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Analysis of the Boston 2024 Proposed Summer Olympic Plans

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Analysis of the Boston 2024 Proposed Summer Olympic Plans Analysis of the Boston 2024 Proposed Summer Olympic Plans PREPARED FOR Commonwealth of Massachusetts Office of the Governor, President of the Senate, and Speaker of the House PREPARED BY Coleman Bazelon, The Brattle Group Pallavi Seth, The Brattle Group Steven Herscovici, The Brattle Group Mark Berkman, The Brattle Group Allen R. Sanderson, The University of Chicago Brad Humphreys, West Virginia University Joseph J. Floyd, Floyd Advisory LLC Michael P. Abasciano, Floyd Advisory LLC August 17, 2015 This Report was prepared for the Commonwealth of Massachusetts Office of the Governor, President of the Senate, and Speaker of the House. All results and any errors are the responsibility of the authors and do not represent the opinions of The Brattle Group, Floyd Advisory LLC, or its clients. Acknowledgements: We acknowledge the valuable contributions of many individuals to this Report and to the underlying analysis. Specifically, we are indebted to members of The Brattle Group, including Lynda Borucki, Kevin Neels, Mark Sarro, Yingzhen Li, Victor Zimmermann, James Wieler, Zidi Chen, Paul Organ, and Barry Rothschild for their contributions. We also acknowledge the valuable contributions of Susan Hoag, Igor Karagodsky of Boston College, and Anson Smuts of Floyd Advisory LLC to this Report. Copyright © 2015 The Brattle Group, Inc. Table of Contents I. Introduction ................................................................................................................................. 1 II. Executive Summary ..................................................................................................................... 3 III. Background ................................................................................................................................ 17 A. Boston 2024’s Bid 2.0 ....................................................................................................... 17 1. Overview of Bid 2.0 ................................................................................................ 18 a. Midtown—Olympic Stadium ....................................................................... 21 b. Columbia Point—Athletes’ Village .............................................................. 24 2. Overview of Boston 2024 Olympic Budget ........................................................... 27 B. Historical Olympic Games and Bids ................................................................................ 30 1. Reasoning Behind Choice of Bids Being Analyzed ............................................... 30 2. Overview of Historical Bids and Games ................................................................ 31 a. London 2012 .................................................................................................. 31 b. Vancouver 2010 ............................................................................................. 33 c. Atlanta 1996 ................................................................................................... 34 d. New York 2012 and Chicago 2016 Bids ....................................................... 36 e. Summary ........................................................................................................ 38 IV. Financial Evaluation .................................................................................................................. 39 A. Introduction to Financial Evaluation and Funding Mechanisms .................................. 39 B. Assessment of Organizing Committee Revenues ........................................................... 41 1. Ticketing.................................................................................................................. 41 a. Potential Downside ....................................................................................... 42 b. Potential Upside ............................................................................................ 43 2. IOC Contribution.................................................................................................... 44 3. Domestic Sponsorship ............................................................................................ 46 4. Other Sources of Revenue ...................................................................................... 47 5. Summary of Organizing Committee Revenue Estimates ..................................... 47 C. Assessment of Organizing Committee Costs .................................................................. 48 1. Venue Construction Costs ...................................................................................... 48 a. Cost of Major Venues .................................................................................... 48 b. Additional Venue and Village Cost Uncertainties....................................... 49 2. Games Related Costs ............................................................................................... 50 a. Efficiencies over Prior Olympic Games ....................................................... 50 i b. Limited Financing Costs for Periodic Deficits ............................................. 53 3. Reliance on Outside Sources of Funding ............................................................... 55 a. Private Developer Funding ........................................................................... 55 b. Federal Funding ............................................................................................. 60 4. Summary of Organizing Committee Cost Estimates ............................................. 64 V. Risk to Taxpayers and Potential for Mitigation ....................................................................... 66 A. Background ....................................................................................................................... 66 1. Tensions Between IOC Objectives, USOC Objectives, Local Organizing Committee Objectives, And Required Government Responsibilities ................. 66 a. The International Olympic Committee ....................................................... 66 b. National Olympic Committees ..................................................................... 68 c. Bid Committee and Local Organizing Committees ..................................... 71 d. Local and State Government Objectives and Responsibilities .................... 73 2. The Bid Process and IOC Requirements ............................................................... 73 a. The Formal Bid Process ................................................................................. 75 b. Local Government Influence on Bid Selection Process .............................. 77 c. Financial Guarantees ..................................................................................... 78 3. Letters of Financial Guarantee in Previous Olympic Bids ................................... 80 a. Economic Shortfall Guarantees in Past Bids ................................................ 81 b. Endeavor-Specific Guarantees in Past Bids .................................................. 82 c. Parties Responsible for Executing Letters of Guarantee ............................. 83 B. Potential Risks .................................................................................................................. 84 1. Cost Overruns ......................................................................................................... 84 a. What are Cost Overruns? .............................................................................. 84 b. Potential Sources of Cost Overruns .............................................................. 86 c. Lessons about Cost Overruns from Past Olympic Games ........................... 87 d. Cost Overruns in Other Mega-Projects ...................................................... 106 2. Revenue Risks ....................................................................................................... 107 a. Sources of Revenue as Proposed ................................................................. 107 b. Organizing Committee Potential Revenue Shortfalls ............................... 108 3. Security Risks ........................................................................................................ 115 C. Risk Bearing .................................................................................................................... 118 1. IOC Not Risk Bearer ............................................................................................. 118 2. National Olympic Committee .............................................................................. 118 3. Local Organizing Committee ............................................................................... 119 4. Federal Government ............................................................................................. 119 ii 5. Commonwealth of Massachusetts and Taxpayers ............................................... 120 D. Analysis of Risks ............................................................................................................. 120 1. Structure of responsibility .................................................................................... 120 2. Conclusions on Residual Risk for Taxpayers ....................................................... 121 E. Risk Mitigation ............................................................................................................... 122 1. Insurance ..............................................................................................................
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