The Great Debate

Who’d want to host the Olympics?

Londoners are greeting the Olympics with all the enthusiasm of a child awaiting a root canal. The government has warned those unable to book coinciding holidays not to travel anywhere beyond walking distance of home as Communist-style “Olympic lanes” whisk dignitaries past the interminable traffic the Games cause. During the Olympics, London will be run under a curious kind of corporate martial law. Thousands of troops will handle security to make up for private contractor G4S’s staffing “shambles”; missiles have been placed atop public housing; an Orwellian “brand police” is sweeping the city to ensure no businesses other than 11 official sponsors use words like “gold,” “silver,” “bronze” and even “London.”

Putting up with this misery is supposedly justified by the commercial windfall, tourist bonanza and enhanced prestige the Olympics create. One Tube station poster depicts a man who, having identified alternative transport routes, is jauntily reading a newspaper as he whizzes past an escalator logjammed with athletes: The headline is “London 2012 Games a huge success, save British economy.”

But as Wednesday’s woeful economic data confirmed Britain’s slide into a double-dip recession, it’s worth questioning whether hosting the Olympics is worth the $14.5 billion cost. In strict financial terms none ever actually make money. Some host cities have turned profits since Los Angeles was the first to do so in 1984, escaping the crippling public debt incurred by cities like Montreal and Vancouver. But, as a recent report by Goldman Sachs points out, “most countries … have treated the cost of constructing facilities and infrastructure, together with security and other ancillary costs, as being separate from the cost of running the Games themselves.”

In other words, it’s possible to declare an operating profit while incurring huge losses on major expenditures that may not be recovered for decades. Beijing trumpeted a $171 million profit made on operating costs, while neglecting to mention the $40 billion-dollar infrastructure buildup it made ahead of the 2008 Games. The $5 billion to $6 billion the London Olympics earn will not even begin to cover the cost of infrastructure and security alone. Even if it did, half of revenue is split among International Olympic Committee members.

Like many major sporting tournaments, the Olympic Games often create embarrassing white elephants. Beijing’s Bird’s Nest remains largely unused. The Olympic stadium in Montreal proved such a drag on city finances that the Quebec government imposed a $2 billion tobacco tax to help pay it off – and that took 30 years. Facilities often have no conceivable use beyond the two weeks of the Games, like Athens’ softball stadium and sailing marina. Since the world seems likely to remain in the economic doldrums for some time, chances of future facilities being purchased or converted are low: The London village already looks like a combination of a garish British seaside holiday resort and Pripyat, the Ukrainian ghost town abandoned after the Chernobyl disaster.

Does everyone have a price?


On Monday I went to Bloomingdales, the Gap and Starbucks but passed on a visit to Magnolia Bakery. Instead I  stopped by the St. Moritz bakery where you can order hot chocolate and sit by a video of a cozy winter  fire that overlooks the indoor ski slope and is just around the corner from the largest candy store in the world, which happens to face an aquarium that occupies an entire wall on one side of the world’s largest shopping malls. This by the way is opposite of what claims to be the world’s largest candystore whose mission statement is to make every day “happier’. Earlier, while exploring the watery depths of the bright Pink Atlantis Hotel (one of the white elephants of the property crash of 2007) I knew it was really the last kingdom because the fish swam around two cracked thrones and other kitschy stone artifacts.

Dubai is utterly overwhelming, the kind of  dystopia that blogger Evgeny Morozov sees in Huxley, a consumeristic paradise where mind-numbing shopping replaces real thought. Most of the I had no idea where I was except that my passport had been stamped Dubai  and many of the mall-going women were shrouded in black. After a few hours I sank into a state of ennuie. Given boatloads of oil money in the 1970s and the chance to build a whole new city, who on earth would decide to build a series of shopping malls?

It’s not like the developers didn’t have ambition, what with the architecture that demands superlatives — the gondolas, medieval stone houses and soaring illuminated sky scrapers and islands built in absurd never-before-seen configurations. But why not build a museum with, say, the most incredible collection in the world or a university with the finest research laboratories? With so much money why build this Disneyland? And what about the workers who make up most of the population?

Dubai can’t rely on friendly creditors

NeilUnmack.jpg– Neil Unmack is a Reuters columnist. The opinions expressed are his own –

Whether a “careful plan” or strategic blunder, Dubai’s request for a debt standstill for its Dubai World holding company has rattled lenders who were counting on government support.

It will now struggle to contain the fallout for other Dubai-owned entities.

In the case of Dubai World, banks and other creditors have the option of rejecting the standstill and trying to enforce security over the holding company’s assets — which include the QE2 cruise liner and port operator DP World. But the legal process will be drawn out and recovery values unpredictable.
International creditors may struggle to persuade local banks to reject the standstill.

Dubai must recover investor faith

BRITAIN/– Neil Unmack is a Reuters columnist. The opinions expressed are his own —

Some kind of debt restructuring was inevitable for Dubai’s myriad overleveraged borrowers, but the emirate’s decision not to support property developer Nakheel and seek a debt standstill for holding company Dubai World has devastated its standing in financial markets. Dubai’s future and ability to attract much-needed external capital will depend on how it handles the fallout.

It is rare to see a company announce plans to launch a bond on the same day it threatens creditors to one of its main businesses with potential default. That’s what Dubai just did, when it asked creditors of flagship holding company Dubai World and property developer Nakheel, owned by Dubai World, for a debt standstill until next May on the same day it announced plans to sell a bond for its electricity and water authority.

Dubai will pay for Abu Dhabi aid

Alexander Smith– Alexander Smith is a Reuters columnist. The opinions expressed are his own —

Abu Dhabi is not going to crow publicly over Dubai’s troubles. But it will use the opportunity to assert control over its upstart neighbor. The price for Abu Dhabi’s help could be prize assets like airline Emirates. Dubai has little choice but to do what it is told.

Dubai is unable to service the $80 billion debt it has amassed during its meteoric rise to wannabe global financial hub. Oil-rich Abu Dhabi holds the political and financial trump cards. Not only is it the capital of the United Arab Emirates, its ruler is head of the UAE’s seven desert states — squeezed between Saudi Arabia and Oman.