Secrets of the Organizing Committee : Going for Gold Takes New Twist--Record Profit

The Los Angeles Olympics returned a profit of $222,716,000, more than any other sporting event in history.

Distribution of the money, which was described as surplus to satisfy federal and state laws on tax exempt groups, soon began according to a formula that had been agreed upon with the United States Olympic Committee in 1979.

Forty percent went to the USOC, 40% to Southern California and 20% to the national sports federations, which regulate amateur sports in America.

The 40% share going to Southern California was, according to the 1979 contract, to be devoted entirely to amateur sports. Within months of the declaration of the surplus, however, the sports foundation formed to dispense the money over a period of many years changed its bylaws to allow the use of some of it for the arts, and the legal way was cleared for further such changes.

The Games were financially successful in part because they were put on with only minimal capital investments. Virtually every other Olympic city, in providing the facilities required by the IOC and international sports federations, had to build extensively.

Not only did Los Angeles have most of the facilities that were needed, but Peter Ueberroth, president of the Los Angeles Olympic Organizing Committee, decided to scatter the Games up and down 200 miles of the Southern California coast. He knew that what was unavailable within the Los Angeles city limits was often available elsewhere within the area. As it turned out, only a few facilities--a velodrome, a largely temporary swim stadium and temporary shooting ranges--had to be constructed.

Take away capital investments and even the Montreal Olympics would have made money, although nowhere near the money the Los Angeles Games made.

The Los Angeles committee’s income was far ahead of any previous Games.

Montreal, for instance, had a net loss on television after the organizers paid host broadcaster costs, but Los Angeles cleared, after paying the IOC its share, more than $236 million.

Los Angeles’ return from tickets, just short of $140 million, was a record, as was its $126 million return from sponsorship and licensing.

Following a policy of getting money up front, in some cases years in advance of the Games, the LAOOC made more than $76 million in interest alone.

Los Angeles, however, did not have any lottery income, an important source of funds for many other Games.

The other important factors in the profit were Ueberroth’s and Harry Usher’s policies of the tightest controls on committee spending, their persistence in seeking maximum dollars and assistance from every useful source. Their constant word up until the Games began was that they were operating on the thinnest of margins, thus conditioning those they were dealing with to be accommodating.

After the Games, many of those parties came to believe that they had been deceived.

In the last months before the Games--from December, 1983, through July, 1984--Ueberroth and Usher maintained that the committee’s public projection of only a $15.5 million surplus, and $513 million in revenues, about a 3% margin, was the most realistic available.

Ueberroth vehemently denounced an article in The Times on March 28, 1984, reporting that the projected surplus actually was $110 million, and that the projected revenues were slightly in excess of $600 million.

Ueberroth said at meetings in Colorado Springs, Colo., and Lausanne, Switzerland, with both United States Olympic Committee and International Olympic Committee leaders that any higher figures than the $15.5 million and $513 million were inaccurate. He privately wagered that revenue would not reach the speculated $587 million.

In the final report, released in June, 1985, unrestricted revenue--not counting the $50 million in television payments that were passed through to the IOC--was put at $718.5 million.

Now those financial reports seem to have been too conservative, even at the time. It has since become clear--based on interviews with the committee’s leading financial officials--that the committee was in an even more positive position in March, 1984 than my sources indicated. At that time, it was $183 million, not $110 million, ahead.

Yet technically, Ueberroth was justified in claiming only a small projected surplus, since almost all of this $183 million was balanced against a series of possible disasters that conceivably could befall the committee and would either cut expected revenues or require more spending. That almost none of those things occurred does not mean that they could not have, even though most of them were unlikely.

Still, Ueberroth never revealed the existence of such a cushion, and when none of the worst-case scenarios came to pass, the $183 million cushion became the surplus. In fact, the surplus, or profit, ended up nearly $40 million higher than the cushion reported to Ueberroth in March of 1984.

According to Michael Mitchell, the group vice president for finance, and James Hetherman, the chief of budgets, the $183 million was divided into two categories.

One, described by Mitchell, was a projected $108 million revenue bulge that he said he had told Ueberroth and Usher about in a report delivered about March 1.

Mitchell said that about $70 million of this was reserved as a possible rebate to the ABC television network in case the Soviets boycotted the Games and the boycott actually hurt ABC’s audience ratings during the Games. The contract signed with ABC in 1979 stipulated that both had to occur before the rebate clause could be invoked and the contract renegotiated.

Another $25 million was reserved against the possibility that thousands of volunteers expected to staff the Games would not show up or would not work out, thus necessitating mass last-minute hiring of paid workers.

