Britain's athletes may be golden, shame about the finances
By David Owen
I catch up with Andy Hunt on his return from Tampere, Finland.
The chief executive of the British Olympic Association (BOA) is understandably delighted with the performances of young athletes like gymnast Sam Oldham and sprinter Jennifer Batten at the European Youth Olympic Festival, which spurred Great Britain to a creditable third in the medals table.
With Team GB’s outstanding performance in Beijing still fresh in the memory and an unusually varied crop of medal prospects for the Winter Olympics in Vancouver, now less than 200 days away, Olympic sport in the UK looks in great shape.
If only one could say the same about the state of the BOA’s finances.
Recently produced accounts for 2008 show a pre-tax loss of over £1.5 million to add to the £1.3 million loss clocked up in 2007.
One consequence of this is that the body’s General reserve has been wiped out and now stands at minus £603,952 – although a £2 million Development and contingency reserve remains intact.
And the going may remain heavy for a good while yet.
Hunt (pictured) – a former managing director of Reliance Security Services who joined the BOA last November - says his objective is to “make sure that we’ll get into a breakeven position” in 2009 and that “we are absolutely on budget”.
The Winter and Youth Olympic year of 2010, meanwhile, will, he says, be “a difficult, tough financial year – and I’m making sure that the fixed cost-base is appropriately sized to deal with that challenge”.
Part of the problem in 2008 was an exceptional charge of close to £1 million, comprising £623,744 in “restructuring payments” to employees and £368,228 in professional and advisory costs.
Cash boost may stop red-lining
This year, by contrast, another substantial one-off item may provide a hefty boost to the association’s bottom-line.
The body is selling its headquarters in Wandsworth, South-West London and is preparing to move into leased accommodation located more centrally at 60 Charlotte Street.
The accounts reveal that the association “expects receipts of £3.6 million from the sale of owned freehold property within 12 months from the date these accounts are signed”.
The net book value of freehold property at December 31, 2008 is put at less than £650,000.
This suggests that a one-off gain of as much as £3 million may be recorded – a huge help in staunching the recent flood of red ink.
Hunt also reveals that the body has pre-sold an unspecified category of rights for the post London 2012 period.
This forward deal has been “a great help with 2009” and will be “a little help” in 2010, Hunt says.
When I suggest there is an element of spending tomorrow’s money today in such deals, Hunt retorts: “At the end of the day, I came into a situation where I needed to find additional revenue to make sure that the organisation was in…a robust financial position, and I’ve done that.”
He also hints that he has obtained a good price for the rights pre-sold.
“Put it like this,” he says, “It’s a deal we have done which is substantially better than has ever been achieved, I think, by any organisation for selling those particular rights.”
Hunt (pictured) and his team have been forced into such imaginative revenue-raising measures partly because commercial sponsorship rights for the period up to and including the London Games have been sold to the organising committee (LOCOG) under the so-called Joint Marketing Programme Agreement (JMPA).
As noted in the accounts, the association received, or was due £5.775 million from sponsors and LOCOG in respect of 2008 in connection with this JMPA.
“In the four-year period to 31 December 2008,” the accounts add, “£3,344,515 value-in-kind has been received directly from sponsors that otherwise would have been provided by LOCOG.”
All told, I understand, the association should receive something like £30 million in connection with the JMPA over the period between London winning the Games in 2005 and those Games actually taking place seven years later.
I think it is fair to say that the comparatively recently-arrived Hunt feels rather hemmed in by this arrangement:
"I know the levers to pull"
“I am horribly constrained,” he says. “I describe it as my hands are handcuffed behind my back. They are then tied with bailing twine over the top of my head. And then I’m bound in a straightjacket, put in a metal cage and it’s called the joint marketing programme agreement with LOCOG.
“It was done before I got there and it is horribly constraining.”
It is one of the reasons why he suggests the BOA’s situation is more difficult to address than more standard commercial turnarounds such as those he has handled in the past.
“I have gone into horrible situations before in my career.” He gives the example of a company losing £13 million when acquired. “Within 20 months we turned it around to a £13 million profit. I’ve been there before. I know what needs to be done. I know the levers that need to be pulled.
“This is just more difficult in that both you have got the constraint of the JMPA and also actually our remit is so broad. When you go into a turnaround corporate situation, actually you usually would say, ‘OK, what we are going to do is we are going to do a few things and we are going to do them incredibly well.’”
An example of his savoir faire in tight situations has come with the renegotiation of the BOA’s overdraft facility.
As he explains, he did this with the help of a near £2 million loan from LOCOG in December that was effectively an advance of a payment that would fall due around six months later.
“I arrived on November 17,” he says. “The overdraft facility hadn’t been renegotiated at that point in time…I wanted to be sure that we were in a good cash position so I was in a much stronger position to negotiate a good rate for the overdraft facility. The best way to do that is obviously to have cash in the bank.”
