If L.A. gets 2024 Olympics, contract could put city on the hook for any debt

Mayor Eric Garcetti has predicted no public money would be needed for the 2024 Olympics if held in Los Angeles.

Staff Writer

Aug. 15, 2015 6:02 PM PT

Reading through the Olympic host contract — the document that cities must sign if they want the Games — it might be easy to overlook Basic Principle No. 4.

The stipulation, which covers “joint and several obligations,” takes up only two paragraphs amid 80 or so pages.

But as Los Angeles moves closer to bidding for the 2024 Summer Olympics, those few hundred words could become a very big deal.

They state that, even though the Games would be organized and paid for by a specialized private committee, the city could be held responsible for any resulting debt.

Past candidates have fought the guarantee — Los Angeles had it significantly altered for 1984, and Chicago failed in a similar attempt while bidding for 2016.

This time around, Mayor Eric Garcetti has already promised to sign, which could ultimately put tax dollars at risk if broadcast, sponsorship and ticket revenues fall short of expenses for the multibillion-dollar undertaking.

RELATED: Can L.A. afford the Olympics?

“Taxpayers should know where their money could be going,” said Jules Boykoff, a political science professor at Pacific University in Oregon. “This is a very healthy conversation for cities to have before they commit.”

There is still a way to go before Garcetti puts pen to paper.

Last week, U.S. Olympic Committee leaders said they were “very optimistic” about naming Los Angeles as a substitute candidate for their original choice, Boston, which withdrew amid local opposition.

If that happens, Garcetti would oversee the formation of a private bid committee that would need to raise more than $50 million for a two-year campaign before the International Olympic Committee chooses a winner in 2017.

Only if the city wins that IOC vote would Garcetti be presented with the host contract. In fact, terms of the 2024 document are not yet final.

But previous contracts offer a glimpse at the relevant issues.

The mayor’s promise to sign was compelled by fears that any reluctance might render the bid “dead on arrival” in competition against Paris, Rome and other international contenders. Also, Los Angeles must enter into a preliminary USOC agreement that could include a binding commitment to sign.

Speaking to The Times’ editorial board last week, Garcetti predicted no public money would be needed for the 2024 Olympics.

An array of existing facilities — such as Staples Center, Pauley Pavilion and the Coliseum — gives him a distinct advantage. His initial $4.1-billion proposal would include less than $1.5 billion in capital expenditures.

There would be $200 million to repay the city for necessary services and an ancillary $400-million contingency fund, which could bring the total budget to $4.5 billion, according to the mayor.

According to Garcetti’s projections, revenues would not only cover costs, but generate a $150-million surplus.

Still, the public has been given no other details, and the mayor acknowledged the Olympics have a history of overruns, with costs often exceeding revenues.

“I cannot eliminate risk,” he said, adding: “On the 1-to-5 hot scale, 1 being the coldest, my personal assessment, for what it’s worth, is about a 1.”

Once a candidate is awarded the Games and signs the host contract, its bid committee morphs into an organizing committee that spends the next seven years planning and generating revenue.

City officials have significant influence over decision-making but — at least in the U.S. — cannot count on widespread federal support.

The U.S. government usually pays for security — which can cost more than $1 billion in the post-9/11 era — but otherwise tends to steer clear of Olympic finances. State governments have provided nominal help in the past.

With cities left to fend for themselves, the host contract can be worrisome to residents.

“Nobody really understands what is involved with hosting,” said Robert VanWynsberghe, a University of British Columbia assistant professor who studied the document when Vancouver hosted in 2010. “There’s a lot of fear.”

Athens went a reported 60% over budget for the 2004 Summer Games. In 1976, Montreal suffered a $1.5-billion debt despite an earlier proclamation from Mayor Jean Drapeau that “the Olympics can no more lose money than a man can have a baby.”

An editorial cartoon subsequently depicted Drapeau in the final stages of pregnancy.

A few years later, Los Angeles went toe-to-toe with the IOC over the guarantee issue. With no other cities bidding for the 1984 Summer Games, then-Mayor Tom Bradley pressured IOC officials into shifting responsibility to the USOC and Peter Ueberroth’s organizing committee. The Games finished with a healthy surplus despite cost overruns.

In 2009, Chicago Mayor Richard M. Daley flew to IOC headquarters in Lausanne, Switzerland, to negotiate a similar deal. But other cities wanted the 2016 Summer Games — Rio de Janeiro eventually won — so IOC officials stood their ground.

“Once they bullied him into signing, it turned public opinion in Chicago against the bid,” said Victor Matheson, an economics professor at the College of the Holy Cross in Massachusetts. “There are many people who think it was a crushing blow.”

If the IOC’s demand for a government guarantee seems unreasonable, VanWynsberghe understands the rationale behind it.

Organizing committees can add to their substantial revenues with a share of IOC global money — Rio de Janeiro will get an estimated $1.5 billion next summer. But they may not possess the reserves to handle major setbacks.

“The International Olympic Committee just wants to make sure that everything gets built, that somebody can pay,” VanWynsberghe said.

Before the 2010 Vancouver Games, the organizing committee partnered with a developer that failed to complete the athlete’s village. The city stepped in, borrowing hundreds of millions to finish the project, and later sold the village as condos to settle the debt.

The British government took similar action when a developer could not complete the village for the 2012 London Games.

If Los Angeles bids for 2024 and is selected, it would probably seek private-sector partners to help build the village and a media center, whose combined price tag could exceed $1 billion.

Garcetti has vowed not to tack on the kind of infrastructure projects — such as roads and railways — that have greatly expanded Olympic budgets in other cities.

Still, Boykoff warns, the Games are expensive under any circumstances, which can make a city guarantee seem daunting.

“Things can go wrong,” he said. “And the public is on the hook.”

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