The second category, described by Hetherman, was a $75 million general budget contingency controlled by Ueberroth and Usher that most of the other senior managers at the committee did not know existed. There were other contingencies in the regular departmental budgets as well, so this $75 million was a last-resort contingency and was simply held in reserve.

Ueberroth and Usher went to extraordinary lengths at the time to keep the existence of the contingency funds from becoming known.

Not only did they deny the existence of such a cushion publicly, but they also denied it behind closed doors with the Olympic committee’s board of directors and their own managers. They persistently talked of having to cut spending if the Soviets boycotted, when they knew that the chief effect would be to cut into some of the bulge.

They even tried to keep many of the committee’s financial aides in the dark. Since there was a firm rule at the committee against exchanges of information between the treasurer’s staff and the budget staff, in theory, besides Ueberroth and Usher, only Mitchell, who had access to figures from both staffs, had the full picture.

Even the chairman of the board, Paul Ziffren, said both before and after the Games that he had not been told the size of the cushion.

Another ranking official at the committee, who asked not to be identified, told of an exchange with Ueberroth on the financial situation in January of 1984.

“We continually released financials . . . and the numbers were never really what reality was showing, and a few of us on the committee knew that,” the official said. “I went to Peter very concerned about this, and I said, ‘Peter, my God, if we’re able to bring the Games off the way they’re going and we have this huge surplus, all these people that we’ve gouged and beat upon and negotiated so toughly with will be very upset and will ride us out of town on a rail.’ And Peter looked at me and smiled and said, ‘Nope, we’ll be kings.’ And he was right.”

Asked about the encounter, Ueberroth would not comment.

Usher said: “It was clear to me during the spring of ’84 that it would have to be a very disastrous thing for us to be in the red.”

Like Ueberroth, however, he evaded the issue of his precise expectations.

The feeling of many staff members was reflected in a poem that Linette Savage read at Usher’s going-away party after the Games were over and he was about to become commissioner of the United States Football League. The poem contained the following stanza:

He tried to convince the world at large

That ‘the Usher’ is a man who takes charge.

He told the venues and press that we had no surplus or money,

But what an act you put on, didn’t you , Honey?

The committee treasurer, Conrad Freund, said the reason that even the senior levels of management were not given the particulars of the financial situation was that Ueberroth and Usher believed “that if people knew that we had X number of million dollars of projected surplus that there would be no way that Peter could say no anymore (to spending), and he was not about to stop saying no to people.”

Freund said that it had become apparent to him in the spring that “there was just no way we could hire enough people or spend enough money to lose all that money that we had in the bank in that period of time.”

Very little of the contingency money was used. Almost nothing went wrong, other than a $5 million overage in construction costs and a $2 million overage for opening and closing ceremonies.

The large profit certainly came as no great surprise to most of the committee’s financial aides, many of whom had been exchanging information among themselves despite the rules. Even the conservative Dale Rediker said that if he had had to guess the size of the surplus in the spring of 1984, he would have said $140 million or $150 million.

Actually, any careful study of the figures that Ueberroth was providing would have yielded ample indication that they were not the full story.

Ueberroth’s projections of revenues delivered in December, 1983, for example, assumed that the committee would receive no more revenue from the government’s Olympic coin program. They contained no provision for concessions income or royalties from the sale of Olympic products. And they presumed that no more tickets would be sold to Olympic events. Yet Ueberroth and Usher not only defended those figures but also sharply assailed anyone who disputed them.

After the Games, when the huge surplus was revealed, Ueberroth and Usher cited several reasons, including what they termed a phenomenal surge in ticket sales at the end.

The committee’s own official statements show that to be mainly a figment of their imaginations. On June 27, 1984, a month before the Games began and well before the committee began special public over-the-counter ticket sales at Santa Anita and Hollywood Park, it announced that it had already done $125 million in ticket business and was ready to pay municipal ticket taxes on that amount.

Since the committee later reported total ticket sales of $139.9 million, the last-minute surge amounted to less than $15 million.

Another reason given for the surprise involved more than $60 million in budget savings by committee departments. Most of those savings were actually unspent contingencies, not parts of the regular budget. It is characteristic of Ueberroth and Usher’s financial statements that even their after-the-fact explanations were misleading.

During the Games, Ueberroth and Usher, realizing that they had a lot of extra money, passed the word to sports commissioners and other senior managers that they could increase their expenditures if they wanted to. But by that time, it was really too late to change the plans they had made, and most turned the offer down. Of about 125 spending centers for the Games, according to Usher, only 14 came in over budget.

