The Olympics is about the spirit of humanity, but can the world afford it?
The world was shattered when the Japanese Prime Minister announced that the 2020 Olympic Games would be postponed to 2021 due to the COVID-19 pandemic.
If we track back, since the modern Olympics started in 1896, the games have had to be postponed only on three occasions – 1916, 1940 and 1944 and that was due to World War I and World War II. In my view no one ever dreamt that a coronavirus would bring the world to a halt and the Olympics would have to be postponed.
Even though the world was in turmoil due to COVID-19, the reason for the initial outcry when the announcement was made on the postponement of the 2020 Olympic Games was because the Olympics is not about sports. It’s actually about remarkable moments on the spirit of humanity that we would miss. Let me share one such moment – Mo Farah from Somalia.
Let me share one of the greatest spirits of humanity that the world witnessed at the 2016 London Olympics. It was on a Somalian-born athlete named Mo Farah. He migrated to UK when he was just eight years old to join his father. He could not speak a word of English when he came to the UK. His middle school coach Alan Natskin helped him buy his first pair of spikes and taught him English. Many rebuked him for being Muslim and being black.
At the London Games when he won the Gold medal in the 5000m and the 10,000m events, with tears in his eyes he said: “I have proved I am a worthy to be a citizen of England,” and he went on to run a lap of honour draped in the British Flag. This is what makes the Olympics the most celebrated event.
It’s not the grand opening or closing ceremonies that people remember but the spirit of mankind to perform when everyone says you cannot. This is what COVID-19 took away from the world. But I guess this is the challenge in the ‘new normal’.
Can we afford the Olympics?
If we analyse some of the recent Olympic Games in terms of costs, the 2004 Athens Olympics had an original budget of $ 4.8 billion. Finally the bill stacked up to a colossal $ 12.5 billion which shaved off two percentage points of EU GDP. Some say that the Olympics sunk Europe.
Detailed analysis brought about a thought that the games did not add value to brand Greece other than being cited as a case study around the world on how not to organise an Olympiad.
If we take the Beijing Olympics of 2008, the country ran up a staggering bill of $ 40 billion. When the analysis was done it was not a cost to the Chinese Government but an investment towards building the required infrastructure on the ‘urbanisation drive’ that was required for the 750 million Chinese who had come to live in Beijing from rural China. Hence the 40 billion dollar investment was part of the economic agenda rather than just a cost to staging the Olympics.
It is been said that the Olympics was used by China to tell the world that it is a free country devoid of communism and to fast track the development agenda of Beijing. The P&L of the Olympics was in the red as a standalone. But the Chinese economy was able to absorb the economic shock.
Cost of Japanese Olympics?
The estimated total cost of the 2020 Tokyo Games, according to figures released by organisers last year, was estimated to be around £ 10.3 billion. This included the estimated £ 22 million in additional costs for moving the marathon and walking events from Tokyo to Sapporo to avoid the summer heat.
There has already been criticism in some quarters that Japan’s spending on the Games has diverted money from reconstruction efforts following the 2011 earthquake, tsunami and nuclear disaster. We saw a similar situation on China where a broader goal was sketched out by the Government but I guess we will have to use the data as it is. Some speculate that the real cost can be anywhere between $ 12.6 b and $ 25.2 b.
When an economy is growing this kind of economic shock can be absorbed but when an economy is hitting a recession at -5.2% as per the latest estimates from IMF, it means that Japan will sink in staging the Olympic Games. The only good news is that the projection for 2021 is +3% GDP growth but we will have to see if the cost of $ 15 billion on average has been factored into this calculations.
Let’s accept it, Japan was not doing well economically even before the COVID-19 pandemic. The economy was registering a 0.7% GDP growth. The latest estimates predict a 0.7% contraction in Japan’s GDP in 2020, as the world reels from the impact of coronavirus. But, economists also warn that contraction could be as high as 1.5% due to cancellation of the Olympics.
The latest data from IMF says that Japan will de grow to -5.2% which means that many people will be out of jobs and companies will go bankrupt like what we saw last week in the US where the top retail chain JC Penney filed for bankruptcy.
For tourism alone the hit will be as high as £ 1.8 b, which points to the question whether the Government of Japan can afford the cost of $ 15 billion for the extravaganza of staging the Olympics for the world. So far the only country that made a profit from the Olympics is Australia in the year 2000 where before the start of the games all costs were covered. I guess the business model of pre, during and post needs careful analysis so that Japan can pick a few tips when staging the 2021 Olympic Games.
