Home Asia News Countdown to Tokyo Olympics brings cost worries

Countdown to Tokyo Olympics brings cost worries

New national stadium for Japan Olympics in Tokyo 2020
New national stadium for Japan Olympics in Tokyo 2020 (source: f11photo/ shutterstock.com)

The Tokyo Olympics 2020, that was forced into a delay for a year because of the coronavirus pandemic, is finally being held under tight conditions and quarantine rules. In an unprecedented challenge, Japan and Olympics officials are coming up with contingency plans for the biggest international event this year, which is scheduled from July 23 to August 8.

To prevent the spread of coronavirus driven by the dangerous delta variant, Japan last week decided to bar spectators from venues in Tokyo and three neighboring prefectures – which makes up the majority of Olympic venues.

The step came after the government issued a fourth state of emergency in Tokyo and other parts of the country. “The world needs to see that Japan can stage a safe Olympics,” Japanese Prime Minister Yoshihide Suga told sports officials ahead of the Tokyo Games.

Fans from abroad were already banned from all Olympic venues earlier this year. After this decision, the IMF expected the impact on Japan’s economy to be minor. “We’ve done some calculations and we concluded that it is not going to harm the Japanese recovery,” the IMF chief Kristalina Georgieva said as Japan has “a very diversified and vibrant economy”.

Rising cost concerns

However, banning also local fans from most Olympic venues is weighing heavily on costs.

According to a study by Katsuhiro Miyamoto, a professor of theoretical economics at Kansai University, “closed doors” would result in a $3.5 billion loss in spending related directly to the Olympics. Economic gains from promotional sporting and cultural events would be reduced by half, according to the estimates.

Takeshi Niinami, CEO of Japanese beverage company Suntory, told CNN Business in an exclusive interview that the economic losses will be enormous. He estimates that Japanese businesses could have enjoyed a roughly 10% hike in sales had fans been allowed.

Sponsors are running out of opportunities to recoup their Olympic investments. The 68 domestic corporate sponsors have raised over $3 bn for Tokyo 2020 – whether this will pay off without spectators is questionable. Suntory decided against a sponsorship, saying it was “too expensive”.

Top sponsors like Toyota have announced pulling out all Olympic TV ads amid mixed public sentiment for the event being held amidst the pandemic.

Who is paying the bills?

Ticket revenues were once estimated at $818 m. As of late January, around 4.48 million tickets were sold for the Tokyo Olympics and another 970,000 for the Paralympics. Fans who already purchased tickets for now closed-to-public venues can apply for reimbursement.

In a recent report, Fitch Ratings said that Japan’s decision to bar spectators from the Tokyo Olympics is likely to cost the global reinsurance sector $300–400 m due to payouts for ticket and hospitality refunds. As per Fitch estimates, the total insurance cover for the Olympics will be about $2.5 bn, comprising $1.4 bn taken out by the IOC and the Tokyo Organising Committee, $ 800 m by broadcasters, and $300 m by other parties, such as sports teams, sponsors and hospitality.

Costs for the Olympics were already exploding with the postponement accounced in 2020. When Japan applied to host the games, total cost was estimated at about $6.7 billion. The latest budget revision in December 2020 ballooned $15.4 bn – although government audits suggest it is much higher at least $25 bn.

Except for $6.7 bn (through a privately funded operating budget), Japanese government entities are responsible for all of the costs. Now the Tokyo and the central government are expected to hold negotiations, over the fact that who will foot the bill. As per the contract, Tokyo is responsible to make up the shortfall if the organizing committee runs out of funds.

With the ban on spectators, live-streaming will now play an important role. According to IOC President Thomas Bach, staging the games will secure more than $3 bn in revenue from broadcasters worldwide. IOC, which generates 91% of its income from selling broadcast rights and sponsorships, is contributing $1.7 bn to Tokyo organizers of the Olympics and the Paralympics.