There was considerable feeling, though, that had the leaders been frank about their financial situation several months before the Games, costs could easily have increased substantially. Some thought such candor would have meant as much as $100 million more could either have been spent or demanded of the committee.

The committee controller, John Rodsett, used that $100 million estimate.

“We knew that if we ever displayed that we had a lot of free money, in any way, shape or form, at any time, we would be open meat for the people out there,” he said. “So that stance was maintained, all the way through.

“I think if the commissioners when they came (to work) in (early) ‘84, really were let loose . . . they would have gone crackers, because they’re that type of people. They’re wild entrepreneurs who like to spend money.”

Hetherman also said that if the budgets had been 20% or 25% larger, much of the extra money certainly would have been spent.

Ticketing director Ed Smith said he questioned whether the Games would have been better as a result. He told of a post-Games discussion with Chuck Cale, the group vice president for sports, in which he quoted Cale as saying: “Gee, I wish I had known the surplus was going to be so large. I would have spent more money.”

Smith said he had replied: “Why, Chuck? The Games came off just fine. . . . If you had spent another $50 million, would they have come off that much better?” Smith said he thought the answer was clearly no.

The greatest fear was that a revelation of a big financial cushion might damage the committee’s negotiations with outside entities, including cities demanding reimbursements for security costs, suppliers of special equipment, construction trades and other unions.

In the months before the Games, the committee was still embroiled with both the city and county of Los Angeles on reimbursements for services they were going to provide or thought it would be advisable to provide, particularly in security.

There also was concern that someone would stand up in Congress and demand that the committee reimburse the federal government for its expenditures on the Games. These ran at least $30 million for security alone and have been estimated at as high as $68 million overall.

At the Los Angeles Police Department, Cmdr. William Rathburn said that less than a month before the Games, Ueberroth pleaded financial weakness in trying to persuade Police Chief Daryl Gates to reduce police demands for reimbursement.

Rathburn said that Gates had run into Ueberroth at a social event “and Peter, according to the chief, was very emotional. . . . We were asking for almost $10 million, and he said, ‘Not only do we not have $10 million, we don’t have $1 million to give you.’ And I think that that just kind of was the epitome of the way they operated.”

Even after the Games, neither Ueberroth nor Usher would acknowledge that they had pursued such a policy. “There could have been two or three little simple acts by some outside party that could have ended up costing us another $100 million,” Ueberroth said.

Most of the staff, however, said that Ueberroth’s financial tactics were justified. Even Montgomery, who was inclined to be most critical of Ueberroth on ethical grounds, concluded when it was over that “nobody seemed to care” about what Ueberroth had done. “The fact that financial statements were misstated . . . didn’t seem to bother people.”

One of Ueberroth’s tactics in discussing the committee’s finances was to put heavy emphasis on the factors that could mandate larger or smaller expenses. He said it would mean $7 million more in expense if the committee just decided to feed lunches to its volunteers. That was his favorite example of how quickly everything could get out of hand if the committee so much as let its fiscal guard down for a moment.

Something about free lunches seemed to fascinate both Ueberroth and Usher. It was frequently a point they would use in negotiations or even as an excuse to do things they wanted to do for other reasons.

In fact, when the breaking point occurred between Walt Disney Productions and the committee over plans to use Disney and Bob Jani to do the Opening Ceremony, what had brought it to a head was the refusal of Ueberroth and Usher to buy lunches for the thousands of participants, even though they would arrive in the morning and stay until well after dark.

Later on, nearly everyone got lunches. But it was not only as a negotiating point with outsiders or as an argument with the press that Ueberroth and Usher used such issues. The staff--most of whom were as much in the dark on finances as any outsiders--often seemed impressed by such points.

Bea Nemlaha was representative. She recalled:

“We all believed we were going to be lucky to make the $15 million. I remember when I first came the kinds of illustrations that were used to show how quickly that $15 million could be wiped out.

“Phil Brubaker used to talk about the kinds of decisions that had to be made, which were $5- or $6-million swing decisions. I think the one illustration that he used which was interesting was . . . the swing between minimum wage and market wage in (a) particular position.

“I don’t remember the details any more, (but) if you did the arithmetic and you multiplied the number of people times the number of hours times the 25 cents or whatever it was, it was a $5 million swing. So I thought, ‘Gee, yeah, right, you could wipe out $15 million in no time at all.’ ”

Sometimes, the controls were so tight that it bordered on the ludicrous. Scott Le Tellier told of a time that Chuck Cale had a two-day fight with Usher to get $3,000 to reprint some botched explanatory brochures that were going to go out all over the world. He said Cale had been embarrassed that it took so much effort to get an OK for something that was so clearly necessary.

