Russia's Olympic Investment Pays Off

The IOC's choice of Sochi for Winter 2014 shows that it took Putin's promise of moneyand snowseriously. And it may help Russia's rebirth as a global power

The Olympics have always been about much more than sports. They're also, of course, about politics and big business. The choice of Sochi, Russia, for the 2014 Winter Games is powerful reminder of that. Awash in oil and gas revenue, the government put $15 billion on the table to build ski resorts and new sports facilities and to improve infrastructure around the Black Sea coastal city tucked at the foot of the Caucasus Mountains. Much of that construction has already begun.

To top it off, on July 4 in Guatemala City where the winner was announced, President Vladimir Putin guaranteed that there would be ample snow in Sochi come 2014, and that the nation would be in fine shape to put on a good show. "This isn't just a recognition of Russia's merits in the area of sport," he said. "Without doubt, it's also an assessment of our country. It's a recognition of its growing possibilities, particularly in the area of the economy and solving social problems."

Sochi narrowly won the honor to host the Olympics with 51 votes, vs. 47 for Pyeongchang, South Korea, which had been viewed as the frontrunner. Salzburg, Austria, which has prepared to host the Olympics for more than a decade and lost out twice to rival cities, was eliminated in an earlier round of voting that day.

Calling in Some Favors

Analysts at Alfa Bank in Moscow expect that the Games will pump $15 billion into the economy and ease investors' fears over difficult relations between Russia and the West. "This is one of the most important days in Russia's history," gushed Dmitry Chernyshenko, chief executive officer of the Sochi 2014 campaign.

Even regular Russians were over the top with their enthusiasm and excitement. "We'll attract a lot of tourists and earn money," exclaimed 31-year-old Maxim Bobkin, interviewed on the street in Moscow. Added 28-year-old Maxim Kiselyov: "It's wonderful. We'll go, we'll watch, we'll support our people."

How did Putin pull it off? "What's happening is typical of the way Russia works," said Rory MacFarquhar, an economist with Goldman Sachs (GS) in Moscow. "Putin basically called up a bunch of the very wealthy oligarchs—the people who did well through the privatization process during the 1990s and suddenly found themselves billionaires—and said: 'Time to give a little back.'"

While private investors are donating some $5 billion of the $12 billion already committed to the project, the remainder is coming from public funds. Among the private entities coughing up big bucks are some of Russia's largest corporations, including investment vehicle Basic Element and energy giant Gazprom, which is putting $375 million into developing a ski resort.

Key Step on Global Stage

The Sochi bid is seen as a legacy project for Putin, who is known to vacation there. Although he's scheduled to step down before the Games begin, he could remain involved in the Sochi 2014 project in some capacity. That would keep him in the public eye should he want to run again for President in 2012.

Moscow hosted the Summer Games in 1980 during the Soviet era, but they were boycotted by the U.S. as a protest of the Soviet invasion of Afghanistan. Now proud Russians see Sochi as a key step to a new global role. "The victory has political significance," said the speaker of Russia's Parliament, Boris Gryzlov. "It confirms that the world isn't unipolar. There are forces which support Russia. Obviously our country will again become a world leader."

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