USA: ATLANTA'S LEAP OF FAITH.

USA: ATLANTA'S LEAP OF FAITH. - A flash of inspiration in church gave Bill Payne the idea of bringing the Olympics to Atlanta. Miraculously, the city then set up a $1.7 billion turnover multinational from scratch.

by Richard Thomson.
Last Updated: 31 Aug 2010

A flash of inspiration in church gave Bill Payne the idea of bringing the Olympics to Atlanta. Miraculously, the city then set up a $1.7 billion turnover multinational from scratch.

There is no escape in Atlanta: Olympic advertisements loom up at you wherever you turn. In the airport on the way to the baggage claim, you pass about 30 adverts from Olympic sponsors and licensees of various sorts. On the freeway downtown you pass some of the biggest: Coca-Cola ('R U Thirst T?'), IBM, Kodak and Panasonic writ large on massive illuminated billboards, all sporting the Olympic logo. In your hotel room there's a copy of Sports Illustrated magazine, a sponsor and the official Olympic journal. You go out to eat, stopping to get money out of a NationsBank ATM which politely informs you the bank is an Olympic sponsor. You pass a McDonald's but decide to eat elsewhere even though the paper cups are covered in the Olympic symbol ...

It's hardly surprising. Atlanta is, after all, the site of an astonishing experiment. In four years, a $1.7 billion turnover multinational company has been set up from scratch. Its total workforce of 140,000 is the equivalent of a decent sized commercial bank's and not far short of the numbers the combined workforce of British Telecom and Cable & Wireless would have reached, had they merged. By the end of this month, however, the company will have spent virtually all of its capital, will be laying off almost all of its workforce and, if all goes well, will leave a blueprint for the way all future Olympic Games will be organised.

For, partly with the help of all that advertising, the Atlanta Committee for the Olympic Games (ACOG) is managing to put on the world's biggest sporting event: 197 countries, 11,000 athletes, 3,000 hours of sport, up to three million visitors. This makes it roughly four times larger than the last football World Cup held in the US, for example, and substantially larger than the Barcelona Olympics which only 169 countries attended.

And all this without directly tapping a cent of taxpayers' money.

In fact, not only is the city of Atlanta itself putting nothing into the $1.7 billion kitty, it is charging ACOG for services such as the use of its police force and buses. The whole enterprise has to be one of the most remarkable business ventures ever attempted.

The scale of the construction plans alone was evident to anyone visiting Atlanta in late spring: travellers were confronted by an airport that looked half-built, with bare, unpainted walls, shops and restaurants that were still half-way through construction, and planks of wood and bare piping everywhere. Downtown, the city seemed even less prepared. Every few yards the pavement had been ripped up; piles of brick and sand lay everywhere; and the central area that will be the focus of much of the Olympic activity was still a building site full of mechanical diggers, broken stone and dust. Given Atlanta's determination to be the model host, it was a fairly sure bet even then that all the mess would be cleared up and made ready by 17 July when the Olympic torch arrives to start the ceremonies. But it will have been a close-run thing.

The building work - including the construction of some 15 arenas and sporting venues - gives an idea of the awesome size of this project and its budget. So how did an entity that did not even exist a few years ago raise the kind of money needed to carry it all out?

Perhaps the best way to think of the Atlanta Olympics, on one level at least, is as a massive franchising operation. The International Olympic Committee (IOC) franchises the Games to ACOG, while ACOG franchises the Olympic logo and mystique to its sponsors. Marketing the Games to the sponsors, who then use the event to market their goods to the public, is what it is all about.

This was probably an inevitable development after the financial disaster of the 1976 Montreal Olympics and the repeated warnings from all quarters that the Games were doomed because of the expense. (Montreal's taxpayers were left with a staggering $1 billion debt because an ambitious building and infrastructure programme was largely funded with public money; after this hardly anyone wanted to host the Games.) In near desperation, the Olympic Committee in Geneva handed the Games to Los Angeles, the only city that seemed to want them and was in a position to afford them. And LA developed a new approach that changed perceptions of what could be done. Using private sponsorship and money from television rights, the city raised more than $500 million spent less than half of it and turned in a profit of $215 million. By Atlanta's standards, LA was a relatively cheap and cheerful affair in the sense that very little new and permanent in the way of sporting facilities was built. The stadiums were already there so little was spent on infrastructure. But the event made organisers aware of the potential power of the Olympic symbol to international audiences and therefore to advertisers.

