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Tokyo 2020 Olympic Games: Financial Impact of COVID-19

— June 19, 2020

According to the president of IOC, Thomas Bach “The Olympic Movement is facing an unprecedented challenge. The IOC has to postpone organized Olympic Games for the first time ever and has to help its stakeholders come through this global crisis.”

As of 2019, there were several reports that the Tokyo 2020 Olympic games and Paralympics will positively impact the Japanese economy. The government anticipated a long-term social (by showcasing their culture and traditions) and economic (increase in the country’s GDP) benefit. According to a report, it was projected that the Olympics would impact the Tokyo economy at about $186.14 billion and the Japanese economy with $297.82 billion.

However, the tournament was postponed to 2021 due to the global pandemic, coronavirus (COVID-19). Moreover, the tournament was originally, scheduled to be held between July 24 – August 9, 2020, and despite this financial forecast, the global pandemic (COVID-19) posed a serious economic and financial problem.

Two months to the tournament, international flights were canceled, and everyday normal life was altered. Invariably, it caused economic and financial crises for Japan. Virtually the price of everything in the market has increased, even commodities, currencies, and equities.

Financial impact on Tokyo, Japan, and investors

Following the modernization of the Olympic games in 1896, the Olympic games have aided the host city and nation economically. The host city, country, and investors expend a huge amount of money on different things including, but not limited to construction of sports venues, developing infrastructures, and administrative costs. While the investments are expected to yield positive returns, assumed debt and preliminary capital allocations are extensive. For comparative purposes, expenses are characterized in three primary ways:

Administrative costs: This cost is associated with hosting the tournament, and it is incurred by the organizing committee in the host country. This includes administrative, technological, medical, and ceremonial expenses.

Tournament Associated costs: This is the cost associated with building essential facilities, and it is incurred by the host country, host city, and investors. This includes accommodation of athletes and non-athletes’ sports officials and construction of competition venue.

Non-Tournament associated costs: this is cost associated with the country’s essential service. They are just upgraded to ensure the fluid movement of participants during the tournament. This includes, renovating roads, construction of rails and air facilities Considering the total cost incurred by all parties (host city, host nation, investors, and organizing committee), with the expectation that the competition will bring economic and financial returns for them. This will lead to financial loss to the party, especially for those that incur debt to finance the competition.

The financial impact on Japan

There are 15,000 athletes and other competitors participating in the 2020 Tokyo Olympics games in 33 different sporting activities in more than 40 sporting venues. This results in selling about 7.8 million tickets, out of which 4.5 million tickets have been sold already. This is a great loss to the sporting venue because they have to refund the money.

An illustration of the novel coronavirus, named Severe Acute Respiratory Syndrome coronavirus 2 (SARS-CoV-2), responsible for COVID-19. Image by CDC, via
An illustration of the novel coronavirus, named Severe Acute Respiratory Syndrome coronavirus 2 (SARS-CoV-2), responsible for COVID-19. Image by CDC, via

Moreover, the sporting venue administrator generates money from the sale of broadcasting rights as well as commercial sponsorship. It is a source of revenue not only for the sporting venue administrator but also for the organizing committee, which in turn affects the country’s economy. Following the postponement of the tournament, there are lots of legal, commercial, and contractual disputes that will arise. The contractual agreement might not envisage this type of condition, which will fuel a lot of legal issues.

More so, it is estimated that the organizers have spent over $10 billion on preparing for the Olympic games and that they might spend another $2 billion due to the postponement. Despite the economic forecast and the buzzing business atmosphere in Japan late last year, the COVID-19 outbreak changed the narrative, and this prompted a portentous view towards the Olympic Games in Tokyo.

For example, it was estimated that the tourism sector in Japan will lose about 0.2% of its GDP in the third quarter of 2020. According to Goldman Sachs (an investment bank), it is projected that the Japanese government will lose about 5.1 billion dollars in domestic consumption alone. It is forecasted that the key drivers for the loss would be a reduction in tourism, advertisement, and television revenue. More so, it is estimated that the government aggregate loss is about $6.32 billion due to the postponement.

The 2013 agreement

Unfortunately, Japan signed an agreement with the International Olympic Committee (IOC) in 2013 to bear all the costs in case there is any postponement. Furthermore, the term of the agreement states that if, there is an unforeseen hardship, such as this (global pandemic), Japan can make a request for “reasonable changes” in the existing arrangement. However, the IOC is “not obligated to consider, agree to, or otherwise accommodate any such changes.” Moreover, the responsibility for any financial challenges, following the postponement, will fall on Japan, Tokyo, organizing committee, and investors.

The financial impact on sponsors

The postponement of the Olympic Games and Paralympics would negatively affect the sponsorship industry, especially in Japan. Assessing the loss of income for sponsors in this situation is important. But we must also consider the importance and effect of future investment in the competition, to bring the sport back to life come 2021 when the competition is scheduled to hold several questions that need to be answered, concerning sponsoring the competition. First, for how long are the crises going to last? Is the governing body financially capable to support the tournament in case there is a low turnout? According to the report, it is estimated that the sponsors have lost over $1.8 billion for postponing the tournament.

The financial impact on the International Olympic Committee (IOC)

According to the president of IOC, Thomas Bach “The Olympic Movement is facing an unprecedented challenge. The IOC has to postpone organized Olympic Games for the first time ever and has to help its stakeholders come through this global crisis. This new situation will need all our solidarity, creativity, determination, and flexibility. We shall all need to make sacrifices and compromises. Extraordinary circumstances call for extraordinary measures. This situation requires every one of us to do our part, and this applies to all of us, including the IOC. With today’s financial plans, we are addressing these needs.” 

Furthermore, the IOC said it lost over 800 million dollars, resulting from the postponement of the Olympic games. That over 650 million dollars was spent on organizing the tournament, and it also donated $150 million as aid package to National Olympic Committee (NOC), International Federations, and IOC-recognized organizations. The organization previously announced that it has increased its solidarity budget to $10 million. From all this, it can be concluded that the global pandemic has a serious negative effect on the Olympic games financially.

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