BC Business
Torino Games CEO Cesare Vaciago slams the Vancouver Olympic Budget for being to small, but the real issue is will expenditure become a runaway challenge so typical for Olympic hosts?
It was meant to be just another Olympic-hyping press conference, complete with photo ops of the visiting Torino Games CEO Cesare Vaciago chumming it up with VANOC CEO John Furlong. But reporters who showed up at the mid-July event expecting to sit through another long, dull news conference perked up when Vaciago began dropping bombs on his unsuspecting host.
“I find that the Vancouver budget is quite limited,” the imposing Italian announced to his stunned audience. “It’s small. A little too small, I would say. Five hundred and eighty million Canadian dollars for their construction program seems extremely strict.” IOC officials attempted to whisk Vaciago away before he could go any further off-script, but he still managed to add fuel to the fire when he answered a reporter’s question by claiming if he were in VANOC’s position, he’d be asking for more money. A flustered Furlong was left to do some major damage-control, stammering to reporters that Vaciago’s comments “were more on ‘it’s a much smaller budget than theirs,’ not specific to it not being enough money to do what we have to do… He was making a simple comment that we have a very small program. They had a much bigger program. It seems like a lot less money than theirs. It is, but we have a lot less to build than they did.” This was a far cry from the euphoria that greeted the IOC’s announcement, on a warm July afternoon just over three years ago, that Vancouver/Whistler had won the bid to host the 2010 Winter Olympic Games. After years of lobbying – and perhaps more than a little praying – cheers erupted across the city at the prospect of hosting an Olympics, the biggest athletic event in the world. The honeymoon, however, was short-lived: even before Vaciago hung Furlong out to dry, news of cost overruns had been trickling out through the media. So, just how off-base is VANOC’s budget? When it comes to the Olympics, can costs ever really be controlled – and did VANOC ever really think they would be? Olympics are notorious for cost overruns and spending boondoggles – the 1976 Montreal Summer Olympic Games, for example, only paid off its $1.6-billion debt this year. At the Athens Olympics in 2004 and more recently the Torino Games, venue construction and amenities went right down to the wire and, in some instances, past it. As B.C. MLA and minister responsible for the Olympics, Colin Hansen told BCBusiness: “I was talking with a Paralympian… three weeks after the Olympic Games, and asked him what he thought of the athletes’ village in Torino. ‘Great,’ he replied, ‘aside from the fact it wasn’t finished.’” So what is the prognosis for Vancouver 2010? Will the Games here be another Montreal? VANOC released its first quarterly report for the Games this past May, and since that report was made public, there have already been additional cost overruns. The sliding centre currently under construction at Whistler that has almost doubled its projected budget (from $55 million to $99.5 million) is just one example. Still, when BCB spoke with the principals behind the Olympic project, they gave the confident impression that overruns are not as out of control as they are sometimes made out to be. BCB spoke with the men who will ultimately decide how much the budget runs over and who picks up the tab: David Emerson, the federal minister in charge of the Olympics; his provincial counterpart Colin Hansen; and VANOC CEO John Furlong. Emerson, the former CEO for the Vancouver International Airport and former CEO of Canfor Corp, describes himself as a hands-on politician. In person, he is straightforward and businesslike, and has no hesitation in criticizing the previous federal government (that he was once a part of) for not engaging more with other Olympic stakeholders. Emerson says the current government may not be racing ahead to approve Olympic funding, but it is closely involved with all Olympic partners in the planning and eventual execution of the Games. So, is spending on budget? The short answer is no. The Games are already over budget by approximately $110 million. That, however, was an expected overrun; IOC regulations for bid cities do not make allowances for inflation, and Vancouver’s bid included estimates on venue construction based on 2002 dollars. VANOC knew its estimate would surely rise. The only question is, by how much? Unfortunately for citizens footing the bill for Olympic construction, costs in B.C. have gone through the roof and are progressing ever skyward. No sooner had cost overruns been announced in VANOC ’s first quarterly report than additional cost overruns were reported. [pagebreak] The initial $110-million cost overrun is to be split evenly by the provincial and federal government. At the time of this writing the province was still waiting for the feds’ $55 million before releasing any funds of its own. VANOC, meanwhile, is still waiting for the entire amount. Emerson says the current federal government is 100 per cent behind the Games but “that doesn’t mean I’m signing any blank cheques.” “People want things to happen quickly and they want to see the funding, but we have to have a fence around costs and expenditures – cost certainty comes first,” he insists, making it clear that while he and the federal government fully support the Olympic Games, their first responsibility is to taxpayers. “I think considering my background, it’s obvious I’m not an announcement-type politician. I like to be involved first-hand with projects involving substantial federal funding and I talk regularly with John Furlong and Colin Hansen,” he says. Emerson says this is exactly the sort of hands-on management and careful planning that will lead to better efficiencies, which in theory should keep costs down. Hansen confirms that the lines of communication are open between Victoria and Ottawa. But he believes federal funding should come sooner rather than later. “I have frequent chats with him [Emerson],” says Hansen. “And I do agree with the federal minister’s position on cost control – but from the provincial perspective, just because we’re willing to put the money in an envelope doesn’t mean we’re not doing due diligence. It also doesn’t mean VANOC gets money to do with whatever they want.” In an interview with Vaughn Palmer of the Vancouver Sun July 26, Hansen bluntly assessed the findings of two government-ordered reviews of Olympic spending, one commissioned by the federal government, the other by the province. “They flagged a number of concerns,” he acknowledged. “There are issues that need to be addressed.” Hansen stopped short of criticizing the budget, insisting VANOC would be able to stick to its $580-million cap. Hansen says at the end of the day, the Games must be affordable to taxpayers. If that means pushing back the scale of some projects, that’s what will happen. For example, Whistler’s proposed sledge hockey arena (for the Paralympic Games), which