Weekly Report – September 8, 2015 – Los Angeles by the Numbers
Preliminary Assessment of L.A.’s Olympic Bid
The United States Olympic Committee (USOC) has chosen Los Angeles to be the official U.S. bid city for the 2024 summer Olympic and Paralympic Games. (L.A. was always the choice of the USOC’s chairman, CEO and staff. But board members with links to Boston were at the heart of a group that overruled the USOC’s staff and leadership, when Boston was originally selected.)
L.A.’s selection marks the start of a two-year competition, overseen by the International Olympic Committee (IOC), between Rome, Paris, Hamburg, Budapest and L.A., to host the games. L.A. is the only city in the mix to have hosted two prior summer games, in 1932 and 1984, and the U.S. hasn’t hosted the summer games since 1996 in Atlanta.
Next Steps
The L.A. community must convince the 55 or so International Olympic Committee (IOC) members, by September 2017, that L.A. is the best city to host the summer games in 2024.
Leading the effort will be Mayor Eric Garcetti, LA24 (www.la24.org), chaired by Casey Wasserman and the USOC. LA24 is in the process of forming an 11 member executive committee that will include the USOC Chairman and CEO and at least one U S. athlete and a Board of Directors comprised of 20 to 30 members, including the Chairman and CEO of the USOC, at least three other USOC board members, and all of the U.S. IOC members.
LA24 expects to spend $65 million on a two year campaign to win the bid, which is separate and apart from the Games Budget. To kick off this campaign, LA84, the city of L.A. and the USOC have each contributed $1 million, and more donations are being sought from the private sector.
Background
The 2024 Summer Olympics would be held between July 19th and August 4, followed by the Paralympics between August 14th and August 25th. L.A.’s plan outlines more than $6 billion in public and private spending, with a strong emphasize on budget saving approaches and a means by which to minimize risks – the use of existing or planned facilities and infrastructure improvements to host events. Eight-five percent of the venues in LA24’s proposed plan exist today, and 80 percent of the region’s venues are new since 1984 or have undergone major renovations since 1984.
In all, 31 venues and locations, organized in five clusters around the region, would be used for all of the sporting events. Most of the sporting venues are currently in existence, but several temporary venues would have to be built. Additionally, all venues would require some level of adaptation for the 2024 Games and some venues have been proposed as legacy projects, meaning that they would remain intact for the foreseeable future.
Currently being proposed are some of the City’s most iconic venues: the L.A. Memorial Coliseum, Staples Center, UCLA’s Pauley Pavillion, USC’s Galen Center, The Forum, the StubHub Center and the Rose Bowl. (During the 1984 Games the Rose Bowl hosted 101,799 fans for the soccer final between France and Brazil.) The San Fernando Valley, the L.A. Harbor and popular beaches would host numerous events, including volleyball at the beach and mountain biking at Griffith Park.
Other ongoing regional infrastructure improvements will enhance the bid, including the City’s in progress $10 billion modernization of Los Angeles International Airport, LA Metro’s $30 plus billion build out of 12 new public transit lines throughout the region and smaller renovations, such as the $10.5-million of the John Ferraro Athletic Fields.
Overall Budget
The Games Budget for L.A. lists projected revenues totaling $4.67 billion and expenditures, including a 10 percent contingency, totaling $4.52 billion. The expected net gain is $150 million to $161 million. The $400 million contingency could be used to fund any unexpected expenses (including venue cost overruns), as well as over $150 million to cover the premiums on insurance policies that will protect the City of L.A. against potential liabilities.
Not included in the $4.52 billion Games Budget expenditures are costs thought would be privately financed. These costs currently total $1.7 billion and are comprised of close to $925 million to $1 billion for the development of the Olympic Village, $500 million in renovations to the Memorial Coliseum which would once more serve as the Olympic Stadium and which would be separate from the $300 million to be invested as part of the Games Budget, $200 million for the private development of a new soccer stadium currently being considered to replace the L.A. Sports Arena, and $75 million for other venue construction costs which include about $35 million for locations and venues owned by the City of L.A.
A private developer would invest most of the money to build the village, but who would build the site, how the company would be selected and what type of financing would be used is unclear. Following the Games, the Olympic Village is expected to leave a legacy of thousands of units of housing near downtown Los Angeles, and will incorporate a mix of residential types, community based retail, necessary social infrastructure and public open spaces.
