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Olympic hopefuls count on rebound

Chicago Tribune, November 09, 2008

As London struggles with the economy's effect on sponsorship for 2012 Games, Chicago pushes to gain its final share of donations

By Kathy Bergen, Philip Hersh contributed to this report

The world's economic meltdown is making it tough for London to land enough top-tier sponsors for its 2012 Olympics. It also triggered a downsizing of the athletes' village. And it is forcing the government to help finance the village construction, which was supposed to be a private venture.

All of which is leading 2016 Olympic bid leaders to thank their lucky stars, for now.

"We don't have to build anything or sell anything in this market, and thank God for that, because these are unprecedented turbulent times in the financial world," said Patrick Ryan, leader of Chicago's bid. And at this point, none of the four bid cities is significantly recasting plans in response to the crisis.

Still, uncertainty lies ahead. And that is casting shadows on the bids, which are being fine-tuned and will be submitted in final form to the International Olympic Committee on Feb. 12. Will the cities be able to raise sufficient funds to back their bids? Will they be able to craft bulletproof operating budgets and construction plans?

In one respect, Chicago faces a higher hurdle because its bid relies on private financing while rival cities Madrid, Rio de Janeiro and Tokyo, have the full backing of their governments.

Chicago 2016 has secured commitments for $1.15 billion in public and private guarantees against operating losses, but IOC evaluators in June noted the Chicago bid did not provide the same guarantees as the other three finalists.

Still, governments are hardly infallible. "In this current global economic crisis, even governments are having problems with financing," said Sung Won Sohn, an economics professor at California State University.

And Chicago has some wind at its back: "The U.S. is a gold mine of sponsorship and broadcast revenue ... the certainty you'd get from being in the U.S. is an advantage," said sports industry consultant Marc Ganis, president of SportsCorp Ltd.

As well, Illinois Sen. Barack Obama's victory in the presidential election Tuesday is expected to boost the bid's popularity. Nonetheless, questions remain.

1. Financing the bid: The Chicago 2016 bid team has raised more than 80 percent of the $49.5 million in private donations it is seeking to pay for its campaign, Ryan said. He is confident the remainder will be attainable in the next 11 months.

That may be so, experts say. "The Olympics is a one-of-a-kind, once-in-a-generation opportunity for Chicago," Evanston-based consultant Jimmie Alford said.

But it will be tough. "The last 20 percent is always the hardest part," noted Edith Falk, head of Campbell & Co., a Chicago-based fundraising consultant. "In this climate, all fundraisers definitely have to push a lot harder."

Allen Sanderson, a sports economist at the University of Chicago, said "corporations may be unwilling to cough up $1 million either because they don't have it, or because they are getting more scrutiny. Shareholders are saying, 'Things are not going so well, so why are we giving our money away?'"

Chicago's rivals appear to be a bit closer to their goals.

Rio's federal government agreed to fully fund its $42 million bid, augmented by private donations of services, equipment and expertise.

Tokyo's $55 million effort is backed by $30 million in government funding and commitments from 12 corporate sponsors for the rest.

And Madrid is more than 90 percent toward its goal of $40 million, with 80 percent coming from the private sector.

2. Building the village: The notion that Chicagoans would snap up the 3,500 to 4,000 apartments expected at an Olympic Village on the fast-emerging Near South Side was pretty much a given when Chicago launched its bid in 2006. Now, nothing seems given.

"If the developer had to sell the condos today, that would be a difficulty," acknowledged bid leader Patrick Ryan. But construction and occupancy remain years away, he said, and developers understand the economic picture will shift. "Absent this crisis today, there is significant interest in living on the Near South Side."

Chicago 2016 is counting on a private developer to build a $1.1 billion athletes' village on air rights above the McCormick Place truck yards. And it is counting on the developer to pay $100 million for those air rights, with that sum helping to finance construction of an Olympic stadium and aquatic center.

Despite today's uncertainty, developers still see strong potential.

"Other than our Gateway project and [the proposed village site], there is simply no other land available along Lake Shore Drive," said developer Jerry Fogelson. His Gateway development is proposed near Soldier Field, extending his Central Station project in the South Loop.

"In the absence of any construction starting in the next couple of years ... [the athletes' village] may fill an important void in the housing market," said Buzz Ruttenberg, head of Belgravia Group.

Tokyo is proposing a privately developed village as well, and it faces many of the same marketplace uncertainties as Chicago. Financing for Rio's village plan is guaranteed by a federal savings bank, and Madrid's village would be built by the government, for use as public housing after the Games.

3. Building the stadium: The questions swirling around Chicago's stadium plan have less to do with the economic crisis than with the city's projection that it could be built by a private contractor for $386 million, which International Olympic Committee evaluators said sounded low.

"We'll be through one, maybe two, more economic cycles by the time this project is ready to get off the ground," said stadium expert Marc Ganis, president of SportsCorp Ltd.

To build it for that price "would be a monumental accomplishment," he said. "But I don't put anything beyond Pat Ryan."

Chicago is reviewing its estimate as it prepares the bid book, Ryan said. "Part of it is tweaking, some is adjusting for the changing value of the dollar.

"It doesn't do us any good to be overly optimistic on the cost. If they don't believe us, that can hurt us."

Chicago would pay for its mostly temporary stadium in Washington Park from a variety of sources, including village developer fees, private donations and Games-related revenues.

In Madrid, renovations to its main stadium will be paid for by the Atletico Madrid soccer team, while in Tokyo, the government will pay for venue construction. Rio plans to fully renovate its main stadium by 2014 for the World Cup soccer tournament.

4. Operating budget: The fuel to operate an Olympics pours from several spigots, including domestic sponsorships, ticket sales, licensing and merchandise. And Chicago expects to draw the heaviest flows.

In early filings, Chicago estimated $2.5 billion in such revenue, while Madrid projected $1.61 billion; Tokyo, $1.56 billion; and Rio, $750 million.

"At this point, the numbers are probably as good as they were when they put them together," said Jim Andrews, editorial director of the IEG Sponsorship Report. "I don't mean to be flip, but always with projections, it's a bit of a guessing game."

As well, "there's a lot of runway left before 2016," said Olympics marketing expert Rob Prazmark, president of 21 Marketing. "I don't think anyone should panic. But they should go back and scrub the numbers one more time."

And that is happening as cities prepare their final bid books. "We're reviewing all the figures," said Antonio Fernandez Arimany, managing director of Madrid 2016. "Who knows what will be going on in the world in 2016, or in 2012, when we will really be looking for and chasing our sponsors."

The host city also gets a slice of the TV rights sold by the International Olympic Committee. And Prazmark predicts the price tag on those rights will only go up, as media companies seek deals to be the exclusive provider of content over multiple types of media, including online.

"What Beijing showed was a massive appetite for content beyond the traditional media," he said.