In yesterday's post entitled, Tokyo Gets the 2020 Olympics... Unfortunately... I wrote about how I was unhappy about the Olympics coming to Tokyo as I have good reason to believe that the Japanese government will spend taxpayer monies on construction projects for the Olympics and, after it is all over, the average Japanese tax payer will be saddled with billions of dollars of debts.
I think historical precedent of the Olympics themselves and the track record of the Japanese government with debt at 245% of GDP are pretty strong evidence to support my fears....
I wrote in that post:
"Oh, but the Olympics will be good for the economy!" Oh
really? Tell another country that is deeply into corruption and kickbacks,
Greece, about that one. This from the Daily
Beast:
"Indeed, the $12 billion cost of
hosting the Games contributed to the Greek economic collapse and left an
abandoned Olympic Park, which has been overrun by weeds and graffiti
artists."
Yeah, but that's Greece. Japan is different, right?
Nagano, Japan (Winter 1998) Boom or Bust?
Bust
The full cost of the Nagano Winter
Olympics will never be known as the documents accounting for money spent on the
Olympic bid were burnt on the orders of the Olympic Committee vice-secretary
general, Sumikazu Yamaguchi. (Emphasis
mine) Yet it is clear that it went vastly over budget, with new infrastructure
to make the Games work in this small Japanese city costing up to A$9.4
billion. As a result, Nagano fell into recession, with the debt on
Olympic projects roughly A$28,000 per family and growing. It is
estimated that these debts will take until 2015 to pay off.
The Olympic venues alone cost A$20.6 million per year in upkeep, and their
rental income brings only one-tenth of that amount. Although Nagano is working
hard to stop the Olympic venues turning into rotting white elephants, the cost
of their upkeep is not easy for the city's finances. Today it still
costs A$2.3 million a year alone to maintain the M-Wave, where local school
children take skating lessons on a high-speed 400-metre rink in winter. The
installation of a high-speed bullet train during the Olympics also posed
problems for the local hotel industry as more skiers came on day trips rather
than spending the night and locals are more inclined to go on shopping days to
larger cities.
It is estimated that the last Olympics in Japan in Nagano in 1998 lost $10 billion USD. Read the rest of Tokyo Gets the 2020 Olympics... Unfortunately... here.
After I wrote that article, I received calls and emails from people who argued with me and others who were totally supportive. So I decided to do even more research on the subject asking myself the question; "Is it really possible to make a profit on the Olympics?"
Well, before I give you my useless two cents, here's some interesting information I found. Did you know that only two Summer Olympic games were profitable since 1932? Yep. Two. They were Los Angeles in 1984 and Atlanta in 1996.
How did they do it? Well, I want you to keep in mind that both of these Olympics happened in the USA. These events happening in the USA is critical information and the reason for that will become more apparent later...
But, for now, let's look at the first one; Los Angeles 1984:
From Wikipedia:
"Where ambitious construction for the 1976 games in Montreal and 1980 games in Moscow had saddled organizers with expenses greatly in excess of revenues, Los Angeles strictly controlled expenses by using existing facilities except a swim stadium and a velodrome that were paid for by corporate sponsors…. The 1984 Summer Olympics are often considered the most financially successful modern Olympics."
"...the 1984 Olympic Games saw, for the first time ever, corporate sponsors for the Games. In this first year, the Games had 43 companies who were licensed to sell "official" Olympic products. Allowing corporate sponsors caused the 1984 Olympic Games to be the first Games to turn a profit ($225 million) since 1932."
OK. Let's check that. The 1984 Olympic Games were profitable because of two things:
1) Use of existing facilities
2) Corporate sponsors
Now, let's look at the only other profitable Summer Olympics since 1932 (I don't really want to go into Winter Olympics because, actually, comparing, for example, Nagano 1998 with a Summer Olympics Game is unfair); the Winter Olympics are an extremely risky business as they are not nearly as popular with audiences as the Summer Games are. But let me use one example (again an Olympics in the USA):
"The Salt Lake City Winter Olympics was one of the most expensive of all time, coming close to the cost of hosting the summer Games, at A$1.8 billion (including A$470 million for security). However Organizers claimed a A$94 million profit as a result of lucrative television deals."