Apparently there is a study that has been done in Japan which show that in the long-term post the Games there will be a profit of $ 225 billion which is why the Japanese PM was reluctant to pull the plug on the games. However, this data is not in the public domain and so far no country has reported any such positive figures post staging the Olympics games, not even China post the Beijing Olympics where the famous Bird’s Nest stadium was converted into a university after the games. A study available in the public domain reveals that the loss to the Government of Japan will be as high as £ 11 billion due to the cancellation of the Tokyo Olympics due to COVID-19. The number on the loss to Japanese private firms is estimated at £ 6 billion which tells is the challenge the world will have to face in the Olympics to come in Paris – 2024 and Los Angeles in 2028.
Olympics 2024 and 2028?
The latest update is that global growth in 2020 to fall to -3% GDP due to the pandemic whilst Japan will be hitting a -5.2% GDP growth whilst the country hosting the 2024 Olympic Games, Paris, is expected to de grow by -7.2% which means it is a severe recession.
In fact the impact will be higher than the Great Depression. I guess it will be interesting to see how the Government of France is going to take the bill of $ 15-20 billion in the backdrop of the unemployment, bankruptcy and high poverty situation.
The 2028 Olympics is finalised for Los Angeles. As per the latest estimates from IMF the US economy is said to de grow by -5.9% due to the pandemic. With almost 90,000 people already dead of COVID-19 and over 1.5 million people infected, it will be interesting to see what the reaction of the US Government will be given that UN employment numbers have already touched 20 million people.
The issue is, can a country afford a $ 20 billion investment to celebrate humanity or should the Olympics be remodelled?
One option that the Government of Japan should reconsider is if the estimated costs of around $12.6 billion can be reduced with a remodelled Olympics that a typical post COVID-19 environment can shoulder.
This will include a dedicated location for a certain Olympics to be hosted for the next two Olympics, so that the overall hosting costs can be lower and the moneys invested can be recouped during a eight-year time period. For instance the location of the marathon; maybe the Olympics Tennis Championship can be hosted in Wimbledon, etc.
An alternate business model that a typical country that is staging the Olympics can pursue is where for a one-year time period, a country can be aggressively promoted to attract a tourism segment that will like to experience the venues that the 2021 Olympics will showcase to the world. This means an aggressive global marketing campaign that will need to make sure that the $ 15 billion target is covered via a ‘Pre Olympic traveller’ like what Australia did in the Sydney 2000 Games.
Thereafter, Japan ups its game and attracts a record set of visitors ‘During the Olympic Games’ so that it can make a profit from staging the games. The target group will be essentially ‘the people who wants to savour the Olympic atmosphere’. Finally, you have another segment of travellers who want to visit memorable locations where history was made and this segment can be attracted post the Olympic Games.
Economists at SMBC Nikko Securities had stated that postponing the Games would reduce the Japanese GDP in 2020 by some $ 6 billion. But, they added, the same amount would be gained when the Games were eventually held, effectively cancelling out the losses.
Fall out of industries
Given the -5.2% GDP growth that is been projected for the Japanese economy to be hit, the key industries that will feel the impact are tourism and media.
The Japanese tourism industry is set to suffer as last year, Japan hosted 31.9 million foreign visitors, who spent £ 33.7 billion. This number is projected at -60% for this year as we speak. Hence we can estimate the number of hotel chains that will be in the red and the number of hospitality staff that will be out of work.
Unless a bailout package is extended this segment of business will be at crossroads on how to prepare for the 2021 games. This is provided that there is no second wave of COVID-19 globally and if a vaccine comes into play by January 2021.
What many people forget is that even once the vaccine is developed and launched the production and logistical challenge to get the product to six billion people around the world will be a nightmare. Even a top company like Coca-Cola which makes a product available at arm’s reach will find it hard to shoulder.
It is reported that the 2020 Olympics have already generated record domestic sponsorship revenues of more than £ 2.3 billion which will not materialise now as the games are cancelled which will compound the -5.2% GDP performance of Japan in 2020. The good news is that by 2021 the Japanese economy is said to grow by +3% GDP as per the latest estimate by IMF. But speculation is that the recovery will be U shaped rather than V shaped.
Athletes – Sad story
The pressure for the Olympics to be remodelled is strongest due to the following reason. Even though staging an Olympics costs about $ 10 billion to $ 40 billion during the last couple of games, sadly most athletes did not make any money. They actually do not make a lot of money off their sports outside of the Games either.
Fifty percent of track athletes who ranked in the top 10 in the US in their events earned less than $ 15,000 annually from the sport. COVID-19 will force the world to reshape and remodel and I guess it will be an opportunity for the Olympics to remodel too.
(The writer has a black belt in karate. The thoughts are strictly his personal views and have no links to the organisations he serves.)