Leading the list of potentially most damaging exogenous risks is the prospect of a prolonged recession in the USA. Given its predominant position in the global economy, a USA recession would probably spawn or reflect a worldwide recession. A significant USA recession would directly reduce tourism volumes and expenditures and, depending on its timing and duration, could severely limit the ability of VW2010 to meet its revenue targets through broadcast rights and sponsorships. The effect of recession on Games revenue contracts would be moderated and possibly eliminated if the recession struck early in the sponsorship or broadcast licence bidding process and the bidders anticipated an economic upturn before the Games. Once sponsorship and licence contracts are in place, the revenue to VW2010 is assured and not subject to impact of recession, except through a corporate default.

Within the USA, a recession on the west coast would have a more dramatic impact on British Columbia's tourism prospects than a recession centred east of the Rocky Mountains. Historically, about 75% of all USA visitors to British Columbia originate in the western states with fully 50% of the total USA volume coming from Washington State and California. A substantial downturn in the fortunes of major employers such as Boeing or Microsoft would have similar material consequences for the province.

Open skies aviation policy has already increased international access to British Columbia. The expansion of USA and international air connections, and the expanding role of the Internet in travel planning and booking, provide the travel industry with new tools to ameliorate the impact of a west coast recession by focusing their marketing reach farther afield.

While the current global economic recession will prove to be a blessing in disguise for VW2010 if it sets the stage for a period of sustained economic growth into the next decade, it is also a reminder that business cycles have not been eliminated. Despite the best-coordinated efforts of the governments of the advanced industrial economies and international agencies such as the OECD, they have yet to succeed in maintaining a smooth or constant growth path. Arguably, nations have demonstrated greater success in digging out of a recession than in stopping the slide into recession. This would suggest the odds of a deep, multi-year recession during our 20-year window are not great.

Movement in the rate of exchange between the Canadian dollar and other currencies, particularly the USA dollar, has implications for international visitor volumes to British Columbia, the cost of the Games and the value of Olympic revenues from foreign sources. At greatest risk from exchange rate movement are the foreign-sourced sponsorship and broadcast revenues and foreign-sourced goods and services. Most of these arrangements are negotiated in USA dollars.

Revenue payments flow over a period of several years spanning the Games. Any strengthening in the Canadian dollar during the USA dollar denominated revenue collection years will be reflected in lower Games revenue and reduced economic benefit. Conversely, a weakening in the dollar will generate a windfall gain. The reverse is true for payments to external suppliers of goods and services. There is some opportunity to manage this risk through hedging, once contract values have been established.

While the impact of currency fluctuations is obvious for payments denominated in foreign currency, the impact on tourism volumes is much less clear. Following is a précis of a discussion of the role of exchange rates in travel decisions, found in Appendix B at the end of this paper.

A "favourable exchange rate" is often cited in the media as a reason for international tourism. Accordingly, one might expect a weakening Canadian dollar to be a persistent incentive for tourism travel to Canada for Americans and other internationals with strong currencies relative to Canada. The historical data does not support this conclusion.

Why is this so? The simple answer is that the exchange rate is not a good measure of the relative cost of living for a tourist at the foreign destination versus at home or at alternative destinations. The exchange rate says nothing about the purchasing power of that local currency in the local economy, either now or previously. Nor does it say anything about the relative purchasing power of the purchaser's own currency in this or any other local economy versus what it would buy at home.

The motivation for international travel is clearly grounded in a complex mix of economic and psychological factors. The psychological factors include, among many others, awareness of a destination (the marketer's job), the desire to see different places, to experience different things and the perception of good value for money. Analysis of the relative purchasing power of currencies, as reflected in the OECD's Purchasing Power Parity Index, suggests economic motivation to travel is more firmly rooted in an individual's sense of economic worth or well being than in the relative cost of a vacation, or the exchange rate. In other words, the unemployment rate in the potential visitors own country is likely to be a better indicator of travel than the exchange rate.

The conclusion one may draw from this is that British Columbia will continue to attract international visitors in spite of a significant strengthening of the Canadian dollar or weakening of the travelers' real purchasing power provided two core conditions are met: (1) the visitor lives in a vigorous domestic economy that provides a sense of economic well being and hence the willingness to spend on travel; and, (2) the visitor perceives good value for money in British Columbia compared to competing destinations.

By far the largest single source of revenue that  VW2010 will rely on to pay the bills is international broadcast licence fees negotiated for the Games. Neither VW2010 nor the Province can control this element as the IOC conducts the negotiations with the broadcast community directly. Under the amended IOC revenue splitting formula that is in effect for the 2010 Games, 49% of the broadcast rights fees collected by the IOC will flow to the host city, down from 60% for the 2000 Games and 50% for the 2002 Winter Games.

Two events may affect this revenue. Current IOC broadcast and sponsorship agreements expire with the 2008 Games. Hence, the 2010 Games will be the first to be held under the new contracts. Those contracts are yet to be negotiated. Past practice suggests the broadcast contracts for the next round of Games after 2008 will be signed sometime between 2002 and 2006 at which point the value of the contract to VW2010 will be established.