Even at the distant soccer venues at Stanford University, Harvard University and Annapolis, the venue chiefs were kept on an extremely tight leash for a long time. Scott Renner, who had responsibility for them, told what happened:

“They did not want the people in the remote sites to have their own bank account. They’d give them $500 and that’s what you had to operate with.

“Well, of course, these guys are ordering a couple of hundred typewriters, and maybe they’d have to pay the delivery fee, and the guy says, ‘$1,100.’

“ ‘Well, I only have $500 in my checking account.’

“ ‘Well, I’m taking the typewriters back.’

“And I’d get these phone calls: ‘I’ve got to have it. . . . I’ve got to have the check here tomorrow, or else I’m not going to have a phone system. We’re not going to be able to handle tickets. It’s all going to go to hell.’ This was in May (two months before the Games).”

Renner said he finally went to the controller, John Rodsett.

“I said: ‘Listen, I’m not going to be able to control their activity. We’re going to have to rely on the people we hired. We have to rely on them not only to get the job done, but to be honest. So we need to ship them money.’

“And John said: ‘How much?’ And the first sum that popped into mind was $25,000, and Larry (Lemoine, a colleague) elbowed me, and (we said) ‘$50,000? So, let’s see if we can get 50.’

“Well, Dale Rediker said, ‘$50,000! What do they need $50,000 for?’ As it turned out, all three sites, they spent every penny of it.”

These were the important phases and perceptions in the final months, according to top financial aides:

January, 1984: A financial report to Ueberroth projected about a $110 million surplus, assuming normal happenings, neither best case nor worst case, and revenues slightly exceeding $600 million. Both Robert Montgomery and Edwin Steidle were aware of this report before they left the committee.

One important issue during this period was how much to expect in ticket revenue. Although the departmental director, Ed Smith, said later that he had stuck with the committee’s $90 million projection, others, such as Rodsett, the controller, and Michael Mitchell, the group vice president for finance, said they already considered this far too low.

Mitchell’s aide, Jeff Benjamin, said that even before ticket sales had begun he had guessed that they would total between $130 million and $135 million. Rodsett said he knew by the end of the year it would be at least $100 million for sure.

About this time, Mitchell and Hetherman were busy “refining” previously developed departmental and venue budgets, generally paring them down. They found that unspent contingency money had been piling up and that many of the budgets were bloated. Mitchell remarked after the Games: “We did spend less than even the budgets that I got in and trimmed, (and) we did get more revenue even than our most optimistic projections.”

March, 1984: Mitchell’s report to Ueberroth showed a $108 million revenue bulge and $75 million in the last-resort, general budgetary contingency. The committee, in short, was about $183 million ahead. But by this time the possibility of a Soviet boycott was looming larger.

After the Games, Mitchell said that even though he had come up with these mid-course scenarios, there was a $200 million swing between the best-case and worst-case scenarios submitted at the same time. So, he observed, “Planners never are going to just kind of say, ‘This one.’ You’re never going to say that. You try to go down the middle someplace, which we did.”

Mitchell had decided in his mid-course scenario what was likely to happen with ticket income. He said later he had estimated it in the neighborhood of $125 million. But Ueberroth and Usher stuck publicly with $90 million, and so did Smith.

The Times sent Ueberroth a list of 23 detailed questions about the financial state of the committee. A former committee official had helped prepare the questions. There were references to best- and worst-case scenarios and a request for verification of the report of a realistic revenue projection of slightly more than $600 million, instead of the $513 million Ueberroth was using.

At first, Ueberroth said he would be interviewed, then he said later that his press secretary, Amy Quinn, would reply in a letter.

The letter flatly refused cooperation. “We believe that your questions concerning revenues are more than adequately answered in the LAOOC’s annual report for 1983, and we can determine no reason or purpose to further amplify,” Quinn wrote.

“There is a limit to how much energy we can expend simply to debate points that are either dated or founded in speculation. Our job is to organize the Games, and there is no time to waste.”

She also denied the report of a projection of more than $600 million in revenue.

May 8, 1984: The Soviet Union declared its boycott of the Games. Since the committee had already set aside a contingency of $70 million as a rebate for ABC, however, and theirs was the only contract potentially affected in an important way, committee financial aides quickly decided that it would take far more than just a boycott to alter their financial prospects.

Ueberroth had been talking for some time before the boycott about a plan to “accordion” downward committee expenses in case one were declared.