Biggest Challenge?
The $1 billion ($925 million private funds and $75 million committee funds) construction of an Olympic Village near the Los Angeles River.
The proposed site is currently owned and operated by Union Pacific Corporation as the L.A. Transportation Center, one of the region’s primary goods movement facilities. Union Pacific has indicated that, although they are supportive of the L.A. Olympic bid and they are committed to working with the City, they currently have no plans or desire to vacate the site.
The IOC requires an Olympic Village that can accommodate 17,000 athletes and that is centrally located to a significant number of the sporting venues. The inclusion of this site and concept for the Village in the LA24 Bid satisfies this requirement. However, the development cost, including acquisition, remediation, and construction, may significantly exceed the projected $1 billion.
Relocation and remediation costs alone may account for over 55 percent of the estimated project costs and any analysis should also evaluate the re-use potential of the Olympic Village facilities, as this is a critical factor in the proposed public-private partnership structure and a key element in the Games’ long-range impact.
Other Costs, i.e. – Security
Based on significant precedent, LA2024 anticipates that the federal government will lead security for the Games and provide necessary funding. LA2024 expects to be designated a National Special Security Event (NSSE). As a result, the United States Secret Service would become the lead agency in charge of event security; the FBI would take the lead on intelligence and counter terrorism; and FEMA would take the lead on incident response management.
Each of these federal agencies would work closely with state and local authorities to ensure a cohesive and seamless security plan. Significant federal funding for security will be required for hosting the Games in Los Angeles, and LA2024 and the City of Los Angeles will be working closely with Congress and the relevant federal agencies to secure that support.
The federal government has authorized reimbursement for expenses incurred by local law enforcement agencies in past NSSEs, and look forward to collaborating with the relevant federal agencies to make LA2024 the safest and most secure Games in history.
Cost Concerns (The IOC has enacted a 40-point reform plan dubbed Agenda 2020 to protect against another Sochi Olympics that cost $51 billion.)
LA24 has stated that they are committed to hosting a fiscally responsible and profitable Games that includes multiple protections against any potential cost overruns. This includes a realistic and conservative Games budget that leverages the abundance of existing venues available in L.A. and conservative estimates for expenses and revenues. LA24’s Games budget projects a net position of $161 million, with an additional $200 million to reimburse the city for services and expenses, and a $400 million contingency to protect against the unknown as part of the decade-long planning process.
Though a public watchdog recently state that the USOC wants $100 million from the future organizing committee while it prepares for the Games, together with a $100 million endowment based on a 50 percent cut of any future surplus. That’s on top of the 20 percent of the surplus that would already go to the USOC under the host city contract. Apply the USOC’s now-plus-later demands, take out the standard shares for the IOC and USOC and the projected surplus shrinks from $161 million to $6.11 million.
Most Significant Hurdle?
In 1984, when Los Angeles last hosted the Games, the city refused to provide the taxpayer guarantee, provoking a standoff with international Olympic officials. City officials were ultimately vindicated when they held the games successfully on their own terms, generating a profit. It helped that L.A. was the only bidder at the time.
It remains to be seen whether the current City Council will prove similarly resistant to taxpayer liability for the event. Councilmembers have said that they consider the city’s rejection of the demand for a financial guarantee a nonnegotiable element of any final deal. Mayor Garcetti, by contrast, has said L.A.’s bid will be “dead on arrival” without the guarantee.
The L.A. City Council recently established its authority to veto any taxpayer guarantee to pay for potential financial losses resulting from the games. That sets the stage for potential discord with the Mayor, who insists that the guarantee is necessary to compete with other prospective host cities wooing the International Olympic Committee.
If L.A. is selected to stage the 2024 Games, the Mayor and City Council would have to work together to negotiate and strike a contract with the International Olympic Committee.
Impact on the Region
Philanthropic. For nearly three decades the $225-million surplus generated (plus positive investment returns) by the 1984 L.A. Games has been spent by the LA84 Foundation, introducing more than 3 million children to Olympic and Paralympic sport over the last 30 years, training 75,000 coaches and investing millions of dollars in 2,200 community-based youth sports programs.
Additionally, L.A.’s infrastructure was significantly enhanced for the 1984 games.
As for 2024’s net-positive economic impact – that has yet to be determined.