The cost of the Barcelona Games is rather harder to analyse because the city used the event as an excuse to invest in badly needed infrastructure projects, from renovating the harbour and rebuilding the motorways to constructing enough sports locations to handle the Games. Commercial sponsorship was still an important element, but the event could not have happened without the dollops of public money which made the $3 million profit claimed by the organisers somewhat meaningless.

Atlanta, therefore, is something new: it needed significant amounts of building and development to get the sports facilities (let alone the rest of the infrastructure) up to speed, but had no call on public funds. When Bill Payne, the dynamic organiser of Atlanta's effort, first had the inspiration to bring the Games there during a church service in 1987, he knew it would be anything but simple. And when the IOC finally awarded the games to Atlanta, the city made it blindingly clear its public would not pay for anything. Payne, therefore, has had to sell his Games to the private sector as the event has never been sold before.

The 48-year-old lawyer had never attended the Olympics when he had the idea for Atlanta, and his fund-raising experience consisted of having raised $2.5 million for his local church. His first move was to quit his law firm and sell T-shirts to raise the $7 million needed to lay the groundwork for the bid. Then he hired McKinsey & Co, the management consultants, to help prepare the proposal. Once he had won the bid, Payne assembled teams of people responsible for different tasks such as construction, venue management, sales, publicity and sponsorship. The teams were led mostly by volunteers, many of whom were retired business people or sport's industry insiders. Payne himself kept close - some say too close - control of operations, even when he had a second heart bypass operation in 1993. And the project has stayed remarkably on track.

The first layer of funding was, in many ways, the most crucial. Although television is no longer the main revenue source for the Games as it was 15 years ago, thanks to a deliberate IOC policy of diversifying its income base, it still accounts for more than 30% of funding. ACOG's problem was that it was like a company with no capital, and without assets it couldn't borrow from the banks either. It needed capital fast, so ACOG and the IOC carried out some speedy negotiations back in 1993. The IOC took the lead in this because it was already raising money for future Games - hence its deal with NBC, the US TV network, for covering the Olympics until 2012. NBC is paying well over $2 billion for the privilege, but it got a cut-price deal on Atlanta itself. Thanks to the time pressure, ACOG and the IOC settled for a $456 million fee for this year's Games, a sum most experts consider a snip.

That said, price tags for the Olympics are often lower than one might expect since the IOC's policy of ensuring that the maximum number of people in the world get to see the Games has tended to keep down its TV income.

In negotiating the rights for Europe, for example, the bid from the European Broadcast Union or EBU was easily topped by Rupert Murdoch's offer of more than $1.5 billion for the rights to several Games. Selling to a satellite company, however, would have severely restricted the number of people able to see the Games on TV, so the IOC went with the lower EBU bid. 'We want to ensure that everyone in the world can watch the Games on TV,' says Dick Pound, head of the IOC's co-ordination committee. As it is, he expects some 20 billion viewing episodes, by far the largest TV figures for any event ever.

Pound admits the organisers could have got more from NBC for Atlanta if they had waited longer to negotiate, but the ACOG's immediate need for money was paramount. On the back of the NBC deal, ACOG (which at the end of the day will receive from the IOC a total of $560 million from the sale of worldwide TV rights) was able to go to its bankers. NationsBank, the biggest in the region, agreed to give a guaranteed credit facility of $350 million. It was at this point that Atlanta's instant Olympics conglomerate found itself in business.

The next layer of financing was the sponsorship money. The LA Games had already shown that a small number of businesses were prepared to pay a lot for the exclusive right to use the Olympic logo and, since then, the number of worldwide sponsors has been kept down to 10. Some, like Coca-Cola and Visa, have been part of the programme for several Games. Others like IBM have been in, dropped out and returned. These sponsors buy the right to use the Olympic logo anywhere in the world: Coke, for instance, will use it across its advertising in 150 countries. The minimum cost of entry, negotiated by the IOC, is $40 million; this is paid to the international committee which funnels a third back out to Atlanta (the rest is kept for future Games and local Olympic committees). The sponsorship is expensive but 'over time companies have come to understand that they have a bargain in this deal,' Pound insists. The next layer of sponsors, who also negotiate for their franchise rights with the IOC, are allowed to use the Olympic rings logo in specific markets such as Europe, Asia or the US. Below them come the local sponsors wanting to associate their name with the Olympics in Georgia and the American south. Looking at the list (or the billboards), you have to conclude that the Olympics are being paid for by Corporate USA Inc since only two worldwide sponsors, Panasonic and Visa, are not purely American companies. That isn't something the IOC is entirely happy about, but in the end, money is money.

