Financing the Olympics: Are U.S. Cities Up for the Challenge?
In the wake of the recession -- and after witnessing London’s $14 billion price tag -- few cities are jumping at the chance to host the 2024 Olympic Games.
A new revenue-sharing agreement with the International Olympic Committee (IOC) gives the U.S. Olympic Committee (USOC) reason to be optimistic that an American city stands a serious chance at hosting the 2024 Summer Games. But in the wake of the recession, does any U.S. city even have the appetite for such an investment?
The short answer is yes, there will always be somebody (or some place) that wants to jump in with both feet. But, naturally, it’s more complicated than that. The last U.S. city to host the Olympics was Salt Lake City in 2002. Olympics are a strain on residents and infrastructure; they tie up transportation systems; and the budgets almost always climb -- London’s original projected price tag was about $3 billion but skyrocketed to $14 billion. But in this age of austerity, the way the USOC is going about the 2024 bid marks a distinct departure from the multimillion dollar bidding wars of years past.
A 'new attitude'
Last month, rather than letting cities spend money competing with one another for an Olympic bid, the USOC sent out letters to 35 mayors to gauge their interest in a possible bid. The mass solicitation was the first of its kind for the USOC and indicates their sensitivity to the cost of the games in the post-recession economy. For one, the letter specifically cited the bid process New York City and Chicago endured for their 2012 and 2016 bids, respectively:
“Both New York and Chicago had to participate in a domestic bid process that cost upwards of $10 million before they were designated by the USOC as an IOC Applicant City,” the letter states. “Moving forward, we are going to select our Applicant City through a thoughtful but more efficient process. The first step in that process is to have discussions with interested cities.”
“It’s a new attitude,” Terry Hasseltine, director of the Maryland Office of Sports Marketing and incoming chairman of the National Association of Sports Commissions (NASC), told Governing. “Part of it is they’re giving us the opportunity to explore this before having to make a grand decision.”
Don Schumacher, executive director of NASC, thinks the reason for the change may be that the committee is uncommitted.
“My feeling is the USOC has engaged in this effort first and foremost because they are not at all committed to a bid for 2024 Summer Games,” he says. “They are investigating how many cities might possibly qualify, they will digest that and decide if and how to go forward.”
Few cities jumping at the chance
The deadline to submit a bid to the IOC isn’t until 2015 so the USOC is giving cities plenty of time to consider it. Still, some mayors have already killed the notion and others have danced around saying “no.”
Mayors from Chicago, Minneapolis and Detroit have outright rejected the idea.
Other city leaders have echoed similar refrains without an official rejection.
“The Olympics are too expensive,” San Jose, Calif., Mayor Chuck Reed told Governing. “We can’t afford it -- it’s hard to see how any city can afford to do it themselves.”
Reed, one of the recipients of the USOC letter, said San Jose just “doesn’t have any extra money.” Over the last decade, the city of 960,000 has grappled with budget shortfalls and has cut its workforce 27 percent to 5,400.
“Who can run the risk of running up a billion dollar tab that you have to pay?” Reed asks. “You can be as optimistic as you want but that still doesn’t cut out the risk."
Boston Mayor Thomas Menino called the idea “far-fetched” during an interview with a local radio station and raised concerns about the space available to build an Olympic stadium as well as the cost to the city and its taxpayers.
"Just to apply, to be considered costs $6-8 million -- not refundable either," he said.
A spokesman for the city of Rochester, N.Y., called the bid “not practical," telling a local news outlet that he doubts there are enough hotel rooms in the county -- much less the city -- to support the Olympic Games. In order to qualify for a bid, cities must have 45,000 hotel rooms available.
Cities not only need adequate hotel space, but they must also construct an Olympic Village to house 16,500 athletes and operations space for 15,000 media members. The letter also states that a host city needs an extensive public transportation network (including an international airport) and an available workforce of 200,000 people.
Los Angeles' past success
The only city that has so far responded in the affirmative to the USOC is Los Angeles, a two-time Olympic host. L.A., in fact, is the only city to have actually turned a significant profit on the games when it last hosted in 1984. Los Angeles won the '84 games by default because Tehran, the only other interested city, declined to bid due to the strife in the Middle East at the time.
That gave California investor Peter Ueberroth a chance to step into the spotlight and prove that the games could be run on a blend of public money with corporate sponsors in a way that actually made a profit -- more than $100 million -- for the city of Los Angeles. Ueberroth was named Time Magazine’s Man of the Year for his efforts and he later became chairman of the USOC board of directors but not before checking off director of the Coca-Cola Company and commissioner of Major League Baseball from his resume. But a Ueberroth-like proposal from a city wouldn’t stand a chance these days, according to David R. Henderson, research fellow for the Hoover Institution.
“The IOC won’t let it happen,” he says. “When [a] city or county makes a bid, they want [them] to come up with big funding. In 1984, there was essentially no competition.”
NASC's Schumacher adds that the Olympic bidding process has changed a lot since 1984.
“We’re now at the point where in order to bid, there are mountains to climb that include public guarantees in the bottom line of the games,” he says, “which United States cities are in no mood to make.”
Other cities are toying with the idea of a regional effort to make a bid more affordable. San Diego’s mayor has told local news outlets that he wants to join with Tijuana, Mexico, on a bid although many think the USOC would shoot down a cross-border Olympic bid. On the East Coast, both Baltimore and Washington, D.C., received letters from the USOC, and D.C. Mayor Vincent Gray has said the only way his city would consider such an endeavor is if it were in coordination with surrounding jurisdictions. Baltimore and Washington partnered up in an unsuccessful bid to the USOC for the 2012 games. But this time around, the finances will be harder to come by.
“Has the economy affected this? Darn right it has,” Hasseltine says. In the early 2000s, he adds, regional leaders “went to about a dozen or so companies to raise capital” for the 2012 bid. “In today’s marketplace, that [same dollar amount] would be 30 to 50 companies contributing.”
Some still see dollar signs
Still, Hasseltine is among those who believe that hosting an Olympics is ultimately a win for a city. Cities undoubtedly will not earn their money back during the year that they host the games, but the new infrastructure by way of housing and sporting venues are investments in the years to come, he says. With new sporting facilities, host cities following the games find they are in a position to host other major events (like the FIFA World Cup) for which they otherwise would not have been considered.
“You might host the Olympics two or three times over in the years after the games,” Hasseltine says. “There’s a huge outlay: your victory is really defined in the immediate period for 15 to 20 years after hosting in the legacy of activity.”
Below is the list of cities that received letters from the USOC:
San Jose, California
Rochester, New York
Charlotte, North Carolina