Olympic hurdles


Friday, 29 July 2016 by Joe Rowley

From battered state finances and recession, to alleged corruption and the Zika virus, Brazil’s preparations for the Olympic Games have gone from bad to worse since the country won the bid to host them seven years ago. But despite the overwhelming challenges, Joe Rowley finds out why some lawyers are optimistic about Rio de Janeiro’s ability to deliver

With just days to go until the Olympics Games kick off in Rio de Janeiro, organisers are putting the finishing touches to venues and events that will underpin the world’s biggest sporting event. But for Rio’s mayor, who has become the most visible figurehead for the country’s Olympic preparations, it is not the opening ceremony but the closing celebration a little over two weeks’ later that is occupying his thoughts. “The only thing that I have planned is my entry into the stadium at the end,” said Eduardo Paes in an interview with newspaper O Globo in July. “I’m mentally prepared to be booed, it doesn’t bother me. Nothing in the whole world could stop me from delivering the flag on behalf of my city.”

Since accepting the Olympic flag on behalf of Rio after the Olympic Games in 2012, the charismatic and energetic mayor (who is rumoured to have presidential ambitions) has faced a barrage of criticism on multiple fronts, ranging from the safety of sporting venues and cutbacks to legacy projects, to the city’s failure to stem rising violence and combat the spread of the Zika virus, a mosquito-borne virus linked to birth defects. “A big discussion now is how much money the government is spending on projects, such as the metro and transportation lines and their quality,” says Demarest Advogados partner Tatiana Campello. “Even though there is a significant change in the city of Rio de Janeiro, the population is more concerned about the amount of money expended and prior determined budget.”

Protests have become a regular fixture in the Cidade Maravilhosa. Police officers, firefighters and teachers are among those to take to the streets in protest at late payment of salaries and severe budget cuts, which have led to shortages of everything from ammunition to toilet paper. Police officers claim they may not be able to guarantee the safety of the 500,000 spectators and 45,000 participants expected to attend the Games. In mid-July, with 15 days until the opening ceremony, concerns over security were heightened. Police confirmed they had arrested 10 suspected Islamic State sympathisers accused of planning an act of terrorism during the Games, although Brazil’s justice minister was quick to dismiss the suspects as “absolutely amateur and unprepared”. The arrests came on the heels of reports of rising crime rates in Rio, where several athletes were recently robbed at gunpoint and mutilated body parts were washed up on Copacabana beach, just metres from the Olympic volleyball stadium.

Besides security worries, health concerns have also dogged preparations for the Games. The Zika virus, which has been linked to the birth defect microcephaly, has already led several athletes, including six of the world’s top 10 golfers, to announce they will not attend the Games. Rio de Janeiro is Brazil’s worst-affected state, with more than 26,000 suspected cases of Zika. In May, 150 scientists, doctors and medical experts signed an open letter urging the Olympics be suspended or moved for ethical reasons; a request that was denied by the World Health Organization. Meanwhile, high levels of pollutants (including untreated sewage) in Guanabara Bay has resulted in around 8 per cent of competing sailors reporting illness following test events; a fact that is not going to be helped by the discovery of a drug-resistant super bacteria, with the potential to cause meningitis and infections, in waters around the bay.

Worsening the situation is a potent mix of political, economic and social factors, which are affecting the country as a whole. Plunging commodity prices, coupled with a sprawling anti-corruption investigation into state-oil company Petrobras (which has led to the arrests of dozens of serving politicians and CEOs) and the impeachment of President Dilma Rousseff, have shaken investor confidence and helped plunge Brazil into its deepest recession since the 1930s. Unemployment has risen to over 11 per cent. The state of Rio de Janeiro, which contributes two-thirds of Brazil’s total oil output, has been particularly hard hit by the low global oil price. In May, a US$5.6 billion shortfall in the state budget led the government to miss a payment to an international creditor and impose swingeing cuts to public services.

A final humiliation came in June, when Rio’s interim governor, Francisco Dornelles, declared a “state of public calamity” to secure an additional 2.9 billion reais (US$862 million) in federal funds and avoid a “total collapse” in public services, including security and health services during the Games. Popular support for the Olympics among Rio’s residents has fallen from a high of over 80 per cent to 49 per cent, according to a recent poll.

