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What Would It Cost to Cancel the Tokyo Olympics?

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What Would It Cost to Cancel the Tokyo Olympics?

 Cancelling the Summer Games over coronavirus fears would not be a fatal economic blow for Japan.

What Would It Cost to Cancel the Tokyo Olympics?
Credit: Wikimedia Commons/ Tokyo-Good

Japanese and international sporting officials are adamant this year’s Summer Olympic Games will not fall victim to COVID-19. But with the toll from the coronavirus crisis continuing to rise, speculation is increasing that Tokyo may be forced to act, potentially risking multi-billion dollar investments amid flagging economic growth.

On Friday, Japan’s top government spokesman said the Tokyo Olympics and Paralympics would proceed as planned, saying the International Olympic Committee (IOC) had expressed “confidence” in Japan’s response to the virus.

“We will coordinate closely with the IOC, the organizing committee and the Tokyo metropolitan government, and move ahead with preparations to make sure athletes and spectators can feel safe and secure throughout the games,” Chief Cabinet Secretary Yoshihide Suga told reporters.

The Olympics are scheduled to run from July 24 to August 9, followed by the Paralympics from August 25 to September 6, during the heat and humidity of the Tokyo summer.

However, an increasing number of COVID-19 infections in Japan has sparked concerns over the world’s biggest sporting event. More than 840 people have tested positive for the virus in Japan, the most outside China, although the bulk of such infections originated from the Diamond Princess cruise ship docked off Yokohama.

With the Japanese health ministry warning of the infection risks from large events, the impact is already being felt ahead of the Games. The ruling Liberal Democratic Party has postponed its March 8 convention in Tokyo, which was set to attract around 3,000 party members, while the March 1 Tokyo Marathon will now be open only to elite athletes instead of the usual thousands of runners.

The nation’s previously booming tourism industry has suddenly felt the chilling impact of the coronavirus. Japan received some 9.6 million Chinese tourists in 2019, accounting for a third of international tourist spending, but such arrivals have reportedly “virtually ceased” since the outbreak.

An early sign of the impact was during the Chinese Lunar New Year holidays, with duty free sales at flagship department stores dropping by up to 20 percent.

The downturn has aggravated a sales slump that followed October’s consumption tax hike, as well as an unseasonably warm winter. Cosmetics company Kose cut its full-year profit outlook by 19 percent due to the tourism downturn, with other companies likely to follow.

Japan’s latest gross domestic product (GDP) data showed an economy badly in need of a boost. Fourth-quarter GDP plunged by 1.6 percent quarter-on-quarter, below economists’ estimates of a 1 percent decline, making it nearly as bad as the 1.9 percent quarter-on-quarter fall seen after the 2014 sales tax hike.

Tokyo announced a 26 trillion yen ($233 billion) stimulus package in late 2019 to buffer the economy against the trade war and the anticipated post-Olympics slowdown. However, the government may now face pressure for further fiscal spending, with the Bank of Japan also expected to further loosen monetary policy.

A survey of private-sector economists by Japan’s Nikkei newspaper estimates an annualized GDP gain of just 0.5 percent in the March quarter, which would only narrowly avert recession.

Yet previous consumption tax hikes have seen the world’s third-biggest economy slide into recession, and the current downturn has economists warning that history could repeat.

“Due to factors such as worsening domestic demand in China, Japan’s exports and manufacturing activity will sustain a heavy blow,” warned Dai-ichi Life Research Institute chief economist Yoshiki Shinke.

Capital Economics expects Japan’s economy to stagnate in the March quarter, with GDP falling by 0.5 percent in 2020 due to the slump in tourist arrivals together with lower exports. The coronavirus itself could wipe 0.3 percentage points off GDP this year.

“There’s clearly a risk that Japan slides into recession at the start of this year,” senior Japan economist Marcel Thieliant said in a February 18 report.

Would canceling the Olympics deal a fatal blow?

Games Spending

The Games are estimated to have cost Japan more than 1 trillion yen (around $9 billion), more than seven times original estimates, although still well below the mammoth spending of the 2008 Beijing Olympics ($45 billion) and Russia’s 2014 Sochi Winter Olympics ($51 billion). Some estimates, however, put the cost of the Tokyo event at up to $25 billion.

Japanese companies have reportedly also paid more than $3 billion in sponsorship deals to organizers, a record amount. International broadcasters have also spent heavily, with U.S. TV network NBC alone paying $1.4 billion for the broadcast rights.

Tokyo hotels are expecting a surge in arrivals, with hotels such as Okura spending an estimated $1 billion on renovations. In May, Japan Airlines is expected to launch a low-cost subsidiary, Zipair Tokyo, at a cost of around $200 million to meet increased demand during the Games, while both Tokyo’s Haneda airport and Narita airport in Chiba Prefecture have invested heavily to boost capacity.

While still unlikely, any move to postpone the Games due to the coronavirus would therefore cause significant issues, not only for the expected 11,000 Olympic and 5,000 Paralympic athletes and thousands of tourists, but also broadcasters and sponsors.

Although Tokyo’s previous Games held in 1964 were staged in the cooler month of October, any attempt to push back this year’s event would cause conflicts with broadcasters’ domestic sport schedules, both in North America and Europe.

Politically, the Abe administration has emphasized the feel-good effects of the Games and would be unlikely to support a change. Prime Minister Shinzo Abe’s appearance as “Super Mario” during the closing ceremony of the 2016 Rio Olympic Games demonstrated how much political capital the longstanding leader has invested personally in the event.

Since the modern Olympics began in 1896, they have only been canceled during wartime, despite boycotts during the 1970s and 1980s. A suggestion by London mayoral candidates that the former host city might replace Tokyo as host of this year’s event was quickly shut down by Tokyo Governor Yuriko Koike, who described such comments as “inappropriate.”

Spending ‘Already Happened’

Yet should the worse-case scenario for Japan eventuate, the economic impact might not be as devastating as feared, according to Capital Economics.

“The key point…is that most of the spending for the Olympics has already happened. Spending during the Games themselves is small, perhaps just 0.2 percent of GDP, and much of this is diverted from spending in other areas of tourism and recreation,” senior Japan economist Marcel Thieliant said in a February 21 report.

The London-based consultancy points to the experience of previous Games such as the 2008 London Olympics. While spending by overseas visitors surged by nearly 18 percent during the event, it slumped to a 21-month low some two months later. Similarly, the 2000 Sydney Olympics had a “negligible” impact on travel spending.

“What’s more, there is little evidence that the ‘feel-good’ effect from the Olympics boosts consumer spending,” Thieliant said, pointing to data from previous Games.

Overall, a bigger concern for Japan’s tourism industry could be that the coronavirus outbreak causes the slump in international arrivals to extend for months.

“If tourist arrivals remain weak all the way to the Olympics, that could reduce GDP growth by as much as 0.4 [percentage points]. But canceling the Games on top of that would have negligible additional impact,” he said.

For Japan, the Games’ legacy will include a new National Stadium along with increased tourism infrastructure including hotels and airline capacity, while Tokyo has enjoyed significant international attention ahead of the event that has swelled visitor interest.

And with indications that a vaccine for COVID-19 might not be too far away, the world’s biggest city might still get to bask in the global spotlight without the fear of mass infections.