Salt Lake City Faces Olympics Dilemma

The bribery scandal enveloping Salt Lake City’s winning bid for the 2002 Winter Games has also triggered a fractious local debate over who should pay for the Games should they turn out to be a financial bust.

The resolution of that debate, little noticed elsewhere, could well hold profound implications for the Olympic movement in the United States--and may yet decide the course of bids by other cities nationwide, including Los Angeles, for Games yet to be awarded in 2012 and beyond.

At issue is the stuff of lawyers, accountants and policy wonks: If the 2002 Games are a bust, who ought to indemnify whom? In plain terms, who would have to write a check for as much as hundreds of millions of dollars? The city of Salt Lake? Or the state of Utah?

“We’ve got an enormous scandal that’s caught the attention of the world,” said Deeda Seed, a Salt Lake councilwoman. “Marketing products, associating your name with the good name of the Olympic movement--well, the Olympic movement is not such a good name anymore. Now everyone’s concerned about [raising] $250 million and everyone’s smelling a debt.”

The scandal involves allegations that representatives from Salt Lake offered lavish gifts, cash payments, free scholarships and medical care in return for votes for the city in the election to pick the site of the Games.

Four investigations are underway and top Salt Lake and U.S. Olympic Committee officials have resigned. Nine International Olympic Committee members face possible expulsion for what have been termed serious offenses and four others have been asked to answer to lesser charges.

And it has already forced a significant delay in fund-raising.

One key corporate sponsor returned to the fold over the weekend. But organizers remain concerned that the scandal will erode corporate support. And they concede that they have begun to seriously consider cost-cutting measures--even as they insist they ultimately will meet their fund-raising goals.

It’s what happens if they don’t that has given the indemnity issue such urgency. After the 1996 Atlanta Summer Games, which were run by a private committee that escaped the liability issue by barely breaking even, IOC officials announced that the finances of future Games would have to be guaranteed by a governmental entity or a third party.

In practice, this rule was directed primarily at U.S. cities. Elsewhere around the world, it’s far more routine for provincial and national governments to help pick up the tab; the South Korean government, for example, poured about $1.5 billion into stadiums, roads, subways and other facilities for the 1988 Summer Games in Seoul.

Complicating the issue in Salt Lake is that the city and the state struck a deal in 1991 that says the state is on the hook. Problem is, according to legal experts, that agreement is probably illegal; the Utah Constitution clearly says the state can’t assume the debt of any city or county.

Moral Obligation, Governor Says

Utah Gov. Mike Leavitt has said the state has a moral obligation to step in. But moral obligations aren’t legally binding.

When the city and state agreed to their deal, all sides agreed not to press the constitutional issue so that Salt Lake would give the impression that it was ready and willing to be a host city.

Where does that leave matters? In limbo.

Salt Lake City signed the contract with the IOC to host the games, and so it apparently would be left holding the bag. But the city, with a population of only 172,000 and a fiscal 1999 budget of $480 million, clearly does not have--and could not possibly hope to generate--the kind of financial clout that might be necessary.

It’s a “very critical issue,” U.S. Olympic Committee President Bill Hybl said in an interview, adding that it “has to be addressed better for the future.”

It’s also a reminder of one of the enduring truths of the Olympics. When the Games are actually on, the focus is typically on such virtues as international goodwill and the triumph of the human spirit. The rest of the time, as Wayne McCormack, a law professor at the University of Utah and the university’s Olympics coordinator, wryly notes, “They’re about money.”

Big money. The projected operating budget for the 2002 Games is $1.453 billion, according to the Salt Lake Organizing Committee for the Games.

The bulk of the projected revenue is in two chunks.

One is broadcast rights, $445 million.

The other is sponsorships. The organizing committee figures that it needs to generate $295 million in cash and more than $400 million in what accountants call “value-in-kind”--that is, donations of goods or services.

Remaining revenue is projected to come from such sources as tickets and the sale of T-shirts and other Games merchandise.

The broadcast money is already in hand. At stake are the sponsorships.

Marc Hodler, the longtime IOC member whose December allegations of corruption triggered Salt Lake investigations, said last week that organizers now face difficulties in filling a multimillion-dollar sponsorship gap.

“With the reaction in Utah and Salt Lake City, it’s going to be difficult to find those $350 million,” Hodler, based in Switzerland, told Associated Press in a phone interview, adding, “This is my main concern.”

But John Krimsky, the U.S. Olympic Committee’s deputy secretary general and chief fund-raiser for the Salt Lake Games, disputed Hodler’s comments, first fixing the remaining sponsorship needed at $250 million instead of $350 million, then insisting that all sponsorship goals would be met.

Nonetheless, Krimsky said that when the scandal broke, it “became obvious” that it would take longer to meet those goals. The deadline is now “the third quarter of 2000” instead of August 1999.

One major sponsor, US West Communications, delayed a $5-million payment to the organizing committee until it got assurances that there would be no more “surprises,” as the company put it in a letter to the committee.