The association’s cash flow statement indicates that the loan more than offset a £1.39 million net cash outflow from operating activities in 2008, enabling it to report an increase in cash for the year of just over £200,000. This took net funds at the turn of the year to £388,201.
The accounts also note that, “subsequent to the balance sheet date, the Association has been granted a £4 million overdraft facility” secured on its investment portfolio.
Hunt’s arrival in succession to Simon Clegg (pictured) - who has become chief executive at Ipswich Town Football Club – has also seemingly coincided with a tendency for the BOA to become more frugal with the financial information it discloses.
In June 2008, I was able to download the association’s 2007 financial statements from the BOA website.
These revealed that Lord Moynihan, the BOA chairman, had loaned the body £250,000. (The loan was repaid last year.)
This year, when I requested a copy of the 2008 accounts ahead of my meeting with Hunt, I was told, “We only publish a summary”.
I consequently took steps to obtain the full document by other means, only to discover, as spelt out in Note 1, that the Association had presented the profit and loss account “in a more concise format”.
I was dismayed in particular to find that a detailed breakdown of income and expenditure from continuing operations contained in the 2007 document was not there in 2008.
This meant, for example, that whereas in 2007 it was simple to ascertain that Sir Clive Woodward’s Elite Performance Programme had accounted for expenditure of £667,753, it was, so far as I could see, impossible to extract a comparable figure for 2008.
When I ask Hunt what the missing 2008 number might be, I am told: “We won’t be publishing that number.”
Pressed to justify the move to what I argued was a more opaque style of reporting, Hunt said, first, that it was part of the “modernisation agenda” to change the style of reporting to “bring it into line with what most other private sector organisations of our size would expect to do”.
He also argued that the new approach helped to ensure that the BOA could deliver “the highest possible performance for our athletes and sports”.
How, I asked, does giving out less information help to improve performance?
“Because we can make investments which are fully supported by the executive board and the national Olympic committee which can significantly enhance our performance in the run-up to London which you wouldn’t necessarily want to disclose in the public domain.”
One thing the accounts do reveal is the wages and salaries bill, which – at more than £3.5 million in 2008 - has all but doubled from the 2006 level of £1.8 million.
Was that, I wondered, appropriate for a body in the BOA’s situation, even if the advance was attributable in part to the aforementioned “restructuring payments” to employees?
“There are one-off costs,” Hunt replies, “But more importantly in a Games year, a summer Games year, the costs significantly increase as you gear up to support a summer Games…You need more headcount to deliver pre- and in-the-Games environments.”
Would he, then, expect the association’s 2009 wage bill to be lower?
“I would…We are cutting our cloth appropriately all of the time. We are not in a Games year. We are at the beginning of a quad. And sadly we had to undertake some restructuring to make sure that we can deliver against the revenues that we have available.”
One area where costs are being reined in is the Olympic Medical Institute (pictured). “We are moving from Northwick Park and we are segmenting out some of the activity and combining it with the [English Institute of Sport],” Hunt says.
“Some of what we will deliver now will be combined with the core system provided by EIS. For example, our intensive rehabilitation unit, rather than being at Northwick Park, will now be at Bisham Abbey…and we will deliver that in partnership with EIS…
“As a result of that, we are moving our sports science and research unit to a different location.”
He says the new arrangement “saves money without any degradation of service whatsoever”. When I ask whether the money saved will be the OMI’s £110,000 rental cost at Northwick Park Hospital alluded to in the accounts, he replies: “We will save substantially more than that”.
He goes on: “Basically, I have been going through, undertaking a number of strategic reviews around the organisation to come up with better models. The BOA has done a fantastic job taking the athletes to the Games in the past. What it probably hasn’t done is looked internally and said, ‘OK, the world has moved on, the system has moved on, what are the things that we can uniquely bring to complement what else is provided out there and what do our governing bodies want from us?’ So our strategic reviews are very much looking at it with that lens. The OMI was a good example of that and we will continue to review different areas of the organisation, the way we provide services, to make sure that we are not duplicating effort.”
In spite of the present difficulties, Hunt evidently believes that the mid- to long-term outlook for the BOA is bright.
“I believe that historically, if you look at Sydney as a great example, there is the ability for the [National Olympic Committee] to build a financial nest-egg as a consequence of having hosted the Games. It’s going to be a tougher sponsorship environment, but, when the rights revert to us in 2013, we should be in a much, much stronger financial position than we have probably ever been in the history of the organisation.
“It’s going to be a tough period between now and 2012, but the mid-term prospects are very good and we are already working on what that means and what we need to do.”
David Owen is a specialist sports journalist who worked for 20 years for the Financial Times in the United States, Canada, France and the UK. He ended his FT career as sports editor after the 2006 World Cup and is now freelancing, including covering last year's Beijing Olympics