Rodsett said after the Games, however, that no action had been required in the wake of the Soviet announcement. “Although Peter and Harry wanted to tell all the commissioners and all the vice presidents that we were in deep financial trouble, another stick to bat them on the head with, the effect was zero,” he said. “We didn’t alter anything (financially). We didn’t do anything.”

Eve of the Games, July, 1984: Leigh Zaremba, a transportation manager, recalled that about a week before the Games, “when apparently Harry and Peter knew that there was going to be a good deal of surplus, we got a call in the transportation department that we could loosen up . . . and if we were to loosen up, where would we loosen up? Where would we spend some money? And there was just not a place to put it,” he said.

“The responses that came back from the field were lilies. If we had had to spend a million dollars we’d have been hard pressed to do anything other than put some more food in the refrigerators where the drivers gathered, put up a few more television sets to make it fun for the drivers as they gathered at the venues. . . . Little tiny ideas came in that were just not major.”

Rodsett said that in relation to the sports commissioners, even a month before the Games, it was evident that they could not materially increase their spending.

Group Vice President Michael Mount added that the response from all the commissioners and departments combined to management’s call for any new spending requests amounted to only about $2 million.

Even on the literal eve of the Games, Ueberroth and Roone Arledge of ABC were in highly emotional negotiations on a possible token rebate in advance of the Games by the Olympic committee in exchange for an agreement by ABC not to press for the maximum afterward. But no settlement was reached, and by that time it was already evident that ABC would make all of its payments on time, except, just possibly the one after the Games.

Michael O’Hara explained why. “Our position was, ‘No tickee, no laundry,” he said. In other words, either ABC paid on time, or it would not be permitted to televise the Games at all.

When Mitchell submitted his final pre-Games financial projection to Ueberroth and Usher, it showed a $200 million profit.

After the Games: On Sept. 11, 1984, the leaders of the committee formally announced that they were projecting their surplus, or profit, at $150 million. As it turned out, that figure, although a major surprise at the time, was still far too low.

“I sat in the news conference when they announced that,” Rena Jordan said months later. “They had all their pretty diagrams. And I spent many hours the night before helping to prepare the pretty diagrams. (But) as far as my side of the numbers (in the treasurer’s office), the numbers that were up there were not totally reflective of what they could have been, and I think partially from conservativeness.”

Generally, the reason given was that the committee had many venue payments and other claims outstanding, as well as possible legal and tax issues, and Ueberroth and Usher just wanted to play it safe. It wasn’t until mid-December that they more realistically estimated the final surplus at $215 million and perhaps more.

On the other hand, Robert Montgomery, who despite his departure from the committee had maintained excellent contacts there, said on the same day the $150 million figure was announced that actually it would be closer to $200 million.

The reaction to the surplus was mixed. The president of the IOC congratulated the Los Angeles committee and within weeks was asking, fruitlessly it turned out, for at least $7 million in room and board reimbursements for the world’s national Olympic committees. The great surge of new candidates for the 1992 Olympic Games probably was caused at least partly by the announcement of the surplus. Many cities, for the first time in decades, viewed the Games as a good thing financially.

But there were also some who were not pleased to learn of the surplus, among them staff members at the committee who believed that they had been misled and some outsiders who felt they had been wrongfully imposed upon. At Loyola Marymount University, Henry Durand, the vice president who dealt with the committee and had many critical theories about it, said later that his first reaction was that the surplus was obscene.

“That’s what I said,” he recalled. “I said, ‘I think that is obscene,’ because we had to fight (at Loyola) for every nickel we got. We even (had to fight) in the restoration (after the Games). ‘No, you can’t paint that wall; that one’s good enough. OK, we’ll paint that one.’ We were fighting for, ‘Can you leave these chairs and tables?’ ‘No, I don’t think we can.’ . . . You know, it was like bickering over a piddly amount of money when you compare it to the surplus that they had.”

Ueberroth’s friend, Glenn Wilson, who worked without pay at the committee most of the time he was there, said that when he got back into contact after the Games with the people in Washington, D.C., who had helped put together the Olympic coin program that brought the committee $36 million, some of them accused him of “conning us for four years” on the state of the committee’s finances.

“I was taken in (myself),” Wilson said. “It was coming on about six months before the Games that I knew we were going to come into big money. So I was a little embarrassed by that. But it was a good embarrassment of course.”

Very little of the contingency money was used. Almost nothing went wrong, other than a $5 million overage in construction costs and a $2 million overage for opening and closing ceremonies.