“Rio is in the eye of the storm…and the crisis that we are living through in Brazil has taken the shine off the Games and created some big problems,” says Azevedo Sette Advogados partner Frederico Bopp Dieterich. “There are reports in the press that are quite sensationalist, but if you try take an objective point of view, some of the Olympic commitments were completed quite late and we have been facing crucial political and economic problems in Brazil for the past year and a half, which have had an impact.”

Not So Stories
For legal practitioners who advised clients in the World Cup in 2014, memories are still fresh of frenzied last minute preparations and the concerns voiced by the media and FIFA, world football’s governing body. Former FIFA President Sepp Blatter described Brazil’s preparations as the worst that he could recall when he surveyed progress with five months to go. However, despite predictions to the contrary, preparations for both the World Cup in 2014 and Confederations Cup that preceded it were ultimately finished on time and viewed as successes, albeit over budget.

While no one would dispute the scale of the challenges Brazil is facing hosting South America’s first Olympic Games, several factors lean towards a more a favourable interpretation of the country’s preparedness. Since the International Olympic Committee (IOC) issued a damning report back in April 2014 describing Rio’s preparations as the worst it had seen at that stage, the city has undergone a seemingly miraculous turnaround. At the time of going to press, organisers said more than 99 per cent of construction work, including all of the sporting venues had been completed (although some have raised concerns about the quality of the athletes’ accommodation). The biggest remaining infrastructure worry, a metro line extension that will transport passengers from Ipanema to the Olympic Park, is also due to be completed before the Games, albeit just four days before the opening ceremony and with a restricted service. “Taking into account the challenges and difficulties, which increased significantly with the political and economic crisis that Brazil is facing, it looks like the Local Organising Committee (OCOG) and the Municipality of Rio are doing a very good job,” opines BMA – Barbosa, Müssnich, Aragão managing partner Amir Bocayuva.

Lawyers argue that an appraisal of the country’s preparations for the Olympic Games must distinguish between the public protests and construction delays (which are charateristic of complex infrastructure projects involving vast sums of public money) on the one hand, from weaknesses in the systems underpinning the organisation of the events on the other. “There is an important debate in our country that being a developing country, Brazil has several social investment priorities and hosting these big events would be against the public interest,” notes Levy & Salomão Advogados partner Simone Lahorgue. “We need to separate two issues. One is the public view of hosting huge events like the Olympics and the World Cup. During the World Cup 2014…there were some large, public demonstrations, but even in developed countries you will find people against spending money on these events … A second issue is the legal framework that was approved in Brazil for the Olympic Games.”

Making the most of existing frameworks
In a show of efficiency, the General Law of the Olympics and Paralympics passed by Congress in May draws heavily on similar legislation passed for the World Cup. Luiz Ryff, general counsel for the presidency of OCOG who has been working with the Olympic Committee for more than 16 years explains: “We based the legislation on earlier legislation for the World Cup because it was easier,” he says. “Many of the procedures were the same and we wanted the legislative house to be comfortable in terms of legislation. It was far easier for them to approve something that was already approved for the World Cup.”

It also builds on the Olympic Act passed shortly after Brazil won its bid in 2009, which introduced special provisions necessary to carry out of the Olympic Games, including protections of the official Olympic symbols and measures to curb ambush marketing. “The rules are very similar to the ones they created in London,” says Machado, Meyer, Sendacz e Opice Advogados partner Ivandro Sanchez, who heads the firm’s Rio de Janeiro office.

The Olympic Law introduced several temporary measures for the Games, such as introducing commercial restricted areas in which only official sponsors could advertise and provisions for broadcasting rights, tickets sales, and civil and criminal sanctions. “They are extremely restrictive in relation to what a non-sponsor may do, but always there is a grey area in certain situations about what may be distinguished as ambush marketing, for example, and what may be allowed to be done by companies that are not official sponsors,” says Sanchez.

