Jamie Magraw, Director of Financial Operations at LOCOG - Financing the London Olympic Games
Jamie Magraw2012 Olympics
What is the Olympics? – The Olympics is the greatest sporting event by number of participants, Countries and TV audience. – The Paralympics is the third with only the World Cup larger. – The Olympics is equivalent to holding 26 World Championships (17 Paralympics). – Occur every 4 years. – Both last roughly 2 weeks in duration. – The Olympics is first with the Paralympics staged 2 weeks after the completion of the Olympics. – With the exception of Football, Tennis and Basketball it is the pinnacle of the other 23 sports. – The Olympics had 10k athletes (the same number of officials) from 204 Countries. – The Paralympics had 4k athletes from 164 Countries. – It is the most watched public spectacle in the World. 4 billion watch the Games at some stage or other. – The Opening Ceremony has the largest TV audience in the World.•
Ownership– The Olympic rights are owned by the IOC (International Olympic Organisation) and the Paralympics by the IPC (International Paralympic Committee).– Both are private organisations akin to a Club.– The Host nation bids to hold the Games.– The IOC only partly pays for the Games by way of a negotiated contribution to the costs.– Income is generated by the IOC through the sale of TV and media rights and sponsorship income via the TOP scheme.– UNLIKE MOST PROJECTS MOST STAKEHOLDERS ARE NOT MEETING ANY OF THE COSTS ALTHOUGH THEY CAN (OR TRY) TO INFLUENCE SCOPE.– TO BE ABLE TO BID EITHER THE HOST CITY OR THE GOVERNMENT EFFECTIVELY UNDERWRITE THE COSTS OF THE GAMES.– In the case of the London bid the underwriter was the UK Government.
Who are the stakeholders?– The IOC and the IPC.– The British Olympic Committee who are the party that won the bid.– LOCOG (London Organising Committee of the Olympic Games) tasked with delivering the Games.– The 26 Sporting Federations.– The 204 National Associations.– The Sponsors (both TOP and Local).– The Government together with a miriad of Government departments, Agencies and Bodies.– The Greater London Assembly (GLA) who are the host City – which comprises a number of local authorities.
Who Delivers the Games?– The London Olympic Games was delivered by a number of parties but for the purposes of this presentation they can be grouped into two:– The UK Government – mainly through a created entity called the ODA (Olympic Delivery Agency) which can be seen as redeveloping the physical area of the stadiums and their surround together with all the required infrastructure.– LOCOG a private enterprise which organised the event, managed all the parties and ultimately delivered the Games.
Overall Financial Situation Budget & Contingency in £m Actual in £m Under Spend in £bGovernment Funding (PSFP) 9,300 8,900 400LOCOG 2,100 2,100Total 11,400 11,000 400• Note that within the £8.9 billion Government spend was £0.9billion that was transferred to LOCOG.• Government decided to transfer both project scope and budget to LOCOG to deliver: – Security – Park Operations – Ceremonies, Village and Cultural Olympics – Last Mile, Transport, Utilities & Scenario testing• Government considered it more cost effective to have LOCOG deliver Government responsible scope than existing Government departments.
Government Challenges– How does LOCOG interact with all the Government Departments? • Within central Government there were over 40 Government Departments and delivery bodies who were to provide important input into the delivery of the Games • It was decided to create the Government Olympic Executive (GOE) who would manage the interface • With respect to financial matters this worked very well.– How is the overall Government budget (the Public Sector Funding Package (PSFP) managed? • Creation of the Cross Party Funding Group (CPFG) which managed all requests from any party on the PSFP. • All agreements (with the exception of the second military contingency) were contractual between the relevant two parties. • The body was established early, operated realistically and in a focused manner whilst also providing budget responsibility for each independent party. • Decisions were by majority and transparent to all.– How is the unlimited liability of the Government managed? • Made clear that there were no additional funds over and above the PSFP approved by Parliament. • The risk register encompassed all entities responsible for the delivery of the Olympics and was wide ranging taking account of the National Risk Register (with the exception of a few items categorised as National Security Issues dealt elsewhere). • Any potential risk was reviewed on a monthly basis in light of full Government and delivery agencies information. • Each risk was assigned a probability and likely cost together with an “owning entity”. • The risk analysis was linked into the scenario planning performed by each delivery body (both independently and linked)
LOCOG– Formed to deliver the Games .– Established in 2005 (post bid) and will be disbanded in 2013– At its peak employed 7,000 staff but managed 150,000 contractors and a volunteer force of 70,000.– A private business answerable to its shareholders who are the BOA.– It’s Board comprised representatives from other delivery bodies but independent of them for voting purposes. This enabled full discussion and disclosure.– Experts were invited onto subcommittees. Much of the detailed financial matters were dealt with under delegated responsibility to the audit committee.– Although Government had ultimately underwritten the Games financially they remained at arms length.– Confidence was placed in the mechanisms created to manage risk through the CPFG.– Funded privately with the exception of a grant towards 50% of the marginal costs of the Paralympics.
LOCOG Objectives– To ramp up, deliver and disband in an 8 year period.– Create a memorable Games. Do better than the Australians in Sydney?– Attract sufficient funds to meet the costs as defined within the scope. In effect the income was known to be around £2.1 billion and this became the costs that could be absorbed.– Deliver on budget and in time.– Meet all the stakeholder requirements and standards: • IOC/IPC • Sporting Federations • Some National Federations (Security, food, Visa and funding issues) • UK Government • BOA • GLA • The Public
LOCOG Revenue• Lifetime Project Revenue was £2.1billion.• Still to be confirmed after finalisation of the audited accounts in second quarter 2013.• 95% of revenue has been raised by private means and 5% was a Government grant.• Breakdown of the revenue base: – Sponsorship – Ticketing – Merchandising/licensing – IOC contribution – Grants – Other income• The IOC contribution is after negotiation with the IOC and comes out of the revenues they have raised through the sale of the media rights and sponsorship.• It should be noted that LOCOG and the IOC jointly raised £1.4billion of sponsorship revenue although the IOC sponsorship spans 4 years and both winter and summer Games.
