Tokyo Olympic Games: Financial Lessons For Future Global Sporting Events
Hosting the world’s largest sporting event is an ongoing chapter for Tokyo. Before the pandemic, Japan was expecting the Tokyo Olympics to yield 32 trillion yen in economic impact. With the cost growing and the revenue streams thinning, the total impact is still to be determined.
The pandemic’s onset and its global impact weren't fully realized in early 2020 and organisations and countries worldwide arguably underestimated the timeline and cost—Tokyo Olympics is no different.
Uncertainty and delays, understandably, bred public fear of the economic impact. Infrastructure and stadium renovations are just a couple of investments stuck in limbo as Japan continues to wait out the pandemic. There are lessons to be learned from the last year that the global public and the organizers of other major sporting events like the FIFA World Cup 2022 should remember.
Covid-19 Has and Will Continue to Impact Sporting Events
On the heels of the Summer Olympics finally set to begin after being delayed one year, officials have announced that foreign spectators will not be able to attend the games this summer. The organizing committee is prepared to refund about 600,000 Olympic tickets and 30,000 Paralympic tickets sold outside of Japan. This is a direct loss in revenue and an indirect loss in tourism revenue in many sectors of the Japanese economy.
Japan’s vaccination program, has been reported to be lagging behind many of its peers. Officials are scrambling to vaccinate the country to meet the Tokyo Olympics this summer but faces a daunting logistical challenge. With roughly a third of Japanese surveyed who do not trust the vaccinations, preparing the country to meet this goal is another challenge that organizers of future global sporting events need to meet. 2022 seems far away. However, if we continue to underestimate the timetable of Covid-19, future global sports organizers and investors risk over-exposure to loss.
High Risk May Come With Steep Losses
There is always risk in an investment, some may even feel more of a gamble than others. High risk tends to yield higher returns on investment (ROI). That being said it also comes with the risk of steep losses, particularly when something unexpected occurs. Interestingly a study published by Saïd Business School Working Papers, Oxford: University of Oxford, shows that host countries rarely profit from the Olympics. The study highlights that most Olympic Games from 1960 to 2012 experienced cost-overruns (original bid estimate vs final cost), with only a small minority turning a surplus.
The original bid for Tokyo Olympic Games was estimated to cost only 7.3 billion has roughly tripled to 22 billion since. Not only this, but with recent announcements that Japan will not allow foreign spectators this year, much-needed tourist dollars for local merchants will not arrive. Additionally, with the cost-overrun continuing to grow with delays and major changes to the event, the total loss is still yet to be determined. Compounding all of this together is that traditionally, the public will likely foot the bill through their tax dollars.
However, like many investments in your personal brokerage account, sometimes you have a high risk high ROI. Collectors predict sharp increases in official merchandise sales due to the collectability of “the year Covid-19 changed the Olympics.” That being said, the story of the Tokyo Olympics will likely not be remembered for merchandise sales, but infrastructure costs and bare stadiums.
Other Costs
Although digital advertising still is very much accessible to global markets, what certainly isn’t will be the 14% of revenue expected from ticket sales. Japan still intends to allow local ticket holders to attend. However, it is still unclear as to the logistics of allowing local spectators and the total capacity per event and venue. What is certain is that this bucket will generate significantly less income for Japan.
Many logistical changes, from the players to the fans in attendance will be different. The battleground for winning over public opinion is not an unfamiliar space surrounding the major sporting events. Still, new quarantine rules and public health requirements are hurdles organizers for the FIFA World Cup 2022 and others will need to add to the list of challenges.
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Stephen Lee is a Senior Research Analyst at ValueChampion, specializing in insurance. He holds a Bachelor of Arts degree in International Studies from the University of Washington, and his prior work experience include risk management and underwriting for professional liability and specialty insurance at Victor Insurance. Additionally, Stephen is a former US Peace Corps Volunteer in Myanmar (serving between 2018-2020), where he continues to provide business development consulting services to HR companies in Asia Pacific.