Olympic Game Changer

Posted by on Friday, April 3, 2020 in Sports Econ Blog.

Interview with Slate / PDFIOC Letter / COVID-19 in Japan / BBC / NYTUpShot Nippon.com /

An Olympics postponement is unprecedented. What is your gut reaction to this? Can Tokyo pull it off? Could costs threaten to spiral out of control?

The spreading Coronaviral pandemic is an Olympic game-changer, and all of the available options are costly in the short-run. Postponement of the Olympics may be unprecedented but war-time cancellations in 1916, 1940, and 1944 and the unilateral U.S. boycott of the Moscow Olympics in 1980 are not.

My gut reaction and data-driven analyses ultimately lead to the same inescapable conclusion that the exponentially growing Coronaviral crisis is a clear, present and future danger not only to the participating athletes but to all people in all nations. It is equally clear that the Tokyo 2020 (or 2021) Olympic Games are the perfect incubator for COVID-19 and the now-postponed Tokyo Games should definitely not “go on.” 

But compared to a cancellation, is it postponement feasible? Is it more beneficial to all parties involved, especially given the uncertainty that this pandemic will be under wraps by next summeR?

Academic economists unanimously agree that the net impact of mega-events such as the Olympics are zero-sum at best and often negative-sum on the hosting economies. The self-promotion promises of positive sum indirect economic spin-offs, spread effects and multiplier effects are myopic political schemes that are being played out in a multi-dimensional economic sphere.

Most economic gains are concentrated in hospitality sectors politically advantageous to the public sector decision makers and most of the asymmetric losses are passed on to the general tax-payers. There is some evidence that hosting the Olympics might work in relatively advanced economies with a pre-existing infrastructure (LA in 1980), but this is clearly not the case in developing economies (Rio in 2016).

On the positive cost-benefit side, Tokyo 2020 falls in the former category.  The negative-sum problem in advanced economies like Japan is that positive public spending impact of the Games spins off negative congestion that “crowds out” pre-existing domestic spending in the private sector.

The traditional social-equity problem in Olympic economics is that short-sighted politicians are making superficial easy money decisions that adversely affect long-term economic costs that come due well after the politicians are long gone.

The current coronaviral crisis adds yet another complicating dimension to the n-dimensional political-economic decision matrix. The political dimension is shallow, linear and myopic. The economic dimension is longer term, deeper and much more complex. The bio-ecological dimension encompasses and supercedes both, and this is the dimension of the matrix where COVID-19 resides.

Each dimension has its own pace and rhythm analogous to the relative importance in speed and stamina in the sprint (100m, 200m, and 400m), middle-distance (800m and 1500m) and long-distance (3000m, 5000m and marathon) track and field events in the Olympic Games.

In the eco-dimensional marathon, both political sprint decisions and economic middle-distance outcomes are largely irrelevant because COVID-19 dictates the ultimate rules for speed, pace and rhythm. COVID-19 is a game changer, and it is time to cancel the games.

What stakeholder group would you say suffers (or benefits) the most from this postponement, and how so? The Japanese economy? The IOC? Athletes?

The Games’ organizers issued an updated budget in December showing $12.6 billion in costs, but a recent audit reveals Japan could end up spending more than $26 billion on the 2020 Summer Olympics and Paralympics—twice the updated amount. 

NBCUniversal is on the hook for media rights fee of $1.45 billion for Tokyo 2020 ($4.38 billion deal for the 4 games 2014-20). NBC’s $1.23 billion rights fee for Rio 2016 alone was 21.5% of the IOC’s total revenue in the quadrennial. 

In 2014 NBC Universal agreed to lock in an average of $1.292 billion ($7.75 billion for 6 games) for the six Olympic Games from 2022 to 2032. By comparison, NBC’s TV deal with the NFL in the Fall averages $1.05 billion annually through 2022.

NBC has sold more than $1.25 billion in advertising (90 percent of the available space), and was sending a crew of more than 2,000 people to the 2020 Tokyo Olympics. Any loss in income is probably insured by a force majeure clause that would apply to the cancellation from COVID-19 pandemic.

According to Sports Business Daily, in the four-year Olympic budgeting period that ended with Rio 2016, 61% of all IOC revenue came in the final year, $3.52 billion out of $5.66 billion. Of that sum, 72% came from global broadcast rights fees.

The IOC has accumulated an emergency fund of $1 billion, to help the IOC and the international sports federations that depend on the IOC. Potential loss to the IOC is probably also insured against a force majeure like COVID-19.

Before the decision to postpone the Games was made on 25 March, the International Olympic Committee’s president Thomas Bach defiantly said, “Cancellation would not solve any problem and would help nobody.”

In the economic sphere, Japan will be impacted more directly by COVID-19 than from either the postponement or cancellation of the Tokyo 2020 Olympic Games. Once coronavirus-defiant Japanese Prime Minister Shinzo Abe recently told Japanese Parliament, “If it’s difficult to proceed in its complete form, then we must think about the athletes first and consider postponing.”

In the myopic short-run political dimension, Prime Minister Abe might be the biggest loser (next scheduled election in October 2021), but he will be the biggest long-term winner against COVID-19 if Abe really “thinks about the athletes” and cancels the Tokyo 2020 Olympic Games.

What do you see as the major logistical and economic challenges of a postponement, and what should Tokyo and the IOC be doing to overcome them?

There are too many complex moving parts for a one-year postponement. The uncertain future of the Tokyo 2020 Games is out of the IOC’s control and depends on the unpredictable course on the coronavirus and the guidelines of the World Health Organization (WHO). If the Games are postponed the COVID-19 uncertainty remains, because the second coronaviral wave in the winter of 2020-21 could be possibly as lethal as the first.

In this time of superficial political schism and deepening biological crisis, COVID-19 ironically unites us all regardless of nationality. Tokyo was originally chosen as the 2020 Olympics host city as a “safe pair of hands.” If this is true, then it is time to be safe and cancel the Tokyo 2020 Olympic Games. These Olympic Games are not too big to fail. Live to fight another day — Citius, Altius, Fortius.


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