Recession Games




In an oak-paneled church hall a few blocks from Big Ben, Paul Deighton, chief executive officer of the London Organizing Committee of the Olympic and Paralympic Games, strides to the podium. He’s holding the almost 3-foot-high golden torch that he proudly says was designed in east London and manufactured in northern England.

For all the mighty symbolism, the torch can’t shield Deighton from the skeptical audience gathered one evening in March to hear how they can profit from this summer’s Olympics. The hall is filled with about 200 small-business owners, and a gloomy mood prevails as Britain struggles through its first double-dip recession since the 1970s.

One woman waves a London 2012 brochure and asks why it was printed in China when the games should be helping British businesses. “I’ll look into it,” Deighton promises. He gently reminds her that 95 percent of London 2012 contracts were awarded to British firms. Another man asks about a feared shortage of portable toilets in the Olympic Park. Deighton politely reassures him that they’ve got that one covered.

It’s fitting that a former Goldman Sachs Group Inc. banker is running the business end of the Olympics — and getting dumped on by cantankerous Londoners. When Britain won the bid for the 2012 games seven years ago, the economy was booming, Prime Minister Tony Blair was presiding over what was still “Cool Britannia” and the City, London’s financial district, was gorging on cheap credit and megabonuses for bankers like Deighton.

Then a bleaker mood set in. The day after London won, homegrown terrorists bombed the city’s public transportation system, killing 52 people and raising fears of more attacks, including during the games. In 2007, after a decade in office, Blair stepped down. Soon the financial crisis was rocking the U.K., followed by the sovereign-debt calamity in Europe, Britain’s largest trading partner.

Against that backdrop, not to mention the biggest government budget cuts since World War II, a summer of Olympics celebration offers London some relief. It might not have seemed that way to Deighton as he fielded hostile questions in the church. Deighton, 56, says his 22-year career at Goldman didn’t prepare him for being quizzed about such nitty-gritty details by a cynical British public. “When you’re in investment banking, you’re pretty much under everybody’s radar all the time,” he says. “Here, everything we do all the time is completely in the public eye.”

As he speaks, Deighton is sitting in his office, a space so cramped that, in his telling, a visiting delegation from the 2014 Winter Games, set to take place in Sochi, Russia, figured he couldn’t be terribly important. Wiry and blue-eyed, Deighton says he’s more cheerleader than chief executive now that the hard part of the games for him — the finances — is in place.

As Britain prepares to welcome 15,000 athletes from 205 countries on July 27 for more than four weeks of Olympic and Paralympic Games, Deighton is charged with making sure that the events, which will be watched by more than 4 billion people, are delivered on time, on budget and nightmare-free.

Together with London 2012 committee Chairman Sebastian Coe, the only man to have won 1,500-meter Olympic gold twice, Deighton is overseeing everything from transport to security, while making sure he’s got enough of those portable toilets. Surely his is one of the toughest jobs in the world right now? “The best job in the world,” Deighton says, smiling.

While the games will take place in an age of austerity, they won’t be austere. In 2007, after underestimating the cost of cleaning up the site and constructing sports venues, the Blair government more than tripled the original spending plan, to 9.3 billion pounds ($14.3 billion). In addition, Deighton’s London Organizing Committee of the Olympic and Paralympic Games, or Locog, has a separate £2.2 billion budget. For a country still reeling from the financial crisis, the money amounts to a backdoor Keynesian stimulus. Plus, Deighton says, the total outlay guarantees London a boost in tourism.

Although the spending pales in comparison to the $67 billion China lavished on the 2008 Beijing Olympics, the government of Conservative Prime Minister David Cameron is doing what it can to make Britain cool again. “Getting it right and doing the best for Britain is the overriding political driver in this, rather than saving the last pound to cut the deficit,” says Tony Travers, director of LSE London, a research center at the London School of Economics.