The second event is the continuing success of the broadcasters, particularly NBC, to translate their cost of licence fees into revenues and profits from the sale of advertising spots for the winter and summer Games through 2008. This revenue potential is a function of both consumer interest in the Games (i.e. TV audience size), and the consumer profile of the TV audience (i.e. the right age, gender, interest and income to buy the products advertised). If the audience appeal continues to grow through the decade, and the trends in sport tourism suggest it will, broadcast contracts and sponsorship values will continue to grow. Currently, the North American broadcast licence fee contributes nearly 64% of the total broadcast fees collected by the IOC. While the North American advertising market for the Olympics may be nearing saturation, the European and Asian markets have much greater expansion potential as the newly democratized economies evolve and media globalisation reaches increasingly into the eastern European and Asian economies. This model initially assumes the broadcast contract value in 2010 will stay level in real terms with that for the 2002 Games in Salt Lake. That would amount to about CDA$590 million in current dollars flowing to the VW2010 Organising Committee. A more detailed discussion of media values is presented in section VII.

4. Interruption of the Games

Several Olympic Summer Games, including Munich in 1972, Montreal in 1976, and Moscow in 1980, and to a lesser degree Atlanta in 1996 were targeted for acts of terrorism, boycott or sabotage. Fortunately, the Winter Olympic Games have been spared thus far. The historically more dispersed, multi-venue, smaller scale nature of the winter Games compared to summer Games, and the much smaller number of countries engaged in winter sports makes the winter Games a less likely target for such events. Perversely, a boycott or a terrorist act initiated during the Games might have much less negative economic impact than an announcement made years in advance of the Games of an intent to commit such an act during the Games. The latter event might discourage sponsors and advertisers before the key broadcast contracts are made and would also discourage international visitors and residents alike from attending during the Games.

The IOC has responded to the events of September 11 in the United States with a much more intensive security plan for the 2002 Winter Games in Salt Lake.

As recent events have demonstrated, significant acts of terror can have profound effects on the tourism and travel industry. Airlines around the world have grounded aircraft for want of passengers in the wake of widespread fear of further terrorist acts. Does this signal a permanent change in international travel? Not if history is a useful indicator.

Terrorism claiming the lives of innocent bystanders is not a new phenomenon. While the attack on New York was unprecedented in its scale, there has been a continuous stream of acts of terrorism, over many decades, involving every mode of transport and a wide variety of weapons. The anecdotal evidence indicates that communities affected by the violence initially pull back from the perceived danger. Those same communities, however, either take sufficient comfort in enhanced public security measures or accept that the world is a more dangerous place and simply get on with their lives. The shoppers return to the district that was bombed and the fliers return to the skies that were threatened. In the case of the Gulf War, it reportedly took 15 months for airline traffic to return to pre-war levels, but return it did.

In a worst-case scenario, a large portion of the North American population permanently abandons air transport. Perversely, that could foster a major boost for tourism in continental North America as Canadians and Americans who historically have taken flying vacations abroad in great numbers revert to domestic tourism patterns based on perceived relative safety of ground transportation. "Rubber tire" tourism has long been a mainstay of the tourism industry in British Columbia.

Will consumers, the ticket buyers and the media audience, lose interest in sports events like the Olympic Games as the population ages? In recent years, increasing academic research has focused on an industry that has been labeled sport tourism. This industry has been defined as including those who travel to participate in sports, those who travel to watch sports and those who travel to visit sports-related facilities. Recent studies by George Washington University suggest sport tourism in the United States is growing at an annual rate of 8% - 10%.⁵ Running against that trend, the National Football League (the "NFL"), major league baseball and the National Basketball Association (the "NBA") have been struggling with declining attendance for several years⁶. What risk does this represent for the 2010 Games?

Physical attendance at the winter Games is not large relative to other sports events. The Salt Lake 2002 group, for example expects daily attendance of about 70,000 spectators, the majority of whom will be in-state residents. College football games in the United States routinely draw crowds that size, though not for 15 consecutive days.

On the other hand, the Olympics are without question the biggest media event in the world. This intense international interest is fueled by a variety of psychological factors which are largely unique to the Olympics - national pride, international rivalry (particularly in men's and women's hockey), the enduring quest to witness the stellar Olympic performance and the opportunity to witness exciting, unusual (ski flying?) or the latest demonstration sports that do not otherwise receive much media coverage. These interests remain with individuals long beyond the typical age bracket for active participation in sport. Accordingly, the risk of the audience falling away appears to be insignificant and more likely to expand than contract as the general trend toward global media networks and alliances broadens global exposure to the Games.

While the weather is an important factor in the quality of the Games experience, affecting everything from transportation to events schedules, the Calgary Winter Olympic Games in 1988 demonstrated that even the impact of Chinooks winds can be overcome by outstanding hospitality. The Nagano'98 Winter Games events were interrupted by an earthquake, too much snow, and too much rain at different points in the schedule: events were delayed but the Games were successful by all accounts. While Whistler lost its place on the international alpine race circuit due to variable snow conditions in December, the Games are held in February - an historically very reliable snow period for Whistler.

After the broadcast licence fee, the next largest commercial revenue source is the joint marketing program with the Canadian Olympic Association. Given the small number of head office operations in British Columbia for national corporations, most of that sponsorship revenue will have to be captured outside the province.