still advertise the availability of tickets. Around 250,000, or 20%, remained unsold at the end of October--less than 100 days before the Feb. 8 opening ceremonies. That compares with a final tally of 89% tickets sold in Nagano, Japan, and 87% in Lillehammer, Norway, the two most recent Winter Games.
But the most nagging question is, will spectators show up? What Games organizers don't say is that if too many tourists stay home, the event's economic assumptions crumble. Why? Because the entire financial model is predicated upon 1.5 million to 1.7 million visitors spending a certain number of dollars during the 17-day event.
Should sales taxes and other revenues be less than the estimated $374.2 million that state and local governments will have laid out over the past several years, the Games could actually lose money, says Thayne Robson, a University of Utah professor who has advised SLOC and the state of Utah on the economic feasibility of the Games.
CAPTIVE SPONSORS. So the scramble is on to reassure sponsors and the media that the Games won't end up a commercial flop. "At this stage, we're pretty confident we'll be able to break even," says Mitt Romney, president and chief executive of the SLOC. With a total of $1.3 billion needed for the Games to avoid red ink, organizers point out that marketing and sponsorship deals with the likes of NBC (GE ), Coca-Cola (KO ), and Kodak (EK ) are locked in place, giving the SLOC an unprecedented $860 million in corporate funds. Ticket sales have topped $167 million, and the more than 1.3 million sold represents the highest number of raw ticket sales in Winter Olympics history. And they're nonrefundable. Most major hotels in town are fully booked, having demanded deposits months ago.
To be sure, a financial millstone like the $1 billion one hung on Montreal taxpayers after the 1976 Games is not likely, experts say. But some troubling realities lurk below the surface. One is the added cost of security. Congress approved an additional $24.5 million of a promised $40 million last month to beef up surveillance and troop presence, add law enforcement personnel, and fence in some areas. But the roughly $300 million that SLOC thinks it now needs to prevent another Munich is several times the amount it had earmarked in April. If something derails approval of additional funds, SLOC would have to find money for added security--or go without. And organizers still have to sell $13 million worth of the remaining tickets to hit a target of $180 million, which Romney says is key to ensuring the Games stay above water.
OFF THE HOOK. The big unknown for hotels and restaurants that had factored corporate extravagance into their plans is how much spending will be reined in. "I don't think [companies] know what to do," says Debra Brandsrud, general manager of the Wyndham Hotel.
Even if there is a shortfall in ticket sales and other revenue, organizers say, there's $99 million remaining in contingency funds built into the SLOC's budget model. That should keep taxpayers off the hook--assuming, of course, that tourists make the trip and spend money. If they don't, the cloud over Salt Lake will be even darker when the Olympic torch leaves town.
By Douglas Robson in Salt Lake City