The government even found an extra £41 million in public money to mount Olympic spectacles, including Slumdog Millionaire director Danny Boyle’s secrecy-shrouded opening ceremony, which somehow will merge Shakespeare’s The Tempest, a play about a shipwreck, with dancing National Health Service nurses and singing schoolchildren.

Spending on security has risen to more than £1 billion as the government tries to guarantee a trouble-free Olympics. The original budget for security at Olympic venues has almost doubled to £553 million to pay for 23,700 guards instead of the original estimate of 10,000. At a time of deep cuts to the police force and national defense, the government is spending another £475 million on wider security measures, unsettling local residents. The Ministry of Defense says it has tested sites around Olympic venues as part of a plan to deploy surface-to-air-missile batteries to prevent a terror Armageddon.

The 2012 games are sumptuous compared with the last time London hosted an Olympics. That was in 1948 in the shadow of World War II, when athletes ate whale meat to supplement beef rations and slept in schools that had been converted into makeshift dorms. The government spent £750,000, about 20 million in today’s pounds, on what came to be known as “the Austerity Olympics.”

This time around, it was so-called legacy planning that helped Britain win the bid. London’s plan to use the games to revitalize the East End will serve as a blueprint for future hosts, Jacques Rogge, the International Olympic Committee president, told reporters earlier this year.

To that end, the government has turned what was once London’s industrial core, a port crisscrossed by railways, into Europe’s largest public building project — a 500-acre (200-hectare) Olympic Park in the midst of some of the most deprived boroughs in Britain. Bombed by German warplanes and contaminated by industrial waste, the area was a toxic badlands. Before they could start building, contractors spent £2 billion to clean up the place; they even decommissioned a Luftwaffe bomb.

Before London won the bid, Australia’s Westfield Group, the world’s biggest owner of shopping centers, acquired a site next to the Olympic Park for Westfield Stratford City, a glittering, £1.8 billion edifice plopped down alongside grim high-rise public housing. Three-quarters of the visitors to the games will funnel through Europe’s largest urban shopping center — past 240 stores, from Armani to Zara — and be enticed to take part in the Shopping Olympics before they get to the real thing.

After the games, the Athletes’ Village will be turned into an apartment complex called the East Village. Qatari Diar Real Estate Investment Co., a unit of Qatar’s sovereign-wealth fund, and Delancey Estates Plc, a British developer, paid £557 million last year for about half of the apartments and the right to build 2,000 homes nearby. The remaining apartments, bought by three public housing associations, will be turned into “affordable” homes.

For Locog’s own budget, Deighton hunted down sponsors to supplement income from the sale of broadcasting rights, tickets and branded merchandise. His target for UK sponsors was £700 million. By moving early, he avoided getting caught empty-handed when the credit crunch hit in 2008. “It was clear to me the sun was shining in the financial sector,” Deighton says. “Being in the markets all my working life tells me you do a deal when the market is there. You don’t wait for it to get any better.”

By the time Lehman Brothers Holdings Inc. went bankrupt in September of that year, Deighton had already locked in seven sponsors, raising £400 million. They included Lloyds TSB Bank Plc, part of whose contribution, in an ironic twist, fell to British taxpayers because the bank was bailed out by the U.K. government in 2009.

Locog ended up raising more money from sponsors than any other Summer Olympics organizing committee, Coe says. Deighton, who says his “sweaty moments” occurred when piecing together all of the finances, won praise for pulling in another £300 million after the financial crisis. “I reckon he could sell ice to the Eskimos,” says Dee Doocey, a member of the House of Lords who stepped down in May from the London Assembly. “And he could make the Eskimos thank him for selling the ice. I don’t think anybody could have raised the money he has in this economic climate.”

Deighton is self-deprecating enough to give Coe credit. He says Coe — a former Conservative member of Parliament and now a member of the House of Lords — is the celebrity with the unique connections in political and Olympics circles. “I am the easy one to clone,” Deighton says. “He’s the hard one.”

