IOC chief operating officer: ‘Finance doesn’t work in isolation’by
The International Olympic Committee’s new chief operating officer Lana Haddad talks transparency, good governance and managing mind-boggling numbers.
With the Olympic Games generating billions of dollars in revenues from broadcasters and top-tier sponsors, the International Olympic Committee’s (IOC) leaders have their work cut out to manage its finances.
For any Olympiad, the numbers are mind-boggling. The IOC’s revenue for the 2013 to 2016 cycle, covering the Sochi 2014 Winter Olympics and Rio 2016 Games, was a staggering $5.7bn.
Dive into the IOC’s 2018 annual report, released in June, and the massive income and expenditure that the Olympic governing body’s finance chiefs deal with through the four-year cycle, when a summer and winter Games are staged, is writ large.
Littered with eyebrow-raising figures, the 172-page report shows the IOC, led by president Thomas Bach, is in rude financial health. The Olympic body generated income of $2.2bn from the 2018 Pyeongchang Winter Olympics, including $1.4bn from broadcasting rights and $550m from global sponsors, as it recorded a profit of $165.1mn.
The IOC’s new chief operating officer, Lana Haddad, told AccountingWEB the organisation’s financial situation is “very strong and healthy” in the run-up to this summer’s Tokyo Olympics.
“In terms of revenue, we have long-term contracts, which helps the sustainability of the organisation,” she said, citing the fact that some Olympic sponsors are signed up to 2028 and 2032. “That’s a good position to be in as well as having a number of Games already known for the future.”
After Tokyo 2020 come the 2022 Beijing Winter Games and Olympics in Paris, Milan-Cortina and Los Angeles in 2024, 2026 and 2028.
The sports organisation makes much of the fact that it redistributes 90% of revenue to support the staging of the Olympics and promote the global development of sport. The remaining 10% is used for IOC activities to develop sport and cover its operational costs.
From the Rio 2016 Olympics, the IOC distributed $540m to its 206 National Olympic Committees and Olympic Solidarity commission, which funds initiatives for NOCs and athletes. The federations of international sports which participate in the Games, such as World Athletics and FIFA, received a similar amount. In 2018 alone, the IOC distributed $1.9bn.
So how do Haddad and her team manage such big numbers?
The IOC runs a tight ship, with a variety of commissions – finance, audit, planning and budget committees – collaborating to ensure the Olympic body delivers on its pledges and complies with financial laws.
The finance commission’s remit is to advise president Bach, the executive board and IOC membership on financial matters “to safeguard continuity and strengthen the transparency and good governance of the IOC and the Olympic Movement”.
Haddad, who was promoted from chief finance officer in an October restructuring, said: “The key thing for us is to make sure that every dollar that comes in and goes out is in line with the 90% distribution, which gets externally audited over four years.
“Having those governance bodies in place within the IOC is important in terms of managing the finances.”
A high bar for governance
Haddad also pointed to the internationally recognised “three lines of defence” model the IOC uses for risk management as an additional layer of governance.
“For example, an internal auditor audits me as well as the external auditor [PwC]. They are able to see that there are processes and systems and regulations in place on how to deal with the revenue and expenditure side,” said Haddad
These checks equip the IOC to handle a variety of financial risks, including the effects of changes in foreign currency exchange rates and interest rates.
According to the IOC’s annual report, it uses derivative financial instruments such as foreign currency options, interest rate swaps, swaptions and forward contracts “to cover certain exposures”.
The IOC’s challenges are a far cry from Procter & Gamble International, where Haddad spent 19 years in senior finance roles before joining the IOC in 2014 to become its chief financial officer. She arrived at a pivotal moment when the IOC’s Agenda 2020 reforms – the strategic roadmap for the future of the Olympic Movement – were taking shape. A total of 40 recommendations, many designed to increase governance and transparency, emerged from the shake-up in December 2014 and have since been implemented.
Haddad was a key figure in restructuring and strengthening the IOC’s financial control systems in line with International Financial Reporting Standards.