has run into a budget shortfall of between $20 million and $30 million. “It’s up to Whistler at this point if they want to hold the event, but there is no more funding available for the arena, and the sledge hockey event could easily come back to Vancouver and be held at the Pacific Coliseum,” he warns. Hansen also notes the province could cover the entire $110 million, with the extra $55 million coming from the province’s contingency fund – except that would mean nothing left in the rainy-day fund, with three and a half years to go. More importantly, Hansen says it’s important for the province to remain equal partners with the federal government and that means equal cost sharing. John Furlong says the organizing committee would like to see those cash commitments from the province and the federal government met as soon as possible. He’s quick to clarify that doesn’t mean projects have fallen behind schedule. “One of the advantages the Vancouver Olympics has is probably the longest lead time of any Olympic Games. Eight years from executing the Games we were able to sit down with all partners and right away start thinking about the economics,” he says. It also gave organizers time to learn from the past. The Calgary Winter Olympic Games in 1988 benefited from their proximity to the 1984 Los Angeles Summer Games, run with corporate precision by former baseball commissioner Peter Uberoth and generating a $200-million surplus. As a result of the high television ratings generated by the L.A. Games, the Calgary Games received the wealthiest broadcast contract so far at that time: US$390 million from ABC. Fast forward to 2006 and NBC has paid US$2.2 billion for the broadcast rights to the 2010 Games here and the London Summer Games in 2012, another record-breaker. Lessons learned Furlong says the organizing committee’s approach to hosting the Games has changed dramatically over the years, in everything from security to environmental impact to finance. Case in point: the successful negotiations with the IOC on using NHL-size ice sheets for hockey events was one way VANOC put the lid on rising construction costs. [pagebreak] Despite Furlong’s assurances, Emerson says the biggest hurdle ahead is getting venues built, and built on time. B.C.’s labour market has never been tighter, especially in construction and trades. Coupled with the rising costs of building materials, it’s not an ideal time to be launching major publicly funded projects. Expo 86, by comparison, began venue construction in the midst of a deep recession and contributed to a building boom. The 2010 Games has to compete with an already overheated economy. Furlong says agreements on all major venues have been signed with participating municipalities and UBC. Sounds straightforward enough, doesn’t it? But on closer inspection, concerns arise. Take the example of VANOC ’s and the province’s agreement with the Resort Municipality of Whistler: yes, there will be additional money for the athletes’ village and the sledge hockey arena. But this doesn’t mean they will be built, and at the time this issue went to press, Whistler had not yet committed to the village arena, and basic ground-clearing had yet to commence on the athletes’ village. Emerson tells BCB: “One of the toughest pieces of the puzzle is finding good project management. That’s something I’m focusing a lot of attention on right now.” He feels that is the component that will get these major construction projects completed on time and relatively on budget. What’s key will be to bring in independent expertise when it comes to planning the Games, says Emerson. Still, whatever the challenges, the Games will go on and the venues must be built. Furlong maintains that the VANOC program is on schedule and achieving the milestones it has set. Hansen says he expects negotiations with the federal government to be worked out before the end of the summer. Security concerns One would think, considering the alleged terrorism plot uncovered in Toronto in June, that Olympic security costs would be another issue looming large for organizers. But Furlong and Hansen don’t anticipate additional security costs. “After my experience in Torino, I’m more convinced than ever the $175 million we have budgeted will be accurate,” says Hansen. To put that number in perspective, the security budget for Salt Lake City in 2002 was $310 million, and Athens in 2004 had a budget of $1.5 billion. Torino’s security costs are still being calculated, but most observers estimate the final budget will come in at over $1 billion. Why are security costs dropping when all other costs are headed in the exact opposite direction? “You can’t compare Vancouver 2010 to past Olympic Games,” explains Hansen. “Salt Lake City was five months after 9/11, and even the Athens Games were a different environment from us.” He doesn’t see the budget of $175 million, which is based on a multi-party agreement for basic security costs, rising. The agreement stipulates any extraordinary or unforeseen international threats requiring additional security costs will be borne by the federal government. “It’s not like we’re outfitting police departments for the next 20 years. This isn’t supposed to be part of major capital costs,” he insists. “We just need to give the RCMP and any other security forces involved the tools to get the job done for the 27 days of the Olympics and Paralympics.” Still, some security experts say that $175-million figure could easily double. If so, whether it’s federal tax dollars or provincial, taxpayers will be on the hook for a substantial increase in the Olympic security budget. Even after all the budget negotiations are worked out and venue construction is well underway, there is still another issue to consider: what will be our post-Olympic legacy? Detractors of the Olympic Games like to discount them as a three-week party for the rich, but no community is so blind as to spend billions of dollars and risk international scandal just for the sake of holding an especially lavish sporting event. Emerson, who is also minister for international trade, describes 2010 as a jumping-off point for trade priorities and an opportunity to open up the Asia/Pacific gateway. “The Games help create investment opportunities and stimulate tourism – it’s a way of branding and explaining Canada and B.C. to the world,” he says. Hansen claims the 2010 Games will be a showcase for the livability of B.C.’s communities and for the province’s environmental and economic sustainability. “Sustainability is something that gets talked about a lot, but in my opinion Torino set the bar very low on environmental impact,” he says, adding fuel to the fire of the apparent Torino-Vancouver tit-for-tat. “For the 2010 Games, it’s our chance to set the bar way up there.” Furlong says VANOC ’s goal is to deliver highly responsible Games: he says the Games here should aspire to have Canadian society feel it is better off for having held them. “If we can make every Canadian feel they owned a part of this accomplishment then we have done our job,” he says. But can we afford it?