Posted on 31 Aug 2009
As part of the plan to finance a 2016 Olympics in Chicago, Illinois, the head of the bid committee detailed various types of insurance that he says will protect against the need to use taxpayer dollars to fund the games, which organizers forecast would cost $4.8 billion to host.
Another major taxpayer protection is the ability of bid committee CEO Patrick Ryan to keep the project on budget over the next seven years if Chicago is awarded the games by the International Olympic Committee on Oct. 2. He's counting on a $450-million cushion built into the budget, which the Civic Federation of Chicago declared this week is “fair and reasonable.”
The City Council will be asked Sept. 9 to authorize Mayor Richard M. Daley to sign a contract with the International Olympic Committee that guarantees Chicago will foot the bill for whatever it takes to put on the games by 2016 and to absorb any financial losses.
The city agreed to put up $500 million and the state committed $250 million if the games show an operating loss on paper, something that Ryan stresses hasn't happened before when a U.S. city has hosted the Olympics. But previous games have been plagued by cost overruns and, in the case of Vancouver recently, funding woes for projects such as the athletes' village.
Ryan detailed various types of coverage against specific risks, from liability for accidents, catastrophic acts that would cancel the games or financial default of a corporate sponsor, as well as policies related to construction delays, cost overruns or funding shortfalls.
He laid out commitments for $500 million in public liability coverage and another $500 million in “all risk” umbrella coverage to cover the deductible on such coverage that would be used before the city or state money.
However, there is no insurance if Chicago is unable to meet its goal of selling $1.8 billion in corporate sponsorships, something labeled “optimistic” in a report this week by the Civic Federation, which analyzed the plan at the aldermen's request. Chicago 2016 intends to purchase $100 million in insurance against sponsorship default, essentially enough to cover the loss of one of the top-level sponsors after a contract has been signed.
The other big area of concern is construction budgets, which have a history of being overrun both in Olympic and Chicago history.
The bid committee plans to guard against cost overruns on nearly $1 billion in venue construction with a fixed-price building contract. It remains to be seen whether a developer would agree to such terms, which could drive up the cost of the venues. If the developer doesn't agree, Ryan will use cost-overrun insurance. He anticipates a limit of 10% or $75 million.
The $1-billion Olympic Village, the most expensive portion of the tab for hosting the games, is a major risk. Like Vancouver, which is hosting the Winter Olympics next year, and London, site of the 2012 Summer Games, Chicago intends to let private developers shoulder the risk and cost of building athlete housing in exchange for being able to sell it later as private condominiums or apartments.
But when Vancouver's developers lost their funding in the recent recession, the city had to step in with $600 million to keep the project going. London also had to step in with financing because private investors weren't willing to take on the project.
Ryan, founder of Chicago-based business insurance giant Aon Corp., says he will employ so-called capital replacement coverage that would provide up to $250 million to keep the village project going if the developer's funding sources dried up. Mr. Ryan says he has lined up a “commitment,” though he didn't name the carrier. Such coverage would cost about $17 million, said Laurence Msall, president of the Civic Federation.
Ryan intends to pass along the cost to the developer or pay for it with the more than $250 million in private funds that the bid committee intends to raise if Chicago is awarded the games.
So far, Chicago 2016 has raised $76.9 million in the three years since Daley launched the bid with Ryan, according to a report provided to aldermen in an effort to demonstrate the group's ability to meet financial targets. The bid committee raised $3.7 million more than expected, it said. Twenty-nine donors gave more than $1 million apiece, and another 20 contributed more than $500,000.
It has spent $48.3 million in pursuit of the games, including $10.9 million on consultants and $10.5 million on full-time staff. Its four highest-paid executives are paid $250,000 to $300,000 per year. They are President Lori Healey; David Bolger, chief operating officer; John Murray, chief of bid operations, and Doug Arnot, director of sports operations. Chicago 2016 said the pay reflects the median among not-for-profits in Chicago and ranked well behind organizations such as Easter Seals Inc., the Art Institute and the Chicago Symphony Orchestra.
Ryan takes no salary. He also paid for 70% of his travel expenses, which amounted to about 250,000 miles, out of his own pocket, according to the report.
Most of the Chicago 2016 budget was spent on outside consultants with expertise in preparing previous Olympic bids or other related work, such as advertising.