Taking Stock of Beijing Olympic Finances

From News, page 7, issue no.379, Aug 4, 2008 
Translated by Liu Peng
Original article: [Chinese]

Media reports have said that the Beijing Organizing Committee of Olympic Games (Bocog) had recently raised its spending budget by 500 million dollars, or 25% more, from the previous 2 billion dollars. Bocog has yet to respond to the news.

It was believed the extra budget was mainly for boosting security in the run-up to the Games, and to enhance telecast techonologies and quality.

In the mean time, Beijing Olympic Economy Research Association (BOERA) lowered its expectation of the Games' impact on Chinese economic growth.

It estimated back in 2001 that the Games would contribute 2% annually to Beijing's GDP growth, but that expectation had been lowered to 0.8% now.

Rising Budget
The latest Bocog revised budget was the third version, and the second this year alone.

Wei Jizhong, Chairman of BOERA and senior adviser of BOCOG, said throughout Olympic history, the organizing committee spending budget would normally be increased along the way, as the initial budget was usually based on very conservative estimations.

Wei had served as the chief secretary and vice-chairman of Chinese Olympic Committee (COC), and participated in drafting the first Olympic budget.

He told the EO: "After the 9.11 attack in the United States, the IOC enhanced security requirements for the Olympics. Presently, the Beijing Games' security coverage has extended to disease prevention, food sanitation and information security.

"In addition, the targets for protection have also expanded from Olympic related personnel to common citizens."

The EO learned that security spending was shared by Bocog and the Chinese government; the former only need to foot the bills for security check equipment at Olympic venues while the other security costs were shouldered by the latter.

The other spending under Bocog budget included sports-related expenses such as installing timing and scoring system, sports equipment and payment for referees and technicians; transportation and food for Olympic personnel including athletes, journalists and volunteers; publicity and cultural activities such as the opening and closing ceremonies.

Sports equipment formed the major part of expenses, according to Cong Hongbin, advisory services director of PricewaterhouseCoopers (PWC) in China.

The international accounting firm provides consultancy services to the Beijing Olympic Games, covering issues like budget planning, spending control, taxation, and risks management, amongst other.

Cong said: "We should pay more attention to the things accomplished, not just how much have been spent."

He believed it was too early to conclude that the Beijing Games' final budget was higher than that of the Athens Games.

Considering inflation and foreign exchange factors, the costs incurred for the Beijing Games would inevitably be more compared with the Athens Games four years ago, he added.

In addition, he stressed that the number of athletes, delegates and journalists coming for the Beijing Games, and the chiefs of states attending the opening ceremony had reached an unprecedented level.

Cost-Sharing
Despite a jump in the Olympic spending, many believed the Beijing Games would not incur financial deficit.

A source close to the Olympic operation told the EO that market development earnings for the Games had exceeded expectations. He said the Beijing Games could have the potential of becoming "profitable".

It was learned that the Chinese government once thought of providing direct subsidies for the Games, but as market exploration and development gained momentum, the plan was dropped.

The EO learned that major sources of funding for the Games came from IOC appropriation, mainly drawn from telecast copyrights and the Olympic partner programme, which included sponsors like Coca-cola, General Electric Company, Johnson & Johnson, Kodak, McDonald's, and Lenovo China.

The Olympic partnership project is managed by IOC's market development division, which in turn would channel part of the earnings to the hosting city, namely Bocog. It was said that the appropriated amount from this earnings was close to 1.1 billion dollars.

Other important sources of income for Bocog included market and product development related to the Games, franchise operation, and ticket sales. It was estimated that earnings from these three sources alone would exceed 1.1 billion dollars.

The EO learned that Beijing had adopted a three-tier sponsorship program -- Olympic partner, sponsor and supplier.

Major partners included Bank of China, Sinopec, PetroChina, China Mobile, Volkswagen, Adidas, Johnson & Johnson, and Air China; while sponsors included UPS, Haier, Sohu internet portal, and Yanjing Beer. In addition, there were 15 exclusive suppliers and 17 others for non-exclusive suppliers.

Sources told the EO that there were different thresholds for gaining entry into the three-tier sponsorship program. For instance, to become a supplier, one must pay between 2 million and 10 million dollars; while a partner like Bank of China was said to have forked out close to 1 billion yuan (145.8 million dollars).

One source estimated that the program had at least brought in some 2.3 billion dollars in earnings; while other sources said this estimation was conservative, as many other projects could lead to indirect earnings.

For instance, the Olympic Village was built for the Games, but should the costs fall under city development or Bocog? The EO learned that its construction costs were not included in Bocog's budget, but handled by developers.

Olympic Legacy
Compared with the Bocog budget, the Beijing municipal government's investment was much more extravagant.

During the seven years of preparation, the local government had invested nearly 300 billion yuan (43.7 billion dollars) in constructing urban infrastructure, such as building the Bird's Nest (national stadium) and terminal three for its international airport, developing its subway lines, improving the environment, and landscape beautification.

BOERA executive chairman Chen Jian believed even if respective Olympic organizing committees failed to make profits out of the Games, the people living in hosting cities would still gain, as public amenities and income level in those cities would improve.

Take Beijing for instance, its per capita GDP had increased to 7,400 dollar at present from 3,000 dollars in 2001, when it bid for hosting rights.

"The Olympic sports center will become a valuable legacy for Beijing, where tourism, sports and leisure, conventions and meetings, cultural industry and more could be developed there after the Games concluded," added Chen.

However, based on data available, the Games' direct economic impact on Beijing's growth rate was minimal.

BOERA was entrusted by the municipal government to conduct researches on the economic contributions of the  Olympics to local growth. Chen revealed that in 2001, BOERA estimated the Games would chipped in an average of 2% annually to the local GDP growth. Yet, in recent years, the percentage had been revised to a mere 0.8%, and Beijing only constituted about 4% of the national GDP growth.

Some pesimists held that the Chinese economy would "slump into the valley" after the Olympic Games concluded. Worse still, some projected that Beijing would bear heavy liabilities thereafter, just like Montreal and Athens after hosting the Games.

Open data revealed that the Montreal Olympic Games in 1976 made the city indebted for 30 years, while the debts incurred during the Athens Games in 2004, if spread out among all its citizens, each would be indebted for at least 10 years.

However, one scholar who studies the economics of Olympics, said China was less concerned about profits or losses, he added best returns from the Games was to enhance China's international image.