Olympics: Auditing the Capitalist Games

Though Moscow’s move will hurt, the mood is still upbeat

The unofficial name for the 1984 Summer Games in Los Angeles is the Capitalist Olympics—so called because every cent of the $475 million budgeted to stage them has come from private sources, primarily U.S. corporations. But as every capitalist knows, the “invisible hand” of Adam Smith’s marketplace economy not only provides bounteous rewards, it is also perfectly capable of delivering a sucker punch. It was far too early to tell whether the Soviets, in leading an East-bloc boycott of the Olympics, had landed a solid shot or a glancing blow on the 30 corporate sponsors, 54 Olympic licensees and hundreds of others who had sought prestige and profit through the Games. But the mood in Los Angeles was, for the most part, defiantly upbeat. Declared Harry Usher, executive vice president of the Los Angeles Olympic Organizing Committee (L.A.O.O.C.): “We won’t go into the red.”

The impact of a Moscow pullout will be mostly indirect. No one was counting on the Soviet Union or its satellites to provide more than a tiny fraction of the 600,000 tourists expected to visit Los Angeles during the 16 days of Olympic competition. The big question was whether popular U.S. interest in the Games, abetted by one of the most intensive publicity campaigns ever mounted for a sports event, could be sustained with so many star performers missing. On the answer rode millions of dollars in sales of everything from air fares to souvenir trinkets, as well as the largest sum ever bid for the right to cover a sports event on television.

Most of those with a direct stake in the success of the Games were understandably eager to remain publicly optimistic. Said Stanford Blum, who lost money as an Olympic licensee in 1980 after the U.S. decided to boycott the Moscow Games but who is now back in business in Los Angeles: “It was almost unpatriotic for American merchandisers to promote items after the U.S. boycott. That certainly won’t be the case in Los Angeles.”

Corporate sponsors, who have already made good on their pledges of $4 million to $15 million apiece to the L.A.O.O.C. and could not back out even if they wanted to, also put the brightest possible face on the boycott. Said Steve Leroy, media manager for McDonald’s Corp., which spent $4 million building the Olympic swim stadium on the U.S.C. campus: “For every dollar we’ve spent, we expect the public to be aware that we have this type of commitment to sports. The program already has been a big success.”

Still, there were nagging doubts. “Everybody’s putting on a brave face, but I think it does matter whether or not the Russians come,” said Brian Harlig, co-owner of Good Time Tickets, one of four major ticket outlets in Los Angeles. His Olympic sales slacked off noticeably after Moscow’s announcement. Los Angeles City Councilman John Ferraro was more alarmed by the Soviet boycott: “It could hurt our Games tremendously.”

By far the largest question mark hung over the American Broadcasting Co., which bid $225 million for U.S. Olympic broadcasting rights and plans saturation coverage: 187 hours in 16 days. The stakes for ABC and its flamboyant news-and-sports chief, Roone Arledge, go beyond the outlay for the Games. The network uses Olympic air time to preview its fall programming season and to reinforce its image as the No. 1 sports broadcaster. Attracting a large audience for the Summer Games grew all the more crucial when last February’s Winter Olympics in Sarajevo, for which ABC paid $91 million, proved to be a ratings bust. Viewership for those telecasts, according to some advertising-industry estimates, was 25% below expectation, and the network was forced to repay shortchanged advertisers with free commercial spots later, some of them during the Summer Olympics.

For ABC, the Los Angeles Games offered a chance to make some very handsome profits. By selling all of its available commercial time, ABC could raise total revenues of $480 million—provided that its ratings averaged 16 or higher, meaning that at least 16% of all U.S. households with televisions were tuned in to the Olympics. Thus, after spending $225 million for the broadcast rights, plus an additional $200 million for production costs and advertising commissions, the network stood to reap a profit of up to $55 million. By early last week ABC reported that fully 90% of its available spots had been sold.

The boycott could not have come at a worse time for Arledge. As it happened, he was meeting in Los Angeles with the network’s 214 affiliates to talk up the coming Games. To air long, continuous segments of the Olympics, the affiliates are required by the network to cancel or delay some of their most profitable local programming. In return, ABC provides spots for local commercials during Olympic programming. Even before the boycott announcement, some stations were having trouble selling those spots. So it was not surprising that a mood of dismay swept the ballroom of the Century Plaza Hotel when the affiliates heard ABC Anchorman Peter Jennings announce the word from Moscow. Said Arledge: “It’s a disappointment. There are certain events that it would be very good to have them [the Soviets] in. But it is not as devastating as when the U.S. team didn’t go to Moscow.”

ABC officials quickly pointed out that they had taken steps to protect themselves against boycotts and other potential misfortunes. For one thing, the network’s contract with the L.A.O.O.C. calls for reduced payments if any of ten teams, including those of the Soviet Union and East Germany, fails to take part in competition. According to the L.A.O.O.C.’s Usher, the rebate will be something less than the $60 million to $70 million that he said ABC still owes the L.A.O.O.C.

In addition, ABC had a reported $8 million insurance policy with San Francisco’s Fireman’s Fund against a whole list of eventualities, including cancellation of the Games because of an earthquake and their interruption by an emergency presidential speech. The network even insured itself against low ratings, though neither ABC nor Fireman’s Fund will disclose how much the audience has to dip before the policy starts paying off.

