assignment paf roll no. 2 aj-london olympics

7/30/2019 Assignment Paf Roll No. 2 Aj-london Olympics

1/18

CLASS PRESENTATION

SUBMITTED BY:

ABHISHEK JAIN

Roll No. 02

LONDONOLYMPICS 2012

PROJECTAPPRAISALAND FINANCE

EPGDIB (VSAT) 2011-12 Batch


2/18

At a meeting of the International Olympic Committee in Singapore on 6 July 2005 it wasannounced that London had won the competition to host the 2012 Olympic Games andParalympic Games.

The London Olympic Games will take place from 27 July to 12 August 2012, with theParalympics following between 29 August and 9 September, 2012.

The Government Olympic Executive - part of Department for Culture, Media and Sport(DCMS) - is the lead government department for the London Olympic Games.

The Olympic Delivery Authority (ODA) was established to ensure delivery of thephysical infrastructure for the Games.

The ODA has an overall budget of 8.1bn, but currently anticipates the final cost of itsOlympic preparation to be under budget at 7.3bn.

Including the non-ODA elements of the Olympic preparation, for example security,gives a total budget of 9.3bn.

The budget is to be financed by the National Lottery (2.2bn), GLA Olympic council taxprecept (0.6bn), other London (0.3bn) and Central Government (6.2bn).

The London Organising Committee for the Olympic Games (LOCOG) is staging the 2012Games.

The LOCOG budget, estimated to be 2bn in 2012 prices, covers the operating costs ofrunning the Games.

As required by the International Olympic Committee the Government is the ultimate

guarantor of funding for the Games, including LOCOGs staging costs.

Introduction


3/18

Cost of bidding for gamesThe costs of bidding to host the Olympic and Paralympic Games in London in 2012were met by the Department for Culture, Media and Sport (DCMS), the LondonDevelopment Agency (LDA), and through financial support or value in kind fromcommercial and other organisations.

The bid budget, as approved by its stakeholders, was 29.1m, of which 20m was inthe form of a grant from the DCMS and LDA - 10m from each organisation. Theremainder was provided through commercial sponsorship and support raised by the Bid

team.

On 18 October 2005 London 2012 announced that the bid had come in under budgetand confirmed that a sum of 1.4m was going to be returned to its majorstakeholders, DCMS and the LDA.


4/18

Preparing for the London 2012 Olympic GamesThe financing details of the London 2012 games is as given below :

1. ODA BudgetThe budget for the Games, announced inMarch 2007 by the Minister for the Olympics,was 9,325 million, within which the totalfunding available to the ODA was 8,099million.

The original baseline budget for the ODA of7,095 million, approved by the OlympicBoard1 comprised 6,127 million for thedelivery of the individual projects andprogrammes that make up the ODAprogramme, and 968 million of programmecontingency for risks that arise from the

management of a complex integratedprogramme of projects. In addition, afunders contingency of 1,004 million washeld by Government to cover unforeseenexogenous risk to the overall delivery of theODA programme, bringing the total fundingavailable to the ODA in March 2007 to

8,099 million.


5/18

Preparing for the London 2012 Olympic GamesIn 2010, the June budget and the comprehensivespending review that followed reduced the

available funding in the public sector fundingpackage for the Games by 27 million, to 9,298million and reallocated funding across the London2012 programme. The funding availableexclusively to the ODA was reduced to 7,321million in line with the anticipated final cost ofthe ODA programme at that time, which reflectedthe advanced status of the ODA programme andthe progress made by the ODA in deliveringsavings against its original baseline budget. InJune 2011, the ODA returned 333 million toGovernment for post-Games transformation worksto the Park that will now be delivered by the

London Legacy Development Corporation.

The revised public sector funding package (PSFP)as at March 2012, incorporating the changesabove and reflecting further savings delivered bythe ODA and subsequent movements in theallocation of funds across the PSFP for the

Games, shows the ODAs current forecast fundingrequirement of 6,761 million.


6/18

Preparing for the London 2012 Olympic Games

2. ODA expenditure

As per July 2010 report the anticipated finalcost of the project was 7,261m. This includesthe impact of the Budget held in June 2010.

By December 2009 the gross allocation ofcontingency was 702m, the majority of whichwas to be invested in the construction of the

Olympic Village. Approximately one-third of thetotal contingency of almost 2bn had beenreleased by December 2009. The table on rightside provides a breakdown of how the 702m ofcontingency was allocated.


7/18

Preparing for the London 2012 Olympic Games

3. Financing the funding package

The table below shows how the preparations for the Olympic Games will befinanced and how this has changed since the bid was submitted.

Above said table shows source

of funding and its share

between various partners from

March-2007 to March-2012.


8/18

Staging the London 2012 Olympic Games

According to the London 2012

Candidate file the operationalbudget of the 2012 Olympic Gamesand Paralympic Games is estimatedto be 1.5bn. This is to cover theoperating costs of running theGames. These costs are met almostentirely from broadcast rights,

sponsorship and ticket sales. LOCOGwill not finance any capitalexpenditure.