At a news conference Saturday, US West President Sol Trujillo, flanked by Leavitt, handed over the check. “Is that a welcome sight?” asked a beaming Robert Garff, chairman of the board of the Salt Lake Organizing Committee.

Meanwhile, Michael Payne, the IOC’s marketing boss, flew to Atlanta last week to shore up support from Coca-Cola, United Parcel Service and Home Depot.

Even if the sponsors do come through, there’s yet another worry--this one on the expense side of the ledger. This winter in Utah has been warm and snow has been scarce. If conditions are the same in 2002, it will cost untold millions to make enough snow for the Games.

International Olympic Committee President Juan Antonio Samaranch, speaking from Switzerland, said in an interview published Saturday in the Geneva-based newspaper Le Temps that the IOC might be willing to help with a financial shortfall. “It depends on what help Salt Lake City wants,” he said. “We will find a solution.”

Garff said Salt Lake organizers are now interested in renegotiating the contract with the IOC, perhaps in March when Samaranch is due to visit Utah.

Organizers are keenly interested in cutting expenses, Garff said.

A prime example: They’d like to lower the $10.1 million now allocated for hotel rooms, transportation, meals and other benefits to IOC members during the Games--what’s euphemistically called “protocol.”

Other cost-cutting measures are under consideration, including the use of more volunteers and fewer paid staffers, which Garff said could save $20 million to $40 million.

“Any prudent businessman would have contingencies and options,” Garff said.

He stressed that organizers remain “confident” that sponsors will eventually commit to the Games. But he said, “We’re committed to putting the Games on within the revenue we receive.”

L.A. Games Are Financial Model

The Games are hardly a guaranteed financial success.

The model that’s mentioned most frequently among Olympic boosters in North America is the 1984 Los Angeles Games, which produced a $225-million profit.

The 1976 Montreal Summer Games, however, were a financial debacle, producing a shortfall of more than $1 billion.

The Atlanta Games were supposed to generate a $156-million surplus. But after raising $1.72 billion--all from private sources--organizers closed their books in a break-even position.

To raise $1.72 billion, meanwhile, Atlanta organizers turned the Games into a commercial carnival.

On or near the grounds was a seemingly never-ending parade of vendors, perhaps best typified by an Elvis impersonator hawking Slurpees.

The in-your-face commercial excess was mandated by financial reality. Without governmental backing, Atlanta organizers had to find money elsewhere.

But so much commercial clutter, the IOC believed, diluted their sacred Olympic brand.

Never again, the IOC decreed as the Atlanta Games were ending. No longer would an Olympics be privately funded without a guarantee of the financing--by the city itself or, according to IOC bylaws, by “local, regional or national public collectivities, the State or other third parties.”

It’s not at all clear that such a demand is feasible, particularly in an era in which American taxpayers have grown increasingly wary of public support for new baseball and football stadiums.

Seattle recently abandoned its bid for the 2012 Summer Games in large part because officials there weren’t willing to back such a guarantee. After Salt Lake, the next opportunity for the Games to return to the United States appears to be in 2012.

“I’ve been an insurance broker for 16 years and I would never recommend that a client sign the kind of liability indemnification agreement [the IOC is] asking cities to sign,” said Seattle City Councilman Nick Licata, who helped lead opposition to the bid.

San Francisco’s 2012 bid is still alive. But bid officials concede that political support within San Francisco for such a guarantee is slim.

So officials are trying to be creative, bid coordinator Sue Loder said. Support is being sought from nearby towns on the theory that events would be held in cities throughout the Bay Area.

Any idea is being explored, she said, including the possibility that Silicon Valley’s corporate powerhouses could underwrite the guarantee--although those same companies would almost certainly be solicited to become Olympic sponsors.

Los Angeles officials have so far taken a wait-till-later approach on the issue. In a resolution approved Dec. 15, the City Council acknowledged the “expectations and requests regarding governmental participation” for bidding in 2012. Such matters are “to be addressed in future agreements,” the resolution added.

In Salt Lake, time is running short, and as Councilwoman Seed put it, “We’ve got a real problem.”

City Council Chairman Keith Christensen sent a letter last week to Gov. Leavitt saying the council “remains uneasy” about the indemnity issue and asking that it “be resolved unambiguously to the satisfaction of us all.”

In the meantime, the city’s contract with the IOC also notes that any indemnification “shall not apply to willful misconduct or gross negligence by the IOC.”

It’s not clear if that includes the cash payments, scholarships, gifts and other items accepted by some IOC members from Salt Lake bid boosters.

If so, all bets could be off.

“The IOC thinks they’re holding us hostage because we want the Olympics so badly. Guess what? We don’t,” Seed said.

She added: “Clearly it was the solicitation of bribes by IOC members that got us into this mess. So they have a choice. The choice is: no Winter Olympics in Salt Lake City. Or a Winter Olympics where if there is a debt, they cover it.

“I think it’s very simple.”