Coronavirus threatens Japan’s 2020 Olympics
Japan's Olympics minister said on Tuesday that Tokyo's contract with the IOC allows it to postpone the games until the end of the year.
Passengers wear protective face masks as they arrive from Shenzhen to Hong Kong at Lo Wu MTR station, hours before the closing of the Lo Wu border crossing in Hong Kong, on February 3, 2020, amid an outbreak of a deadly SARS-like virus which began in the Chinese city of Wuhan. / AFP / Anthony WALLACE
Japanese officials are becoming increasingly concerned that the country’s dream of hosting the Tokyo 2020 Olympics could be dealt a fatal blow due to the spread of the new coronavirus, jolting organisers, sponsors and media firms who have spent billions of dollars in the runup to the event.
International Olympic Committee (IOC) President Thomas Bach said late last month that the IOC was “fully committed” to holding the 24 July to 9 August games on schedule, and a senior Japanese official told Reuters there was no “Plan B”.
But Japan’s Olympics minister said on Tuesday that Tokyo’s contract with the IOC allows it to postpone the games until the end of the year.
“The contract calls for the games to be held within 2020. That could be interpreted as allowing a postponement,” Seiko Hashimoto said in response to a legislator’s question in Parliament.
Under the hosting agreement, the right to cancel the Olympics belongs to the IOC.
Hashimoto said Japan’s government and Tokyo were still committed to hosting the sporting event, due to begin on July 24.
“We are doing all we can to ensure that the games go ahead as planned,” she told Parliament.
Any halt to the event would be costly. These are the financial and economic factors at risk.
Organisers said in December the games were expected to cost some 1.35 trillion yen ($12.35 billion), but that figure did not include an estimated three billion yen ($27.8 million) for moving the marathon and walking events from Tokyo to the northern city of Sapporo to avoid the summer heat.
Tokyo 2020’s budget is split between the organising committee and local and national governments; the IOC contributed more than $800 million.
Organisers say the national government will have paid some 150 billion yen ($1.39 billion) – mainly for funding a new national stadium.
Japan’s Board of Audit, however, put government spending between the bid in 2013 and 2018 at 1.06 trillion yen ($9.81 billion), a discrepancy organisers attributed to differences in the definition of “games-related” spending.
Sponsors, insurers and firms in media and advertising have also committed billions to the games.
The Tokyo 2020 Olympics have generated record domestic sponsorship revenues of more than $3 billion.
That does not include partnerships with Japanese companies Toyota, Bridgestone and Panasonic, and others such as South Korea’s Samsung, who through an Olympic sponsors programme, have separate deals with the IOC worth hundreds of millions of dollars.
Meanwhile, global insurers face a hefty bill if the coronavirus forces the cancellation of the games, with estimates of the cost of insuring the showpiece running into billions of dollars.
The IOC takes out about $800 million of protection for each Summer Olympics, which covers most of the roughly $1 billion investment it makes in each host city. Insurance sources estimated it would pay a premium of about 2% to 3%, giving a bill of up to $24 million to insure the Tokyo event.
Analysts with the financial services firm Jefferies estimate the insured cost of the 2020 Olympics at $2 billion, including TV rights and sponsorship, plus $600m for hospitality.
Media firm NBCUniversal in December announced it had already sold more than $1 billion in advertising commitments in its planned United States broadcasts of the games and was on track to surpass $1.2 billion, Variety reported. The company’s parent, Comcast, agreed to pay $4.38 billion for US media rights to four Olympics from 2014 to 2020, Variety said.
Discovery Communications, the parent of television channel Eurosport, has agreed to pay 1.3 billion euros ($1.4 billion) to screen the Olympics from 2018 to 2024 across Europe.
During a recent call with investors, Gunnar Wiedenfels, Discovery’s chief financial officer, suggested a cancelled Olympics was “not going to have any adverse impact on our financials”, Variety reported, adding executives said the company had insurance to safeguard its investment.
Most of the domestic spending on the Olympics has been done, so a cancellation would have minimal effect in that regard, economists said.
A Bank of Japan study in 2016 estimated games-related spending would peak at 0.6% of gross domestic product (GDP) in 2018 and be less than 0.2% of GDP in 2020, research consultancy Capital Economics noted.
Tourism, a major contributor to recent Japanese growth, could take a hit, although economists said the greater threat was from the coronavirus spread itself.
Last year, Japan hosted 31.9 million foreign visitors, who spent nearly 4.81 trillion yen ($43.1 billion).
Nomura Securities had forecast consumption of 240 billion yen ($2.22 billion) from event-related tourism in 2020, which it said would evaporate if the Olympics were cancelled.
Citigroup Global Markets Japan economist Kiichi Murashima said a loss of events-related tourism alone would chip 0.2 percentage points off GDP growth in the July-September quarter against the previous quarter.
But he said the chilling impact of the virus on an already struggling Japanese economy, and on global growth if the spread did not peak, meant Japan’s GDP could show zero or even negative growth in the July-September quarter.
Japanese Prime Minister Shinzo Abe said on Tuesday his government was ready to deploy further fiscal stimulus measures if needed to protect the country’s already fragile economy from the negative effects of the coronavirus.
“We’ve already compiled a spending package to forestall various risks” funded by a supplementary budget for the current fiscal year ending in March and next fiscal year’s budget, Abe told Parliament on Tuesday.
“We’ll scrutinise the impact of the coronavirus on the global and Japanese economies. If further steps are deemed necessary, we will take action without hesitation,” he added.
A failure to contain the global spread of the virus would scupper a scenario that sees Japan’s economy posting a V-shaped recovery after two-quarters of negative growth through March, said Jesper Koll, a senior adviser at US asset manager WisdomTree.