While broadly similar to the World Cup legislation, Brazil’s Olympic Law differs in several aspects. Most controversially, unlike the World Cup law, which strictly defined the areas of the various cities that would become commercial restricted zones, the Olympics Law allows the municipality to decide which areas of the city should be designated. Several NGOs, including Amnesty International, have criticised the general law, claiming it restricts freedom of expression and peaceful assembly in areas of the host city during the Games; a concern that has been noted by some in the legal community. “The special law presents an open concept when defining the restricted areas for the IOC’s partners…[which] may hamper the local business community because an area may be established that is larger than what is needed to preserve the Olympic partners’ rights,” says Lahorgue. “But the fact is, accepting these special rules is part of the package for hosting these type of events. If we want to have the event in the city, we have to comply with them.”

Tightening the purse strings
Seeking to avoid a repeat of the World Cup, where poor planning and preparation made the event the most expensive in the tournament’s history, OCOG built cost-cutting into the legal framework for the planning, implementation and delivery of the venues and transportation infrastructure.
Around 60 per cent of the total Olympic budget derives from private sources, while commercial partnerships account for more than 40 per cent of Olympic revenues. (By contrast, London 2012 relied on public funds for more than 80 per cent of its financing).

Public-private partnerships (PPPs) have been used to finance key infrastructure, such as the Rio Light Rail (VLT) and Olympic Park. As well as lowering the burden on the public finances, it has also has also helped modernise Brazil’s legislative frameworks at municipal and state level. For the VLT project, for example, Dieterich, who advised the concessionaire, says that because the project was the first to receive federal financing for the Olympic Games, his team was required to assist with setting up several legal and financing structures. “The Ministry of Cities was used to disbursing funds under a regular works contract…they didn’t have any sort of procedures for disbursing under a PPP scheme, so we had to construct all of that,” he explains.

Sponsorship has provided another important source of financing. LATAM Airlines is a sponsor providing services ranging from transporting members of OCOG during the preparation period and competitions of the Olympic and Paralympic Games, to transporting the Olympic torch on its 20,000 kilometre journey around Brazil. Panasonic, another official sponsor, has provided unprecedented financial help in running the opening and closing ceremonies. European IT company Atos has supported the last eight Olympic Games. “This activity is very valuable to us, not only because of the exposure, but also the quality of service that we provide,” explains José María Sánchez Palomino, Atos’s head of legal for major events and the Olympics. “We believe that the company will earn enough visibility in the Brazilian market with the Games in 2016 and this may have an impact on the company’s business in the country.”

Several rounds of cost-cutting, ranging from culling temporary structures at the football and rowing venues, to eliminating flat screen televisions from the athletes’ bedrooms, have been implemented to try and reduce overspend. While a recent study by Oxford University estimates the final cost of the Olympics could exceed its original budget by US$1.6 billion, or 51 per cent, the same report also notes that even accounting for the overspend, the total budget for Rio de Janeiro would still fall below the US$5.2 billion average cost of hosting the Games and cost far less than the London Olympics, which ranks as one of the most expensive.

“The Olympic committee is very knowledgeable and did a wonderful job in the beginning when they won the bid for the Olympic Games in Brazil,” says TozziniFreire Advogados partner Fernando Cinci. “They know what they are doing and they did a good job in securing the investment to get the best Games possible and if there is success, it is going to be largely due to them.”

More distance left to run
A heavy focus on cutting costs may have its advantages in terms of boosting efficiency and reducing public expenditure, but it also carries risks. Perhaps the loudest criticism levelled at the organisers regards the legacy of the Games and whether Mayor Eduardo Paes has kept his pledge to spend five dollars on improving conditions in the city for every dollar spent on sporting venues. While Sanchez notes that projects such as the metro line extension “will be a revolution in terms of mobility in Rio” and bring wide-ranging benefits to the city’s residents, other legacy projects have already fallen by the wayside. Perhaps the biggest loser has been the Olympic organisers’ environmental commitments. A pledge to reduce the flow of pollutants into Guanabara Bay by 80 per cent was dropped at the start of the year owing to a lack of funding and political will. Many of Rio’s neighbourhoods are still not connected to sewerage systems.