Specific Global Challenges - Security• The day after London won the bid London was struck by a wave of terrorist bombings on buses and tubes killing 52 civilians and 4 bombers with 700 injured.• Since then there has been a heightened level of security threat.• All responsible parties had a low tolerance to absorbing security risk.• UK Government, IOC and National Governments had to be satisfied with the level of security both in venues and generally within the UK.• This Games had the most Security resources assigned to it.• But it was important to balance the Security presents. We did not want an armed camp.• LOCOG was responsible for the “airport level security” in 142 “venues”.• This was the largest single cost category for LOCOG.• Initial plans had this security provided by a mixture of contractor, military, volunteers and Government experts.• This model required a huge investment in building a pipeline of security staff through educational courses, training qualifications and recruitment.• As we progressed towards the Games concern was raised around the ability for the contractor to deliver.• A contingency plan had to be effected within 2 weeks to deploy additional military personal.
Specific Global Challenges - Transport• London is a congested City with a mature infrastructure.• The Games were performed in three London centres East, Central and North West with accommodation only in the East.• London scored poorly in the bid with respect to Transport.• Action was taken to extend tube/train lines, upgrade the railway, extra trains, longer operational times and a new high speed line from central London to the Olympic Park.• London businesses altered their working day and many employees took holiday in the period.• All maintenance and improvement works stopped including the building of the trans London rail link.• All spectators and Olympic family were encouraged to use public transport.• 90% of all venues could be reached by 3 or more forms of public transport.• 80% of the Games time family had less than a 20 minute travel time.
Specific Challenges - Venues• 28 venues were used.• 8 were permanent build.• 7 Temporary build.• 13 existing venues of which 7 were football stadia.• Almost all required significant change to be “Olympic compliant”.• All but 7 were owned by third parties other than an Olympic entity.• Although including items not normally associated with a construction project these were managed by those from the industry under standard construction contracts and controls.• Build, takeover, reinstatement and hand back were often within a short time. (HGP was under LOCOG control for 35 days).• Completion to time was the known risk and weather became an risk.
Methods - Budgets• Effectively many projects varying in nature enclosed in one megaproject.• Multi facetted with, in many cases, large numbers of stakeholders.• Many stakeholders tried to influence scope.• Design and change freeze was a challenge.• All budgets were time bound.• Finance was central to all budgets and managed/approved any change to them.• Contingency was held centrally with the Finance function and not the Functional areas.• Senior management (CEO, CFO, COO and all Functional Directors) were actively managed in weekly meetings.• Anticipated Final Cost was used based upon continuous reforecasting.• Contracts were tied into the budget structure.• Discipline and consistency was crucial.• Recognised that we should have used the more dynamic Earnt Value Analysis than the traditional milestone budgeting.
Methods – Risk management• Extensive risk management was used to focus management resources into key areas.• Although probability theory was used it soon became more hands on.• Risk was generally seen in the following ways: – How an event could impact the Games. – What alternatives were available if plan A failed? – How much time was required to effect any plan B? – Supplier lead times were critical – as time progressed we had less and less slippage contingency. There is no Games time contingency whilst other projects have the ability to slip. – Costs could accelerate as the Games approached. Managing all suppliers to deadlines was critical and minimising the number of interfaces key. – The strength of contract terms and consistent compliance on the LOCOG side was essential.
Methods – Cost Control• Design the cost base on the income you will receive.• Ensure the form of contract is suitable and robust.• All material supplier contracts were approved by senior management (CEO, CFO, Director of Commercial, Legal Council and Procurement) prior to contract signing. Any change needed to return to them.• All purchasing was done via Procurement.• Rigid competitive tendering with “sponsorship deals” done after procurement contract.• Tight Financial control of the purchase cycle (PO, GRN, invoice) for goods and services.• Terms of trade controlled by Finance.• Do not let the supplier manage you – some had done many Games.• Manage your operational colleagues.• Be consistent – any exception will become the norm.• Control scope and variation. Any material change in both required financial approval.• Keep all staff focused on cost before during and after the Games.• Say no often and don’t reverse the decision.• Don’t let go in the Games time. LOCOG operated a 24/7 control of all significant spend.
Methods – Contract Control• The Games is effectively delivered by the contractor base.• No organisation could be created from stratch to provide the large number of deliverables. You need to hire those who have the skills in their normal work to deliver.• But in many cases the deliverable is a hybrid of either their normal product or the size and intensity of how they meet demand.• Many of the demands are industry sector changing and have a major impact on the competitiveness of the market before, during and more importantly after the Games.• Some suppliers had to be micromanaged in delivering to project others had to be focused on delivery.• Many recognised the time risk in the contracts but thought they could resolve by throwing resources at the problem and transfer costs to the client.• Through managing 700 contracts very closely, and having high internal management visibility, few contracts were allowed to slip.• Any slippage resulted in a robust utilisation of the contract and use of step in rights. In many cases LOCOG and supplier resolved issues through mutual assistance.• LOCOG geared up to review all contracts on a monthly basis using risk analysis. As it was most moved out of “intensive care” quickly.• Each contract was reviewed by a panel independent of the contract manager and weaknesses identified and resolved quickly.• Only 5 contracts went to dispute and only 2 to any form of legal action.