A breakdown of total revenue andexpenditure is provided in the table

below. The table shows theoperating budget estimated atbreak-even, however London 2012expect LOCOG to produce anoperating profit in excess of 100m.


9/18

Final Cost as per 2011-12 Annual Report

The anticipated final cost of the ODAs programme takes into account known costpressures and saving opportunities, plus estimates of contingency requirements. TheODAs anticipated final cost is updated and published in a quarterly economic report bythe DCMS, and at the end of March 2012 is forecast to be 6,761 million, well within theoriginal funding set aside for the ODA in the PSFP in March 2007 of 8,099 million.

The ODA had delivered cumulative savings of 998 million by March 2012, 158 million

in 2011, since the original baseline budget was established in 2007. The savings deriveprimarily from value engineering changes, procurement savings, inflation, contractualnegotiations and VAT savings, and have been applied to cost pressures as they havearisen. In particular, they have been used to help publicly fund the Olympic andParalympic Village, originally budgeted to be funded substantially by private investmentand ensuring that the programme overall can be delivered within budget.

Within the total anticipated final cost, the ODA is holding 88 million of unreleasedcontingency against known cost pressures and a quantitative risk assessment of issuesthat may arise during the delivery of the remaining programme.


10/18

Progress upto 31 March 2012, the ODA has spent 6,419 million, 1,271 million of whichwas spent in 201112. The venues and infrastructure capital programme to Games is97.4 per cent complete. Spend to 31 March 2012 accounts for 95 per cent of the netODA anticipated final cost of 6,761 million..

Final Cost as per 2011-12 Annual Report


11/18

Olympic Risk in Recent HistoryOlympics of the modern era are afflicted by difficulties with organization and worldwide

representation. The risks faced by Olympics in recent past are as under:

Geopolitical RisksThe threat of terrorism was notoriously exposed at Munich 1972, when a group of Israeliathletes were kidnapped and murdered by Palestinian terrorists. Throughout history, theOlympic Games have been exposed to geopolitical risk the Games were interrupted by WorldWars in 1916, 1940,and 1944; exploited by Hitler in 1936; and disrupted by anti-apartheid

boycotts by African nations in the 1960s and 1970s, and by Cold War boycotts by the UnitedStates and the Union of Soviet Socialist Republics (U.S.S.R.) in 1980 and 1984, respectively.Most of the time, the IOC treads a diplomatic tightrope as a symbolic venue for widergeopolitical conflicts.

Financial RisksFinancial risks associated with hosting the games were demonstrated by Montral 1976. Overthe past thirty years, staging costs have varied, but typically, the final figures have faroutreached initial estimates e.g. The total cost of Athens 2004 escalated from 3.2bn to6.3bn. the nadir of modern Olympic risk was Atlanta 1996. It was overshadowed by thebombing of Centennial Park, which left two dead and over 100 injured; haunted by transportand logistical problems; and tainted by over-commercialization (notably fierce ambushmarketing by rival corporations) that provoked the IOC to vow never again. The collective

memory of the Olympic movement, developed through historical experience, now informs alearned and adaptive conception of risk.

Olympic Risks


12/18

London 2012 was promised to be, like every preceding Olympics, the best gamesever. Within 24 hours of the International Olympic Committee (IOC) vote to award the2012 games to London, an attack on the London transport system by four suicidebombers provided an unmistakable reminder of the vulnerability of this type of mega-event to external threats and contingencies. For the biggest event in the world, thepotential hazards and uncertainties are as pronounced as the prospective rewards.

Security and Geopolitics

Hosting the Games can give rise to diplomatic incidents as well as creating potentialheadaches for organizers. The global recognition of the Olympic brand and a worldwidetelevision audience makes the Games a symbolic venue for international tensions,protests from dissidents, and terrorist threats and attacks. Since September 11, costsinvolved in providing security for the Games appear to have escalated. These werereported as nearly 1 billion for Athens 2004 (five times more than Sydney 2000) and

are estimated at 600 million for London 2012. Significantly, the management ofsecurity risk is dependent upon the defense capacity of the host nation (althoughGreece also enlisted support from NATO). Types of security threats are Terrorism,Serious and organised crime, Domestic extremism, Public disorder and major accidentsand natural events. In Britain, Olympic security is already under the control of theOlympic Security Committee, a Cabinet committee chaired by the Home Secretary. This

increasing securitization of the Games is, therefore, interlinked with the rise of riskmanagement throughout the Olympic movement.

London 2012 Olympic Risk and Risk Management


13/18

Construction, Transport, and Infrastructure

Established by the London Olympics Act 2005, the Olympic Delivery Authority (ODA) isto coordinate development of venues, land, and transport infrastructure, and also toprovide a focus for timely implementation of the London blueprint. The travails of lastminute completion threatened by Athens 2004 have caused the IOC to impose a masterschedule, regularly supervised by the IOC Coordination Commission, upon theorganizers. There is support for project risk management within Her Majestys Treasury

from the Office of Government Commerce (OCG). In fact, London had a comparativelylow risk exposure in the construction of its venues, since 60 percent of these alreadyexisted.

