Staying afloat financially: for Olympic organizations, loans may be short-term fix in uncertain times

In these days of near total uncertainty about the impact and duration of the coronavirus pandemic on our lives, even moments of clarity are lost in the blur of the big, frightening picture.

We know the 2020 Tokyo Olympic Games now are supposed to begin July 23, 2021.  Emphasis on supposed to.  Not only a Cassandra would look at the pandemic’s uncontrolled and growing scope and prophesy that there is a good chance those Olympics will not take place then – or ever.

Especially given this from Allen Sills, the National Football League’s chief medical officer, in an NFL.com story Thursday:  "As long as we're still in a place where when a single individual tests positive for the virus that you have to quarantine every single person who was in contact with them in any shape, form or fashion, then I don't think you can begin to think about reopening a team sport."  And the story continued with Sills saying it is too early to think about dealing with large groups of fans until a vaccine is available.

Yet because trying to look forward is far more rewarding, especially in terms of mental health, all the players hoping for a 2020/1 (or 2020ne) Summer Games are searching for ways to get there.

And that means all the institutions that govern sports on the Olympic program are trying to replace revenue related to the Tokyo Games, revenue that may be deferred, reduced or lost forever because of the postponement.  That includes the International Olympic Committee, international sports federations (IFs), national sports governing bodies (NGBs) and national Olympic committees (NOCs) like the U.S. Olympic and Paralympic Committee.

“We need to keep perspective,” said Max Cobb, chief executive of USA Biathlon and president of the NGB Council in the U.S.  “There are a lot of things far more important than the sports programs we are running.

“I believe sports can play an important role in our lives.  But the first thing is keeping people alive.”

The USOPC’s unseemly request for $200 million of the federal stimulus package having been rejected by Congress provided another moment of clarity – no money from that source.  That moment immediately was subsumed into the indefinite uncertainty about the financial futures of the 55 national governing bodies that get $60 million in annual funding from the USOPC.

Would the USOPC try to maintain its NGB funding levels by raising the agreed-upon annual of draw (five percent) from an endowment valued at just under $300 million in its latest available financial report, from Dec. 31, 2018?

Would it do it by borrowing from the $300 million in the form of a short-term loan to itself that would be paid back with a small amount of interest?  Would it borrow against the $300 million in the form of a short-term bank loan that likely would cost around 3 percent interest?  Would some of such loans be used to provide more than the usual distributions to NGBs?

The first two options would cost less but reduce the endowment’s principal, which would impact investment income when (if?) the economy has recovered to the point that interest rates rise.

“At this point, I’m more concerned with the USOPC to continue distributing the funds it planned on distributing,” Cobb said.  “I think they could borrow money if necessary to live up to commitments made to athletes and NGBs.”

In its 2018 financial report, almost exactly half USA Biathlon’s $2.98 million in revenues came from the USOPC ($1.5 million).

The USOPC is evaluating options related to the endowment to help find ways to fund Team USA and the NGBs through the unprecedented Games postponement.

A couple numbers illustrate the immediate hit the USOPC may take from the postponement because by far the largest proportion of its revenues come from a share of the broadcast rights NBC pays to the IOC – most of it disbursed in an Olympic year.

In the last Summer Olympic year, 2016, the USOPC revenues were $336 million.  In the non-Olympic year before, 2015, its revenues were $141 million.  The IOC disbursement to the USOC was $165 million more in 2016 than in 2015.

The IOC disbursements to international federations and other 205 NOCs are proportionally lower, but they arrive either all in the Olympic year (international federations) or mostly in the Olympic year (NOCs.)

During a media teleconference Thursday, the IOC was asked about trying to get the broadcasters to pay some of their expected 2020 portion of rights fees up front and, if that is not possible, about how the IOC would fund the international federations and the NOCs, many of which may go belly up without IOC money.  Part of the problem is broadcasters’ advertising revenues are dependent on the ads being aired.

“The broadcasters’ obligations were targeted toward this summer, and now we are going a year later. . .we will be talking to all broadcasters to make sure we come up with an equitable solution,” said Timo Lumme, managing director for IOC television and marketing.   “(Funding of IFs and NOCs) is part of an overall plan the IOC is working on.”

The IOC had cash assets of nearly $1 billion and total assets of some $4.4 billion as of Dec. 31, 2008 (page 120 of linked document.) It clearly can disburse some, borrow from them or borrow against them.

For the NGBs in the United States, especially the smaller ones, the stimulus act has provisions that could help them stay afloat while keeping all or most of their staff and keeping some or all of their support payments to athletes.

As of Friday, the act allows non-profit businesses with fewer than 500 employees to apply for a loan of up to $10 million at one percent interest under a provision called the Paycheck Protection Program.

The maximum loan amount is 2.5 times monthly payroll, which means USA Biathlon will ask for $125,000.  Cobb, who has been with the organization for 30 years, is its highest salaried employee, at a relatively modest (for NGB chief executives) $130,000 annually.

The loans can be used for payroll, mortgage or rent, and utilities.  They have a payback period of up to two years, payment deferral for 6-to-12 months and under complicated formulas, the possibility of forgiveness on a percentage of the loan.

NGBs also might be able to apply for a 30-year, disaster relief loan of up to $2 million at 2.75 percent interest.  There are no assurances either type of loan will be approved.

For most NGBs and certainly for one like USA Biathlon, with just nine employees, the PPP loan would bring considerable short-term relief.

There is only one relief that matters: complete relief for our planet’s 7.8 billion people from the death, suffering, job loss, economic upheaval and near constant fear caused by the pandemic.  Until that happens, even the thought of having the Summer Olympics in 2021 can seem unreasonable, let alone the thought of worrying about the financial fate of all the institutions that have come to depend on the Olympics.

“We will have much, much bigger issues globally if the Games cannot be held in 2021 than how NGBs will survive,” Cobb said.  “The whole global economy and supply chains will be what we are talking about, NGBs will be a distant memory.”