The organization of the Olympics Games is a bad business proposition in the best of times, at least for host countries or cities. It tends to leave them burdened with a heavy debt load for years, with poor financial returns. At the very least it is, in most cases, disappointing and fails to meet the organizers’ hopes for financial returns. That is especially true when the host country is an emerging economy, forced to massively ramp up big infrastructure projects in the years before the event.
Japan is a major industrial power but could have struggled as others have to avoid a loss if the games had happened. But there is no doubt that the cancellation of this year’s summer games equates to some economic loss. Investment — more than $10 billion according to official estimates — has already happened. Now the visitors, tourists and sport aficionados will stay away. Hotels will remain empty, stadiums empty, roads and trains deserted. Job hiring (some 14,000 positions for security alone) will be canceled.
Despite this, the loss won’t amount to much — just a little over 0.1% of Japan’s gross domestic product according to current estimates. The Nikkei Asian Review, a Japanese business newspaper, puts the cost of canceling the games at about $6 billion. The number is corroborated by Katsuhiro Miyamoto, a professor of economics at Kansai University quoted by the daily Asahi Shimbun, who says that two-thirds of the loss would be due to past expenses, the remaining third in lost potential revenue.
The number includes both the loss to the public and private sectors. The corporate sponsors aren’t just the sport apparel makers, or television companies such as NBC, which had invested heavily in the games. Most major Japanese companies — such as tire maker Bridgestone /zigman2/quotes/205589013/delayed JP:5108 -0.77% , Toyota Motors /zigman2/quotes/203803129/delayed JP:7203 -0.69% , Panasonic /zigman2/quotes/201785256/delayed JP:6752 -0.69% , or NEC /zigman2/quotes/205173342/delayed JP:6701 -1.20% — had contracts with the organizing committees.
Officially, the games are just postponed — which means in theory that instead of this year, Japan will only reap the bonanza next year. But even then, losses will occur. Uncertainty has settled in. Insurance companies will have to foot part of the bill. Equipment that would have been converted as soon as the games end will remain idle for a year.
But even estimates of the loss, as limited as it may be, are fuzzy because of the general context of the games. Had they not been canceled, the loss could have been more severe. Tourists would have stayed away, sport fans who might have traveled could have preferred to watch the games in the relative safety of home confinement for the games, athletes (at least the ones who had made the trip to Japan) would have run in half-empty stadiums. When this potential scenario is factored in, Japan could well have avoided a bigger loss by accepting to postpone the Olympics.