Dire effects of a spectator-less 2021 Olympic Games on Japan’s Economy

Authors: Darren Goh Zong Xian and Cliff Ng Liang Cai

Region Head: Bharat (Dan) Gangwani

Editor: Sasthaa GB (Uday)

Abstract

Hosting the 2020 Olympic Games amid Covid-19 had caused Japan to face an economic conundrum, where Japan had to effectively decide whether the games should proceed without the presence of spectators. This research paper starts off with the economic benefits of hosting the Olympics, followed by the monetary cost of bidding and hosting the Olympics. We then discuss how the pandemic has stripped the spectators from the Olympics with the ensuing impacts on Japan’s economy. To end it off, we looked away from economics and considered between the risks of going ahead with the Olympics or cancelling the games entirely to prevent an the risk of an outbreak of the virus within the community of the national athletes all around the world which could possibly bring shame to the name of the land of the rising sun.

‌Introduction

The 2020 Tokyo Olympic Games, presumed to be the greatest Olympic Games in history of all time. However, the worsening effects of Covid-19 in 2020 had caused the games to come to a grinding halt, reaching an unprecedented decision by the International Olympics Committee (IOC) of postponing this international sporting event to the second half of 2021. Additionally, for the first time in the history of the Olympic Games, we could possibly witness the games commence without domestic, as well as overseas spectators (Ryall, 2021).

As we all know, hosting the Olympic Games can be expensive and comes at a sizable cost. With Japan expected to lose out on a substantial amount of revenue from ticket sales amid the epidemic, it seems like the Japan economy could suffer greater negative impacts with a spectator-less 2021 Tokyo Olympics. On this basis, will Japan find a way to turn this around and be able to reap the benefits of the Olympics games without fans in the stands?

Upsides As the Host

Before 1970, the hosts did not expect any returns from hosting the Olympic Games. In 1970, there was an acclivitous increase of athletes and sporting events, leading to a rise in costs and a gargantuan incurment of financial obligations to fund the games. The Olympic Games only started to become lucrative for host countries after the 1984 Los Angeles Summer Olympics. After relying mostly on its existing infrastructure, the 1984 games generated an operating income of $215 million (McBride, 2018). Ever since, nations are willing to spend millions of dollars bidding for the right to host the Olympic Games every four years, with many believing that it is worth the colossal cost. The intentions behind spending extravagantly for a sporting event is attributed to the positive impacts the Olympic Games can provide on the host country’s economy. Organizing world renowned events, such as the Olympics, encourages investment in transport and infrastructure, which would possibly bring in massive amounts of tourists and growth in job creations (Pettinger, 2018). The Beijing National Stadium, built just for the 2008 Beijing Olympics, had a $480 million price tag (‌Weissmann, 2012) while the Rio Olympics started a new subway line for $2.8 million (Davis, 2017). Furthermore, the 2016 Olympics brought in 1.17 million additional tourists to Rio, which contributed to 7% of Brazil’s 2016 GDP (Kalvapalle, 2016). The construction of new facilities brought about job creations locally, triggering multiplier effects that can be long-lived if the economic regeneration continues after the games (Pettinger, 2018). As a whole, nations and cities are certain that hosting the Olympic Games will give rise to long-term economic surplus and popularity amongst tourists.

Hefty Prices to Pay

Bidding Cost Alone

Many may think that the costs of the Olympics only come from hosting the games. However, not many are cognizant that cities do incur large costs as well during the initial bidding process. Firstly, cities must assess, fabricate and submit a bid to the IOC, which usually requires an investment of millions of dollars. The expense of preparation and foresight organization of the Olympic event, alongside the hiring of consultants and mandatory business travels for meetings will normally fall between $50 million and $100 million (Investopedia, 2021).

Specifically, nearly $150 million was disbursed by Tokyo for their failed 2016 Olympics Games bid, where the expenses for failed bids could not be recovered. Moreover, Tokyo spent as much as half of the 2016 bid for their successful 2020 Olympic Games bid (McBride, 2018). For greater emphasis on the extravagant cost of bidding alone, Toronto had decided to pull out of the candidature process as they were unable to afford the $60 million it would’ve minimally required for the 2024 Olympic bid (Hui, 2015).

Cost of hosting the Olympics

Since 1960, each one of the Winter and Summer Olympics had exceeded budgets by an average of 172 percent, where the percentages range from 2 to 720 percent, from $22 million to $21.9 billion. Spendings for the Beijing Summer Games had soared to over $45 billion in 2008, over $50 billion for the Sochi Winter Games, and $13 billion for the Pyeongchang Winter Games, where the primordial projected budget was $9 billion (Nielson et al., 2021). According to the Olympic Legacy (AGLO), the cost of the 2016 Rio Olympic Games had amplified to 43.3 billion reais ($8 billion), a 50 percent increase in costs from what was initially estimated at the beginning, 28.8 billion reais ($5.4 billion). In addition, infrastructure projects and operating overhead expenses in Rio had elevated to 26.6 billion reais ($4.9 billion) and 9.2 billion reais ($1.7 billion) respectively (Staff, 2017). The IOC also needs the host cities to have a minimum of 40,000 vacant hotel rooms ready. In the case for the 2016 Rio Olympic Games, the constructiotion of 15,000 new hotels was necessary. Train tracks, airports and roads had to be refurbished and developed, adding to the already heavy cost of being a host of this expensive event (McBride, 2018).

As for the 2020 Tokyo Olympic Games, before the postponement to 2021, the bidding committee projected that the Olympics would cost the Japan economy about $12.6 billion. However, after critically analyzing possible future outcomes and carefully considering the overpassed budgets of past Olympic events, Japan’s National Audit Board had measured that the estimated final price of the Olympics will surpass $22 billion. The projected closing price had run over the bid committee's opening projected total cost of just $7.3 billion, when Tokyo was selected as the host for the 2020 Olympics back in 2013 (Wade, 2019).

The greater economic cost for Japan with Olympics without fans

In a press release on 20 March 2021, organisers declared that the 2021 Tokyo Olympics would still continue without our beloved fans, even if the virus continues to exist (Imahashi, 2021). Nevertheless, going ahead without spectators would discount the economic benefits promised by the Olympics. The most obvious loss of revenue is ticketing sales, which is their third largest source of revenue. It is estimated that Japan would lose about $800 million alone on ticketing sales (Cagnassola, 2021). Additionally, the lack of spectators would bring about a negative outlook on the Japan economy, which will dampen the stimulus effects on household consumption expenditure by half (The Japan Times, 2021). Lastly, economic gains from promotional sporting and cultural events after the games is predicted to be reduced by 50 percent. Hence, going ahead with a spectator-less olympic is going to be very much less remunerative than what the Japanese government had expected back in 2013.

Dealing with Dilemmas

Unfortunately, it is unlikely that the Japan economy will be able to benefit from the 2021 Tokyo Olympics in any sort of way. Covid-19 had made hosting the Olympics a perilous game for Japan. On the face of it, Japan does not have much of a choice but to continue the event with or without spectators. Though the current standpoint for Japan appears to be a “lose-lose situation”, there is always a silver lining. Mercifully, there are potential economic upsides to hosting the Olympics without the presence of fans, such as revenue from selling broadcasting rights that could cushion the impact of going spectator-less and be able to recover some of the investments made.

On the balance, Japan might want to consider cancelling the games if the pandemic situation continues to aggravate, as a sudden outbreak of the virus within world renowned national athletes could put Japan in a bad light. A position that no country would ever wish to be in.

References

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