Does this make the Olympics into little more than a corporate advertising binge? The IOC desperately hopes not. 'We are not turning the Olympic Games into a commercial trade show,' says Michael Payne, the IOC's marketing director. In fact, the IOC has made a spoof video on the dangers of over-commercialisation ('In lane three is the Jamaican team - Jamaica, where holidays are sunnier - running on track donated by Astroturf - Astroturf, where grip is firmer ...'). And there will be no corporate adverts inside the stadiums and sporting venues.

The next big slug of funding for ACOG will come from ticket sales, the revenue source which has caused the most worry since no one knows how many tickets will be sold until the Games are over. The aim is to raise $420 million from the sale of 11 million tickets - twice as many as Barcelona.

Here again, the glamour of the Olympics is being ruthlessly milked: how else could you sell special packages for anything up to $50,000 apiece including hotel accommodation? And to round out Atlanta's sums, a final $180 million is budgeted to come from the sale of souvenirs and various merchandising ventures.

Raising the money is only half the battle. ACOG has had to be as relentless as any stock-market-driven corporation in keeping its costs under control since there is, effectively, no one to pick up the tab if it overspends.

That imposes a certain discipline on everyone involved. 'There is no public underwriting of this venture if we overshoot,' says Darby Coker, an ACOG spokesman. 'The NationsBank line of credit is only a trade credit, not a guarantee.'

In early June, informed sources were saying that ACOG was doing better on ticket sales than other Games' organisers six weeks ahead of the event, and that any shortfall in revenue should be covered by a $30 million contingency fund. Were the shortfall to exceed $30 million, it appears the difference would be covered by the $30 million to $40 million allocated in the budget to converting the main Olympic stadium into a professional baseball stadium after the Games are over. Conversely, any profits that are made will be shared between the IOC, the US Olympic Committee, a local sports foundation and an international sports body set up to commemorate the centenary of the Olympics.

In preparation for the Games, ACOG has built a $150 million stadium, as well as hockey fields, swimming pools, basketball and tennis courts and even an 80-ft dancing musical water fountain, which plays anything from classical to top 10 hits, in the Olympic Village. These will all be given away to various Atlanta institutions when the Games are over. ACOG has invested too in the technology required to run the Games smoothly, mainly computer hardware and software. The largest expenditure, however, is on ceremonies, parks and programming and only takes place when the Games start.

If that is ACOG's own income and expenditure sheet, there is also a larger picture. Public money is being spent on roads and housing although the authorities insist that this is merely speeding up projects that would have happened eventually in any case. The city of Atlanta, for instance, has issued a $350 million bond to cover much of its spending while the federal government is injecting around $150 million into new housing projects to replace the rotting woodframe slum housing that existed in the shadow of the new Olympic stadium. The airport authorities, meanwhile, are spending $250 million of their own funds on upgrading their somewhat grim facilities.

All of this, nearly everyone in Atlanta agrees, is a worthwhile investment.

The Olympic authorities calculate that the three million visitors in July, together with the extra work and investment over the last three years provided by the Olympics, will give the city's economy a $5 billion boost. Whether or not ACOG itself makes a profit, therefore, is of little interest to the average Atlantan who believes that his pocketbook will in some way benefit from the wider financial effects of holding the Games. 'The publicity will provide a tourist benefit for Atlanta for years,' says Coker. Assuming nothing goes wrong, Atlanta is therefore likely to be the example for all future Olympic host cities of how to turn the Games into a broad financial success. 'With Atlanta we're working towards a kind of "How To" Olympic manual for future Games,' says Pound.

You will delighted to know, dear reader, that as a subscriber to our magazine you too are part of this sporting and financial success story.

Always mindful of its international responsibilities, Management Today has become an Olympic sponsor by participating in the Olympic Park Brick Program. For $35, a brick has been placed on its behalf in the pavement of the Centennial Olympic Park in the heart of Atlanta, carrying the appropriately heartwarming message: 'Peace & wealth, Management Today'. Congratulations for supporting the Olympics.

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