While ABC is insulated against the kind of loss ($34 million) that NBC sustained as a result of the 1980 U.S. boycott, its chances of realizing the profits once hoped for are much more problematic. Some analysts doubt that ratings will slide drastically. But others wonder if ABC can hold viewer interest over such a vast expanse of air time (an average of 11½ hours a day). Said Joel Segal, executive vice president for broadcasting at New York City’s Ted Bates advertising agency: “A plus is our guys will win a lot of gold medals. On the minus side, I think the Games will lose a lot of excitement—Eastern Europe is the toughest competition we’ve got. I think the minus outweighs the plus. I think the ratings will be lower than they would have been.” If so, the dwindling numbers have consequences beyond Olympic programming. The 214 affiliates of ABC and the five stations it owns, said Kidder, Peabody Analyst Joe Fuchs, “also stood to make money on the adjacents,” the programming just before and after the Olympics. With smaller audiences for the Games, those for the adjacents are also likely to shrink.

Beyond the special case of ABC, the effects of an East bloc boycott on the Olympics remained highly speculative. A study conducted for the L.A.O.O.C. in 1982 estimated that the Summer Games would provide a direct infusion of about $1 billion into the overall Los Angeles economy and create some 60,000 jobs. Those are hardly piddling figures, but they pale when compared with the metropolitan area’s annual economic output of $219 billion and nonfarm work force of 3.6 million. (If Los Angeles were a separate country, it would rank as the world’s 14th largest economy.) With an entity that size, said Phillip Vincent, regional economic manager for First Interstate Bank of California, “the Olympic Games simply can’t have any big impact one way or another.”

For the Olympic committee, the primary loss from the boycott will be in the refund of television revenues. L.A.O.O.C. President Peter Ueberroth some time ago ordered the drafting of a secret Plan B that assumed a Soviet boycott, and committee officials maintain that the reduced payment from ABC can be largely offset by unspecified cost cutting. Presumably that would include reducing orders for food, transportation and other items no longer needed for no-show teams. Other expenses, however, including university dormitory lodgings, were paid for in advance and cannot be cut back. As a result, the L.A.O.O.C. will almost certainly be forced to reach into its projected Olympic “profit” of $15.5 million to pay off expenses.

Souvenir license holders, on the other hand, can talk about little except how much the Olympics have already done for them. “The sale of our items has been an enormous success even if we don’t sell another single necktie,” said Rudy Cervantes, head of Cervantes Neckwear Inc., one of the Games’ official suppliers. Such optimism must hearten the city’s retail emporiums, which are awash with Olympic kitsch, from $5 key chains at airport souvenir counters to cotton crew-neck sweaters costing $45 at Jerry Magnin on Rodeo Drive. Sam the Eagle, counterpart to Misha the Bear at Moscow, shows up on everything from coffee mugs to T shirts.

Realtors and tour-group operators had less cause for cheer. Rental Agent Donald Roberts heard the news on his radio and thought, “Oh no, there goes everything.” The owner of an Olympic accommodations service, Roberts had recently received reservations for a tour group of 1,200 from Yugoslavia and for 22 members of the Hungarian track-and-field team. Neither group had supplied a deposit, a condition normally required by listing agents and the many private home owners in Los Angeles who put their houses up for rent during the Games. Prospective landlords, however, cannot be quite as demanding as they were some months ago. According to many realtors, there was a glut of private accommodations on the market even before the boycott, forcing widespread price cutting. But some Angelenos hit the jackpot. Chuckled Steve Obeck, who arranged the lease of eight plush residences to East European groups with full payment in advance: “Those homeowners can have their cake and eat it too. They can stay home for the Games.”

Even before last week there were some signs that the Los Angeles Games were not proving to be quite the magnet that some boosters had predicted. Many airlines had already abandoned their hopes of charging full fares on all flights to and from Los Angeles during the Olympics (summer discounts are normally available), and automobile-rental agencies had stopped requiring full payment in advance. Accordingly, in the best tradition of Yankee buoyancy, there were those who predicted that the boycott would strengthen rather than weaken the appeal of the Games. Ventured Walter Hill, president of a firm that makes official Olympic trading cards: “In terms of a collectible, controversy enhances the value of the cards.”

One dampening effect of the boycott that seems welcome, at least to ordinary fans, is the anticipated decline in the resale value of the 3.56 million tickets already sold to Olympic events. The asking price for a $200 seat at the opening and closing ceremonies, according to Los Angeles Ticket Agency Owner Larry Gold, had gone as high as $1,500 before the boycott. Now, says Gold, “the speculators won’t be able to command the prices they wanted.”

Whatever the eventual impact on attendance, viewership and product sales at this summer’s Olympics, the jolt of two major-power boycotts in a row is bound to influence profoundly the Summer Games scheduled for Seoul in 1988. After the television rights to the 1988 Whiter Games in Calgary were sold to ABC for $309 million ($218 million more than its winning bid for the Sarajevo competition), some broadcast analysts speculated that the rights to the Seoul Games would take a dizzying leap toward the billion-dollar mark. Now, with only a month to go before the rights are awarded, that estimate has been scaled back sharply. Similarly, U.S. and West European firms that regularly establish commercial tie-ins with the quadrennial Games may prove more cautious than ever in becoming associated with an event that could once again become politically combustible. Another capitalist rule of thumb, after all, is that there comes a time to cut one’s losses.

—By William R. Doerner. Reported by William Blaylock and Benjamin W. Cate/Los Angeles