Deighton, who made £50 million when Goldman went public in 1999, says his ease in working with Coe stems from Goldman’s tradition of co–senior partners, as when Robert Rubin (who would go on to be U.S. Treasury secretary) and Stephen Friedman ran the firm jointly in the early 1990s. “I always remember Bob saying when he and Stephen had a different point of view about something, he’d simply evaluate which one of them felt more strongly about it,” Deighton says. Of Coe, he says: “We’re both very happy to cede to each other big decisions.”

It was Coe after all who hired him. When London won the bid for the 2012 games — beating Paris, New York, Madrid and Moscow — Deighton was at Goldman’s London headquarters on a video conference call with colleagues in New York. “For the first time in 22 years, I got their attention and they actually listened to me when I told them London had won,” he recalled to a group of business leaders in March.

Deighton took up the Locog post in April 2006 after seeing an ad in The Economist. He’d been at Goldman since 1983, initially in investment banking focusing on aerospace before spending two years in New York running the controllers department. After returning to London in 1996, he made partner and became chief operating officer for Europe as Goldman began ramping up its presence in London.

Deighton, who earns £480,000 a year and promised to give his 2011 Locog bonus of £220,125 to charity, says he has no regrets about moving into a job that requires him to wrestle with such matters as the percentage of British chicken in the McNuggets sold at McDonald’s Olympic Park outlets. “I’d answered every question there was about derivatives regulations,” he says. “Why not about chickens?” The McNuggets are now 100 percent British after some public wrangling.

The occasional absurdities of staging an Olympics spawned a BBC spoof documentary, Twenty Twelve, starring Downton Abbey’s Hugh Bonneville as the “head of deliverance,” aka Deighton. The reality of organizing the Olympics is sometimes funny enough, Deighton says, adding, “Why don’t they just bring a camera into my office every day?”

Deighton recalls a conversation he had in 2006 with Ken Livingstone, then London’s mayor, about whether they could save money on the £269 million Zaha Hadid–designed aquatics center by not putting the roof on it — or just installing a partial one. “Do you let the swimmers get wet who are in the water, or do you need to keep the crowds dry?” Deighton says, laughing at the recollection. In the end, they kept the whole roof.

As the games draw closer, Deighton says he’s growing calmer. “I’m actually sleeping probably as well as I’ve slept during the past 6½ years,” he says. The same can’t be said for many others in London amid talk of gridlock in the air, on the streets and underground.

At Heathrow, the world’s third-busiest airport, airlines have warned of delays caused by increased air traffic and long lines through customs and immigration. Deloitte LLP, the accounting firm, says London’s subway system, which struggles as it is to move 4 million people riding around each day, will have to cope with an additional 3 million daily journeys. While nearly 80,000 athletes, VIPs and journalists zip around the city in specially designated lanes, the less fortunate may find themselves stuck in Olympic-size traffic jams.

One rainy day in May, Deighton heads to the Olympic Park to survey his work. He passes the basketball arena, explaining how London organizers are in talks with Rio de Janeiro about shipping the structure to Brazil and using it there for the 2016 games — all part of his pledge to not leave behind any white elephants. He turns and points to the looming, 1.9 million–square-foot (176,000-square-meter) shopping mall, where he says 10,000 jobs have been created. All thanks to the games.

“People don’t mind you spending money as long as you demonstrate you’ve really thought about the long-term return,” he says, sounding like both the banker he once was and the Olympics impresario he now is. “We’re on track, but you really can’t assess it until it’s over.” When they’re over, the Olympics often don’t yield the returns their proponents promised; post-2004 Athens is Exhibit A. And yet if Deighton is proved right, he and London alike will reap benefits long after that torch he carries around has been passed to someone else.

STEPHANIE BAKER IS A SENIOR WRITER AT BLOOMBERG MARKETS IN LONDON. This email address is being protected from spambots. You need JavaScript enabled to view it.

DANIELLE ROSSINGH COVERS SPORTS AT BLOOMBERG NEWS IN LONDON. This email address is being protected from spambots. You need JavaScript enabled to view it.

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