Considering the Business Side of the Tokyo Olympics

Rescheduled from 2020 due to the COVID-19 pandemic, the Tokyo Olympic games have had us glued to our televisions. Yet, as coronavirus infections surge in Japan, some have criticized the International Olympic Committee (IOC) for not canceling the games this year altogether. With the committee focusing on global unity and strong safety precautions as its reasoning for continuing with the games, there has also been discussion on the event’s possible benefits to Japan’s stagnant economy.

In general, host cities of the Olympics do gain some economic benefit, specifically in increased tourism. Although no fans are allowed at the Tokyo Olympics due to the pandemic, the promotion of Japanese culture that comes along with hosting and televising the Olympics could increase the country’s tourism in the long run. As the country is still recovering from the devastating 2011 earthquake and tsunami, attracting visitors post-pandemic can be the much-needed jump-start to Japan’s economy.

Yet, an expected economic cost to countries that host the Olympics is the massive expenses that go into putting on the Olympics, like building new stadiums. However, this heavy investment in infrastructure, in theory, should be beneficial. According to Raymond A. Mason School of Business Professor Deborah Hewitt, that has rarely been the case. “It is all a matter of how it is financed, and by whom, whether this turns out to be true,” she explained, “When the central or municipal governments fund the construction of sites for the games, there has never been a positive payback...The only Olympic games to come out in the black financially was the 1984 LA games, where existing stadiums and venues were used, and new construction was privately funded.”

As funding for this comes from high increases in taxes on the local population, the country’s economy is often negatively impacted. There is also a huge opportunity cost in investing in the Olympics as there is no guarantee that the stadiums will be used in the future, meaning the money could have been used elsewhere (such as education). Estimated to be the most expensive Olympics in history, partially due to the decision to postpone the event to 2021, the Tokyo Olympics could result in piling debt, and a similar economic downturn as the Olympics did to countries like Greece (Athens 2004) and Canada (Montreal 1976).

Although the benefits and costs of hosting the Olympics are commonly faced by countries, Japan was struck with a unique challenge: deciding if the games should be canceled altogether due to the risk of increasing coronavirus infections. With infrastructure costs and investment already put into place, the one make-or-break area that still has a chance to make a strong economic impact is broadcasting and sponsorship. Not only have digital ad sales been estimated to increase by 80% for the Tokyo Olympics, but also companies like NBC Universal pay over $1 billion each to get broadcasting rights. Without an Olympics, that money would go down the drain.

However, the most concerning economic impact of continuing with the Tokyo Olympics that is still somewhat unknown is the repercussions from a potential pandemic lockdown. Although Japan was highlighted at the beginning of the pandemic for its success in maintaining a low COVID-19 infection rate, slow vaccine rollout has contributed to multiple coronavirus waves and stagnant economic recovery. With athletes already testing positive for the virus, there is a possibility that the Olympics could cause infections to increase, more lockdowns to be put into place, and the economy to worsen.

Either way, understanding the economic impact of the Olympics is essential to analyze, especially for business students. “Sports marketing, individual teams, and athletes hire business students for interesting and lucrative positions. While the Olympics only takes place every two years, including both summer and winter, it is also a global experience. Understanding both the business and political aspects of this enduring, highly anticipated and widely watched event provides valuable insights,” said Professor Hewitt.

The Tokyo Olympics, clearly, has continued as scheduled. However, the decision to host and continue with the Olympics was influenced by common Olympic economic impacts like infrastructure and unique ones like the pandemic. Unfortunately, we will just have to wait and see if Tokyo hosting and continuing the Olympics was the right decision.