Jeff Lee
Sun
Work on the Athletes Village on False Creek is running six per cent over budget, city officals say. Ian Lindsay/Vancouver Sun
Vancouver‘s Olympic legacy is at risk due to the economic uncertainties sweeping the world.
Tumbling stock markets, tightening credit lines and slumping investor confidence could erode many of the gains that Olympic organizers are hoping will flow from the 2010 Games, economists warn.
B.C. Finance Minister Colin Hansen acknowledged Monday the growing pressure on the Olympic legacy, saying no place, including British Columbia, will be unaffected by what he called a financial “storm.”
“We’re not going to see the economic growth that we forecast a year ago. There is no question that B.C. is not immune to what is going on out there in the market,” he said. “But in this storm there is no better place to be. The bottom line is that we will fare better as a result of hosting the Olympics than we would otherwise.”
Although Vancouver is in better shape than other host cities — including London, which is battling soaring construction costs as it prepares to host the 2012 Games — it is not fully insulated from the economic crisis.
“What is in doubt is the bottom line,” said James Brander, an economics professor at the University of B.C.‘s Sauder School of Business. “The Olympics can lose or make money. If a recession is on its way . . . it is much more likely that the Olympics will lose money.”
The recession could deter would-be sponsors now being courted by the Vancouver Organizing Committee from signing up, he said. And it is also likely that people who last week might have bought tickets to the Games now are rethinking their plans.
“There is no question it will be much harder for Vanoc to convince sponsors, and for it to sell all its tickets,” he said.
That could spell trouble for the provincial government, which is legally on the hook for any deficit at the end of the Games. Hansen said he’s not worried that taxpayers may have to bail out Vanoc. “I think they have managed their risks well.”
However, Ed Mansfield, an associate partner at PricewaterhouseCoopers, believes the turbulence in the market is more likely to chill post-Games opportunities for tourism and business. He’s less concerned about Vanoc’s financial stability than the long-term benefits supporters and governments expect to reap from the Olympics.
“My take on this is Vanoc is in very good shape. Things are good or very good for them, and they have much of their money already committed,” he said.
“Where I have concerns is in the economic leveraging of the Olympics and the impact of tourism after the Games,” Mansfield said. “If there is a lot of economic uncertainty in the market, there may be far less interest from business leaders who come here to visit who might otherwise forge new business relations.
“On the tourism front, the vision was that media exposure would attract a lot of new visitors. But that becomes a little more difficult if people are worried about whether they have enough discretionary funds to make those trips.”
Hansen said the province is redrafting its economic forecast and expects there will be fewer tourism and business benefits arising from the Games as a result of the recession.
Vanoc last week said it had raised $735 million of its $760 million domestic corporate sponsorship target. It has also received commitments for most of the other major sources of funding, including broadcast revenues, and sponsorships directed through the International Olympic Committee.
However, Vanoc’s financial plan is still exposed in two significant categories: it expects to raise $231.9 million in ticket sales, which started last week, and another $110 million in “other” revenues, about a quarter of which is to come from a $28.5 million “patron’s program.” If either of those two areas develop trouble, Vanoc could find its budget out of whack.
Vanoc declined a request for interviews Monday. Instead, it issued a short statement from Dave Cobb, its executive vice-president of revenue, marketing and communications, saying the continuing meltdown in the economy has not affected its $1.63 billion operating budget.
“We recognize the current economic challenges but we remain confident in Vanoc’s financial position, which is due in part to having already secured the majority of funding commitments required to stage the Games,” the organizing committee said.
“Our venue construction is almost finished and on-budget; we’re in a positive position with our operating budget; interest from companies for remaining sponsorship opportunities has been strong since the Beijing Games, and we’re extremely pleased with the strong interest in Olympic tickets after the program launched on Friday.”
The potential trouble for the Olympic legacy comes as Vancouver city staff sought to quell concerns about the status of construction of the Athletes Village in False Creek.
Last week city council was given a routine in-camera briefing about the $1 billion, 1,100-unit project, which is being built in several phases. Mike Flanigan, the city’s director of real estate services, said councillors were told the project is about $60 million, or six per cent, over budget because of cost pressures. However, he said the amount is being funded by the developer, Millennium Development Ltd., and the city is not concerned about the project’s viability.
Flanigan said the city’s $190 million financial guarantee to Millennium underwriter, Fortress Investment Group, is not in danger of being exercised and that work on the village is proceeding uninterrupted.
Mayor Sam Sullivan wouldn’t discuss the meeting, but said the developer has not asked the city for help.
However, the issue raised the concern of Gregor Robertson, the mayoral candidate for Vision Vancouver, who called for more transparency about the inner workings of the athletes village deal.
Vanoc also said in its statement that is “confident in the city’s fiscal management” of the Olympic project. It long ago transferred all of its risk in the project to city taxpayers by giving Vancouver $30 million in venue financing it received from the provincial and federal governments.
© The Vancouver Sun 2008