Some have also raised questions about the future of the sporting facilities constructed for the Games. Murray Advogados partner Alberto Murray, who resigned from Brazil’s Olympic Committee in 2008 in protest at the city’s decision to bid for the Games, says the money could have been better spent encouraging participation at the grassroots level in schools, rather than building state-of-the-art facilities for elite sports played by few Brazilians. “We should be investing the money in sports in public schools, because only 12 per cent of public schools have good sports facilities,” he says. “After the Games, we will have three Olympic cycling venues and it is not really a sport that is practiced in Brazil. We have started building the house from the roof down.”

In the longer term, several outstanding issues still need to be resolved. Evidence of corruption related to the bidding for and construction of Olympics venues, which was revealed as a result of the investigation into Petrobras and its contractors, still need to be fully investigated. On the financing front, Rio’s state and municipal finances remain in dire need of repair and reform, while some argue that granting Rio de Janeiro funds for a fiscal crisis under a state of public calamity (a measure usually reserved for natural disasters) raises several potentially thorny legal questions about what criteria should apply. ?Three other states are understood to be considering applying for funds. “There is a lot of discussion and several states are trying to do something similar, but it is not exactly the same situation as Rio,” notes Demarest partner Paulo Dantas. “Rio used the momentum of the Olympics to get as much as they can, but if they create a precedent, other states can request the same.”

Ultimately, while these questions are likely to keep lawyers busy long after the Olympic Games are over, Mundie e Advogados partner Elinor Cotait says playing host to the ‘Greatest Show on Earth’ means also accepting the negative aspects that come with it. “Once you are committed to host the Olympic Games, you have no other choice but to do whatever it takes,” she says. “The question that remains, and what we hope, is that the games are a success and everything is put in place. Only after the event will we know the price the Brazilian people paid for the Olympics and its legacy.”

Protecting the players
With the price tag for becoming an official sponsor of the Olympic Games reaching many millions of dollars, companies are acutely sensitive to the risk to their brand of ambush marketing and expect the IOC and OCOG to aggressively enforce their rights under the sponsorship agreement. “Ambush marketing is one of the key concerns for Atos in relation with the activation of the marketing rights,” says Daniel Bulnes, general counsel for Latin America of Atos, a European IT company that is a regular sponsor of the Games. “To prevent it, Atos has developed in collaboration and with the support of the International Olympic Committee a programme to identify any kind of ambush marketing and prevent this type of behaviour.”

Brazil’s Olympic Law establishes strict penalties ranging from three months to one year in prison for ambush marketing either by association, when a non-sponsor attempts to link its brand to the event, or intrusion, when a non-sponsor displays their branding at sites reserved for official sponsors. For Veirano Advogados partner Valdir Rocha, the steps organisers are willing to take to protect the exclusive advertising rights of their sponsors were on display during the torch relay criss-crossing Brazil ahead of the Games. “In some small towns, particularly in the northeast of Brazil, which is the least developed area of Brazil, when the organisers arrived before the torch, they found a lot of ambush marketing from small businesses, even though they don’t even know what ambush marketing is,” he explains. “In some towns, the banners were put up by well-known local merchants and when they refused to take them down, they diverted the torch around the town, or through a neighbouring town.”

While the rule may be strict, Rocha says there is tentative evidence of the Olympic committee softening its stance, such as by licensing a small factory in Brazil to produce less expensive products carrying the Olympic Games logos. “This is a smart idea, because official products tend to be expensive, so this stops factories producing counterfeit merchandise,” he adds.

If previous events are any indication, it is unlikely organisers will use the full extent of their powers. Between the Federations Cup and the World Cup, for example, FIFA pursued hundreds of IP infringement and ambush marketing cases on behalf of sponsors, including launching police raids against counterfeit goods, but few resulted in court cases. Indeed, many expect the number during the Olympics to be even smaller, as Brazil’s deepening recession means fewer companies have the budget to spend on advertising campaigns (or to contest ambush marketing claims brought by sponsors). “My experience is that it depends on the level of sensitivity of the official sponsor,” says Sanchez. “The IOC reacts to the claims it receives from official sponsors, who pay the bill at the end of the day, so if you are a small business that is not causing any commercial problems to the official sponsor and the official sponsor does not make an announcement to the IOC, the IOC is unlikely to take any action against you.”

Londres, 29 de julho de 2016. News, http://latinlawyer.com/features/article/50010/olympic-hurdles/