Lana Haddad: Image courtesy of the IOC
“I was also part of producing a very detailed annual report that may be a step-change from the past,” she said. “The report now not only includes financial statements and a summary of how finances work but has much more information about the structure of the IOC and how members’ remuneration is done.”
Another initiative included hiring PwC to run an ongoing programme to check that the IOC’s cash handouts to National Olympic Committees and Olympic Solidarity schemes are spent in the right way.
“I was privileged to be part of the journey of reform,” Haddad added. “It’s not every day you get to do this as a CFO. Finance doesn’t work in isolation, they work with the business. You can’t accomplish this [good governance] without the help of all the other departments and working closely with them.”
The reforms process was rebooted in February 2018 with the launch of ‘New Norm’ practices, 118 measures governing Games planning and delivery, from candidature to legacy. It has led to host cities reducing venue sizes, rethinking transport, optimising existing infrastructure, delivering cost efficiencies for organising committees.
For Tokyo 2020, savings of $2.2bn were made during the venue master plan review and another $2.1bn will be shaved off through measures such as shortening venue rental periods and optimising test event and overlay plans.
International best practice
Haddad says the not-for-profit IOC operates differently from a corporate company like P&G – but with international best practices beating at its heart: “The IOC is proud to say it competes in the same category in terms of governance as any other international organisation listed on the Stock Exchange.”
Now housed in a new headquarters in Lausanne, the IOC’s organisational revamp which put Haddad as COO has, she claims, made the sports body more effective.
“I felt since October there is better communication, interaction and collaboration... there is a better flow of management of the day to day operations”.
Asked about the financial challenges facing the IOC, she said the introduction of reform recommendations had addressed “many of the areas and things that can be improved”.
From January 2015, an operational excellence programme, which includes accounting systems and processes, forecasting and budget planning, has boosted the organization’s governance.
Some of the biggest changes have happened since the IOC opened its new $146mn headquarters in June. Its 600 employees, previously spread around four different offices in Lausanne, are now working under one roof for the first time in many years, allowing the IOC to make major long-term savings and increase working efficiency and energy conservation.
With a footprint of 18,000 square meters, Olympic House is mainly powered by renewable energy, recycling water from Lake Geneva and the use of solar panels, which help reduce energy consumption by around 35%.
Asked how the HQ had helped optimise costs, Haddad told AccountingWEB that it’s cheaper having a mortgage on one property than paying rent on several offices, while the renewable energy made the building more sustainable and reduced bills.
Crucially, savings of time, money and petrol have been made by holding meetings at Olympic House rather than officials crisscrossing Lausanne several times a day to meet up with colleagues and Games stakeholders, she added.
Planning the Games
Forecasting and budget planning revolves around the four-year Olympic cycle, made easier with revenues from broadcasters and sponsors mostly already secured. But reviews take place on a monthly and annual basis to “make corrective actions and shift priorities”, in line with best practice financial forecasting, Haddad said.
“We can only recognise the [total] revenues of the Games after the Games have been done. Every two years we have a loss and then a gain. But over a four-year period, it is normalised.”
The IOC uses an SAP financial management system to integrate the business of its departments. Haddad said the centralised system is better for the IOC’s governance, offering oversight across the organization to aid internal controls: “It is more efficient to have that kind of system versus multiple systems that may not connect together and may produce errors or mismatches.”
And Haddad is satisfied with the IOC’s deployment of finance and accounting applications to comply with Swiss regulations and IFRS. “It is a lot of work for the IOC but we are happy with that because we are assured that we are fulfilling the governance standards, which is important for reputational purposes,” she says, adding that the IOC also uses enterprise risk management standards to keep a tight rein on its finances.
She insists there are no gaps the IOC needs to fill to improve its financial management practices – “it doesn’t mean we sleep on our laurels, we always continue to improve… that is why we do the operational excellence programme”. But Haddad says it is always keeping a close watch on new IFRS regulations and looks to apply new accounting standards as soon as it can to stay ahead of the game.
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Mark Bisson is a sports business reporter and editor with over 20 years experience. He currently writes about Premier League and Championship clubs for football finance website, Off The Pitch.
An Olympic correspondent for more than 13 years, he has written for many UK and international sports business publications.
Mark is a former...