There are cautionary tales to be noted from the substantial literature documenting theuncontrolled cost inflation associated with mega projects. Yet contrarily, ifgovernment decides to aggressively transfer risk to private contractors through

penalties and fixed cost ceilings, the completion of projects may be endangered. Afterall, an expensive stadium is preferable to the London organizers than an unfinishedone. Likewise, public-private arrangements might protect against risk but at the sametime erode revenues to be accrued from post-Games sale of assets.



14/18

The complex interdependence of the London transport system and its absence ofredundant capacity presents perhaps the greatest risk to a successful Games. Londonstransport infrastructure is both a potential target for terrorists and an operational riskthat intersects with this complex and vast metropolis, as millions of residents andworkers go about their daily lives during the Games.

Financial Risk and the Politics of Accounting

Financial risk and the politics of public accounting are increasingly becoming topics ofcontention as 2012 approaches. The precise measurement of the cost of London 2012 isan interpretative business. For example, London 2012s original budget of around 2billion did not include governments capital expenditure on transport infrastructure andvenues, estimated at nearly 10 billion. Policy-makers and bid leaders argued thatthese projects were due to be constructed regardless of the staging of the Games. SinceLondon won the right to host the Games, some of these costs have been reintegrated

into the Olympic budget, though some remain outside. Furthermore, the capital budgetdoes not include the operating costs of the Organizing Committee (LOCOG), which arelikely to be offset by ticketing, sponsorship, and broadcast revenues. At the same time,the eventual cost remains contingent upon forecasts of post-Games revenue from thesale of Olympic assets, such as the athletes accommodations and stadia. As such, someof the increase of the cost of London 2012 is as much about budgeting reclassification

as it is about cost underestimation or failures of risk assessment.



15/18

Licensing and Sponsorship

The most critical source of Olympic income is that derived from licensing andsponsorship. It is a formal expectation of the IOC that host nations will act to protectthe interests of sponsors and licensees. The London Olympics Act 2005 provides alegislative basis for regulation of advertising and trading to prevent ambush marketing.Despite the London Olympics Act 2005, risk is inherent to the operating budget of theOrganizing Committee, particularly in regard to the broadcast revenues and domestic

sponsorship. Some organizers set aside a contingency in the budget to mitigate thisuncertainty.

Risks of Fluctuations in Foreign Exchange Rates

There are also risks associated with revenue shortfalls due to fluctuations in foreignexchange rates. These can be managed through devices such as hedging contracts.

However, because either national or local government must be the backer of lastresort for the Games, there are clear disincentives for organizers to assign resourcesto the management of risk when someone else has to pick up the bill.



16/18

Unquantifiable Economic BenefitsThe wider economic benefits of hosting the Olympic Games are always contested than thecosts and revenues. While there are prestige and reputational effects associated with asuccessful Olympics, these are, almost by definition, unquantifiable. It is plausible that theOlympics generates an economic boost through some kind of multiplier effect fromincreases in investment and tourism. However, research suggests that pre-event economicstudies often use inflated multiplier effects for analysis of the stimulation of economicgrowth associated with hosting the Games. At the same time, post hoc models of economic

impacts are problematic, because there is no counterfactual scenario to test against (i.e.,the Olympics has already happened). For example, Olympic crowdingout of investmentin other sectors is difficult to measure. So while hosting the Olympics might be associatedwith an upturn in economic conditions, this might be coincidental (or reflect the skill ofthe IOC in selecting host cities that are already on an upward economic curve). However,the scale and concentration of public and private sector investment around the area of themain Olympic site does tend to ensure a positive local or regional economic legacy, even if

it is difficult to quantify.

Conclusion

The ubiquity of Olympic risk is an inevitable symptom of increasing complexity of thephysical and organizational architecture of modern Olympic Games. London 2012 is nodifferent in this regard. Risk casts its shadow through the potential contingency of public

support and the financial, logistical, political, and reputational risks attached forgovernment and organizers.



17/18

Unquantifiable Economic Benefits

The wider economic benefits of hosting the Olympic Games are always contested thanthe costs and revenues. While there are prestige and reputational effects associatedwith a successful Olympics, these are, almost by definition, unquantifiable. It isplausible that the Olympics generates an economic boost through some kind ofmultiplier effect from increases in investment and tourism. However, research suggeststhat pre-event economic studies often use inflated multiplier effects for analysis of the

stimulation of economic growth associated with hosting the Games.

At the same time, post hoc models of economic impacts are problematic, because thereis no counterfactual scenario to test against (i.e., the Olympics has already happened).For example, Olympic crowding out of investment in other sectors is difficult tomeasure. So while hosting the Olympics might be associated with an upturn in economicconditions, this might be coincidental (or reflect the skill of the IOC in selecting host

cities that are already on an upward economic curve). However, the scale andconcentration of public and private sector investment around the area of the mainOlympic site does tend to ensure a positive local or regional economic legacy, even if itis difficult to quantify.



18/18

THANK YOU

assignment paf roll no. 2 aj-london olympics

Documents