The Los Angeles 2028 organizing committee on Tuesday released an inflation-adjusted budget, and in the rush to pounce on the new number, $6.9 billion, every single outlet missed the story.
The story is this, and it’s all there in black and white, though my colleagues in the press either don’t want to embrace it or simply can’t believe it, almost surely because they have been so thoroughly accustomed to Olympic finance horror stories: the fundamental truth is that Los Angeles and California are different, and so in 2028, as in 1984, LA will be the Games changer, meaning absent an act of God like an earthquake that abruptly turns Las Vegas into beachfront resort, LA28 is going to clear an absurd amount of money.
Like, an anticipated surplus of a billion dollars.
On a budget of $6.9 billion.
There is a place for caution and tempered expectation and all of that.
There is also reality.
Recall that in September 2017, the mayor of Los Angeles, Eric Garcetti, stood on stage in Lima, Peru, with the president of the International Olympic Committee, Thomas Bach, and the mayor of Paris, Anne Hidalgo, as the IOC made a historic double allocation of the Summer Games, 2024 to Paris, 2028 to LA.
“This is a pretty radical revolution today,” Garcetti said then. “Usually, we have two or three cities crying in a corner, and one glorious victory. In this world, there are enough losers today, enough people who go after dreams to have them crushed. Today, we model something that can be different.”
This extends to Olympic finance as well.
Los Angeles is not Montreal 1976, with a long-lasting debt that took decades to pay off; LA proved that in 1984, when those Peter Ueberroth-led Games turned a surplus of $232.5 million.
Los Angeles in 2028 will not be Athens in 2004 nor London in 2012 nor Rio in 2016 nor Tokyo in 2020 — all Games with huge budget overruns. For sure it it not Sochi in 2014, it of the reputed $51 billion tag.
So every story that compares LA28 to those editions of the Olympics — it’s apples and oranges.
The reason all those Olympics — and several others — came in way over budget is elemental: capital cost overruns. That is, infrastructure costs associated with the Games.
In Los Angeles for 2028, there is no infrastructure cost.
The budget tables for LA are different, too. Typically in Olympic budgeting, there are two (so, really, thus four) math sets. The first involves operations — revenue and expenses. The other is capital — revenue and expenses.
For LA28, there’s only — revenue and expenses. All in.
Back again to another dose of reality.
It’s not in the slightest bit fair, or even accurate, to say that the cost of LA28 has “jumped” or “risen” to $6.9 billion.
What we have here is what’s called inflation.
You deal with this when you do everyday stuff. When was the last time you bought 99-cent per-gallon gas?
Same when an organizing committee puts on a Games — except it’s looking out, not remembering the good old days.
During the bid, the estimate was that what it would cost to put on the Games — in 2016 dollars — was $5.3 billion.
When computed in 2024 dollars, that number calculates out to $6.2 billion.
Now the organizing committee is looking at 2028 dollars. So, $6.9 billion.
“We didn’t change the plan and we didn’t change the delivery of the plan,” LA28 chairman Casey Wasserman said, according to the LA Times. “Our intent was to make sure there are no surprises.”
See that $615.9 million contingency? What are the chances that money is going to get touched? Almost zero. As a Northwestern graduate — and believe me, I bleed Wildcat purple — there’s more of a chance that my Wildcats, who have made the NCAA men’s basketball tournament exactly once in history, would win the entire thing sometime between now and 2028. Cough.
There has been one change, to be fair. But everyone has known about it since Peru. That’s the roughly extra $200 million — $160 million for youth sports that it’s getting from the IOC as part of the 2024/2028 deal plus the rest for four extra years of operation. In all, 3 percent.
If everyone has known about that since Peru, why Tuesday’s announcement? Because the LA City Council is asking for numbers for an LA28 instead of an LA24.
Why four extra years? Typically an Olympic organizing committee exists for seven years. LA28 will live for 11.
Everyone who knows anything about LA28 has known all along that the risk, such as it is, is not on the cost side. It’s on the revenue side of the ledger — particularly the $2.5 billion in domestic sponsorship.
Two points there.
One, Wasserman well knows the Ueberroth trick — to set numbers, and thus expectations, at benchmarks that not only can be met but exceeded.
Two, the recently announced deal with NBCUniversal should go a long way toward minimizing that revenue risk if not revolutionizing entirely the way Olympic sponsorships get sold.
LA28 is not just going to meet — but beat — its targets.
As Bloomberg has reported recently in two different stories, one on California generally, the other on LA specifically:
If it were a country, California would be the fifth largest GDP in the world. Its GDP is 60 percent bigger than No. 2 Texas.
None of the Group of Seven highly industrialized nations beats California’s annual 3 percent growth in the most recent period for which statistics are available, according to Bloomberg.
The magazine noted floods, fires, traffic and the state’s high cost of living. All the same, California’s population increased — say again, increased — by 19.3 percent over the past 20 years, the most of the five largest economies. China? Up 9.8 percent. Japan and Germany lost 0.3 percent and 2 percent apiece.
In California, unemployment fell to 4.2 percent from 12.1 percent in 2009. That 7.9 percent margin beat the 6.1 rate for the U.S. during the same period and, as Bloomberg pointed out, “dwarfs” the 0.5 percent decline for China, Japan’s 2.8 point decrease and Germany’s 3.1 point improvement.
Of the 5,440 corporate locations in California, 17 percent are research and development; across the United States as a whole, the number is 10 percent.
During the past decade, California’s publicly traded stocks returned 420 percent. By comparison, the S&P gained 239 percent, China’s CSI 300 index went up 57 percent, Japan’s TOPIX is up 70 percent and Germany’s DAX appreciated 121 percent. California shares also outperformed markets in those four countries over five years, three, two and one year as well.
California energy companies outperformed the Russell 3000 by 26 percent; communications firms by 23; industrials by 11; consumer by 7.
Revenues for more than 800 publicly traded companies in California during the past year increased 23 percent, beating the 14 percent for the rest of the United States, 19 percent for China, 10 for Japan, 3 for Germany.
When California companies turned $100 of sales into $57 of gross profit, that topped the $49 average for the United States, $35 for China, $39 for Japan and Germany.
As for Los Angeles specifically?
It’s killing New York and Chicago and everywhere else.
Measured by the growth of personal income, gross domestic product per capita, home prices, global trade and transport, corporate equity and municipal debt, LA has become the “most productive” of the five biggest U.S. cities, Bloomberg declared.
To reiterate: Los Angeles is different.
As the mayor told Bloomberg in an interview in his office:
“In my first hour on the job,” back in 2013, “the first thing I did was write a letter to the United States Olympic Committee saying we want the Olympics, and LA has bid on the Olympics more than any other city in the world.
“When I think about LA what we have, of course, is infrastructure. We could do the Olympics every four years and make money off of it, and we expect to net north of a billion dollars.”