Coronavirus

Olympics Delay To Spark Marathon To Recoup Sunk Costs

Olympics Delay Means Race To Recoup Sunk Costs

A postponement is not a cancellation.

But when the time comes for the Olympics to be held, after a year’s delay, the bills tied to getting, and keeping, everything ready will have mounted. There will be plenty of sunk costs – and no guarantees that the coffers of various businesses and sponsors will be filled as readily as they might have been if all had gone according to plan.

One wonders what the world will look like in the summer of 2021, and whether the crowds will be there to cheer on the world’s athletes – or even whether the roster of nations sending those athletes will be the same as it was before COVID-19 took root.

Lots of unknowns are in the mix.

As reported by the Associated Press, when the postponement was announced, Toshiro Muto, who is the chief executive officer of the organizing committee, said that “of course there will be costs. As for how much, we have no figures with us right now. As for who will shoulder these costs? Needless to say, they are not going to be easy discussions, so we are not sure how long they will take.”

The aftershocks will become a bit more sharply defined once there are firm, rescheduled dates for the Olympics, which had originally been scheduled for July 24 through August 9 of this year and had been expected to host 11,000 athletes from 206 countries.

The most immediate effects will be felt by the host country, Japan, of course. Economists, reported AFP, have said that the country, already reeling from a declining economy, will see further economic pain. The total cost of the games was estimated at the end of last year to be around the equivalent of $12.6 billion USD. That price tag would be divvied up between Tokyo, the aforementioned organizing committee and the central government.

At the end of last year, a report from the country’s National Audit Board said that in addition to the official $12.6 billion tally, there is an additional $9.7 billion of Olympic-related costs that, as noted by The Associated Press, had not been included. Additionally, the city of Tokyo said it would spend as much as the equivalent of $7.4 billion USD on initiatives tied to the Olympics, which include advertising and tourism.

Billions For Sponsorships

Add in the roughly $3.3 billion reportedly spent by businesses for sponsorships (the roster of sponsors includes names like Coca-Cola and Airbnb), and it becomes apparent that the delay leaves a long road to travel before those costs are recouped. Companies can spend anywhere from $25 million to $50 million annually to sponsor the Olympics, according to reports.

The stadium and facilities have been built and the sponsorships have been sponsored, and yet the estimated 600,000 visitors will stay away – even though the Olympic tickets are non-refundable, with “force majeure” clauses absolving parties of liabilities tied to those tickets.

Depending on tourism to save the day (or at least the GDP) is a dicey strategy. Consumer spending – whether from visitors abroad or at home – is fickle. As reported in The Japan Times earlier in the month, economists with SMBC Nikko Securities estimated that a postponement would hit the GDP by roughly $6 billion over the near-term, but would boost the GDP when the games do in fact come to fruition.

The biggest impacts might be seen for leisure and tourism activities. As The Wall Street Journal reported, the country’s largest theme parks, Tokyo Disney Resort and Universal Studios Japan, had undertaken major expansions – the former with a $700 million makeover, the latter at $550 million. Those parks had been closed in the wake of the pandemic, and had planned to open within the next few weeks.

Comcast’s NBCUniversal unit signed a deal roughly six years ago for the U.S. media rights to the Olympics – The Wall Street Journal reported that the company had committed $1.3 billion in fees for the games, stretching through 2020. There is now a scheduling hole that will have to be fixed.

As for the athletes themselves, even with all this training, they don’t automatically qualify for the games next year, as CNBC reported. The athletes who don’t get to compete may lose sponsorship deals and the income that comes from participating in events.

The sprint toward the 2020 games is off, the marathon to 2021 has just begun, and many a hurdle (to revenues and returns on investment) lie along the path.

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