The Olympic flame’s departure from the J-Village National Training Center in Fukushima Prefecture on Thursday effectively kicked off the Tokyo Games, setting in motion what’s shaping up to be the most expensive Olympics ever and the first without overseas fans after they were barred from attending in response to the pandemic.
From the construction of state-of-the-art venues and unprecedented ticket sales to coveted broadcast rights, lucrative sponsorships and backdoor politics, years of commercialization — of the International Olympic Committee and of the world economy itself — have raised the stakes for the global sporting event to new heights, making each investment a greater gamble and every marketing opportunity that much more enticing.
But possible gains continue to outweigh glaring risks in large part due to momentum propelled by money and politics, but nurtured by the IOC.
That trend, experts say, might explain why the games haven’t — and likely won’t be — canceled.
The growing size and stature of the IOC, which exists only to organize and implement the Olympic Games, has made it politically risky and costly for all stakeholders to fold once they’ve placed their bets.
“People who run large organizations always want it to be larger and the way they do that is by generating money,” said Andrew Zimbalist, an economics professor at Smith College in Massachusetts. “There’s a bureaucratic imperative that drives this.”
The IOC has struggled in recent years to generate enthusiasm or interest among prospective host cities, Zimbalist said. Throughout much of the past 20 years, the host bidding process began sooner than in previous decades and a number of cities dropped out due to the growing financial commitment necessary to hold the games.
In 2019, following a spate of withdrawals, an IOC commission unanimously voted to remove a requirement for the host city to be elected seven years in advance. Under the changes, which could be used for the host selection process as early as 2030, IOC President Thomas Bach said it’s possible that one candidate could be proposed and selected by the executive board based on a recommendation from a newly formed Future Host Commission.
Critics at the time said the change could create a system in which host cities are sought after by the IOC, rather than selected from a group of voluntary candidates.
Diminishing interest in the early 2000s drove the IOC to pour more money into the games, which turned away potential host cities with less cash to spend and forced the IOC to narrow its bidding process in an escalating cycle that has made the games popular for viewers but costly.
Broadcast rights account for an increasingly large portion of the IOC’s budget and are its greatest chance to turn a profit.
American broadcaster NBC, which holds U.S. media rights to the Olympics through 2032, has a contract with the IOC that totals ¥477 billion that will be largely upheld even if spectators are restricted further since the global television audience won’t be affected.
For global companies, the Olympic and Paralympic Games are one of the biggest marketing opportunities in the world.
More commercialization means more resources and higher stakes, Zimbalist said, and will require ever larger expenses and payments when it comes to insurance.
While lucrative contracts might protect the IOC’s bottom line, Tokyo organizers are betting that ticket sales, domestic sponsorships and future marketing opportunities will make up for the enormous cost of hosting the Olympics.
Winning the bid to host the Summer Games cost Japan exorbitant amounts of time and political capital and much of the money spent on staffing, infrastructure and construction will never be recouped directly.
In 2013, when the IOC awarded Tokyo the rights to host the games, Japan estimated the endeavor would cost upward of ¥734 billion.
That number has grown dramatically with each new iteration of the budget.
According to the fifth and latest version of the budget released by organizers in December, the Tokyo Games will cost ¥1.64 trillion, a 22% jump from the previous version.
Over half of the budget comes from public taxpayer money.
Budget overruns have made the Tokyo Games the most expensive on record, according to a report released by the University of Oxford in September last year, two months before the fifth budget was announced.
A 2019 report by the National Audit Board said the games will cost more than ¥3 trillion, pointing to more than ¥1 trillion in related funding that wasn’t listed by the central or Tokyo governments.
Postponing the Tokyo Games cost an additional ¥300 billion, as was reflected in the fifth budget released in November, most of which will be shouldered by the Tokyo Metropolitan Government and the central government.
Almost a third of additional expenditures will fund coronavirus countermeasures, including polymerase chain reaction (PCR) tests for athletes and staff, stricter transportation and lodging methods, as well as hand sanitizer stations, thermometers, fans and oxygen monitors installed at venues to prevent the virus from spreading during events.
More financial pain
Stakeholders, including Japan and the IOC, are trying to shield themselves from the added costs incurred by postponing the games and subsequent virus countermeasures, but recent events and new research suggest the financial returns may not be as generous as organizers had originally hoped. The Tokyo Organising Committee announced earlier this month that spectators from abroad will be barred from attending the Tokyo Games.
Not only will that lead to a loss of ticket revenue, the local economy won’t see benefits from tourism.
But that will be more painful for Japan than it will be for the IOC.
The Tokyo Organising Committee said Saturday it will refund nearly 630,000 tickets to the Olympic and Paralympic Games sold to customers overseas.
Spectators from abroad were expected to account for somewhere between 10% to 20% of the ¥90 billion in total ticket sales, according to organizers.
However, in addition to lost ticket sales, barring visitors will lead to a ¥70 billion shortfall on purchases that would have been made at restaurants, hotels and tourism destinations during their stay, according to a report published last week by the Daiwa Institute of Research.
Media reports say organizers are considering plans to limit domestic spectators at competitive events to 50%. If that happens, the report said, losses from that could reach ¥130 billion.
For Japan, the reasons to cancel seem to outnumber the reasons to move forward.
But the Tokyo Games could serve as a marketing investment and a long-term lifeline for a slumping economy struggling under the pandemic.
Experts point out that not all of that money is simply disappearing.
“While the financial losses in ticket sales can’t be recouped, money spent on virus countermeasures and other expenses brought on by postponement will most likely flow back into the economy,” said Tomoyuki Ota, chief research economist and head of the Economic Research Department at the Mizuho Research Institute.
Security, transportation, infrastructure and the hiring of staff — not to mention a handful of brand new venues built for the Tokyo Games — have all cost organizers huge sums paid mostly to private companies.
That money, though a large portion came from taxpayers, could flow back into the private sector.
In 2017, the Tokyo Metropolitan Government estimated the Tokyo Games would have a “legacy impact” of ¥13.1 trillion on the Japanese economy between 2013 and 2030.
But the positive impact of the games will be weaker, Ota said.
“There’s no doubt about that,” he said. “The real question is by how much.”
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