In today’s newsletter, we’ll talk about the cost of hosting the Olympics, and how Japan plans on doing it anyway amidst Coronavirus concerns.


The Story

After 10 years of planning and preparation, Japan is all set to host the Olympic Games in Tokyo this year. But even the best plans can go awry, and the spread of Coronavirus certainly raises some very real doubts on whether the games will go ahead as planned come July 2020. But before we get into that, let’s talk a little about what it takes to be an Olympics host.

As you can imagine, organizing an event as massive as the Olympics is an expensive affair. Countries must first evaluate, prepare and submit a bid with the International Olympic Committee (IOC). In fact, Japan spent about $150 million on its failed bid for the 2016 games and then spent half the amount for the 2020 games.

Once you are chosen as the host, you need to start making other preparations — to receive thousands of foreign tourists and athletes. That means building arenas, tracks, the Olympic Village for athletes to stay and a stadium large enough to conduct the opening and closing ceremonies. You might also need to upgrade the general infrastructure scene — such as airports, intercity transportation, hospitals, and hotels.

These costs could add up to as much as $50 billion, and many countries justify spending this kind of money by arguing that the facilities could be used in perpetuity. But that’s not always the case. For example, Beijing’s famous Bird’s Nest stadium cost $460 million to build and $10 million a year to maintain, and yet, it is mostly unused. So there’s that.

Also, hosting the games includes significant operational costs such as security and transportation. There’s also the opportunity cost- the question of “would things have turned out better if the funds were deployed in other priority areas?”

In spite of these expenses, hosting the Olympics is still a matter of pride for many countries. And there’s also this belief that the games could provide a significant boost to the economy in terms of job creation, tourism, international trade, and overall output.

According to an analysis by Goldman Sachs, Japan was expected to receive a $7.6 billion boost because of the games. But now, that number seems rather dubious because the Coronavirus threat is more real than ever, and being part of a densely packed stadium is not on anybody’s to-do list.

So what will Japan do now?

Option 1: Cancel or postpone the games.

A Japanese organizing committee member stated that games could theoretically be postponed until the end of 2020. However, last week the Japanese Government distanced itself from this comment and reiterated that the games would go ahead as scheduled.

Option 2: Let the games go on as planned, just without a live audience.

We know an Olympics without spectators sounds unthinkable, but it may be Japan’s best option. This way, athletes will still get a chance to showcase their skills and people will be able to watch the games from the comfort of their home.

Now the IOC won’t mind this. Because almost three-quarters of their revenues (from the last 4-year Olympic cycle) comes from media companies who spend billions of dollars buying rights to broadcast the games.

However, things won’t be as plush for the Japanese Government. They will have to refund $840 million they generated in ticket sales. This was money they could have used to cover the $12.5 Billion dollar budget they’ve set aside for the games. And all their infrastructure investment will have been for nought. The local economy will also be taking a hit. Over 80,000 hotel rooms were up and running in anticipation of the games, but if spectators aren’t allowed, I am not sure if these hotels will be brimming with people.

The absence of cheering crowds might also affect the success of the games themselves. A large audience can make any event seem bigger and more exciting. If you no longer have a crowd, will the games remain as popular?

Well, July is a few months away, so the organizers still have some time. And for all you know, the Coronavirus threat may die down by then. Don’t think so?

Okay fine.

Until then…

Share this Finshots on WhatsApp, Twitter, and LinkedIn