OK. Now we can see the third factor that builds a profitable Olympics:
3) Television deals and the advertising that goes along with them.
So it is possible to make money from the Olympics.
But, looking at this from a broadcaster in Japan perspective, I can now tell why, after researching these and dozens of other articles, I am even more convinced that the Tokyo 2020 games will lose money and become a massive tax burden on the Japanese economy.
First let's compare apples to apples: Let's examine why the 1984 Olympic Games were profitable. They were profitable because of two things. First, as stated above, 1) Use of existing facilities
"...The cost of Tokyo’s bid fell between $5 billion and $6 billion. That includes the construction of 11 new sporting venues and 10 temporary ones, at a cost of $3 billion. The Olympic village will cost another $1 billion, according to the IOC.
The Tokyo government projects that the Games will generate $30 billion in economic benefits for Japan—and that, it said, is a conservative estimate since it calculates only direct spending on the Olympics. One of the notions is that it will boost domestic consumption, helping wrest the country from a couple decades of debilitating deflation.
So Tokyo’s victory basically is license for the Japanese government to spend like crazy on infrastructure. You can see why Shinzo Abe, Japan’s prime minister, put himself on the line to win the bid. An Olympics building bonanza is basically the second pillar of Abenomics—fiscal stimulus (the first is monetary policy; the third is structural reform)—on steroids...."
So, when speaking of out of control government spending, well, who can do that like the Japanese? Especially the current government. This does not bode well.
Now, let's look at the second factor of the Los Angeles Olympics that helped profitability:
2) Corporate sponsors
This is a mixed bag here. On the one hand, I can't really see Japan having too much trouble with Corporate sponsorships... Excepting two tiny little problems: Japan's economy is already a wreck and the on-going problems with Fukushima (bad advertising)...
Now that brings me to the final point that convinces me beyond the shadow of doubt that the Tokyo Olympics will lose money:
3) Television deals and the advertising that goes along with them.
I now speak from experience and it is so obvious that I wonder why no one can see this... The biggest problem with Japan getting major TV contracts from the USA and the west? The same as it was during the Nagano Olympics and the 2002 World Cup (which lost Japan a few 10s of millions too).
"The games in Japan -- which co-hosted with neighboring South Korea in 2002 -- continue to be an economic drag on the local communities. Why? Maintenance of the stadiums built for the games costs more than the revenues they bring in.
Eight of the 10 stadiums built or renovated in Japan for the 2002 World Cup lose between $2 million and $6 million a year, the balance of which is picked up by Japanese taxpayers. "No strategy, no success," said Ichiro Hirose, a member of the 2002 World Cup Bidding Committee in Japan. "They did not have a strategy" for use of the stadiums after the games, he said."
"The 1994 games in the U.S. generated a $60 million surplus from ticket sales, sponsorships and licensing agreements, said Alan Rothenberg, chairman and CEO of the 1994 World Cup. Since the tournament used existing stadiums, there wasn't a significant infrastructure legacy from it..."
But I digress.
Here's a very simple reason why Television contracts will be sorely lacking for the Tokyo 2020 Olympics and that will impact corporate sponsorships, and there's not a thing Tokyo can do about it; the Internet and Time Zones.
That's right. Think about it, if you are some person who loves sports but live in massive TV markets like New York or Los Angeles, are you interested in waking up at 3 or 4 am to watch a live sports event from Japan?
I doubt that the average American will do so. And since the average person won't, then I suspect that major US (and European) stations might balk at paying high prices for rights to broadcast live when the audiences are all sleeping? And there's little reason to buy rebroadcast rights as the Internet will already tell everyone the result and, as everyone knows, if the sports aren't live, then what's the point?
Also, for all its warts, the USA is still, by far, the biggest economy in the world. Let's not forget that in our calculations.
I think I've heard of this problem with TV happening before (I work in broadcasting!) It happened with the Olympics in Beijing; it happened in Nagano; it happened with the 2002 World Cup in Korea - Japan and, because there's no way to change the time zones, it's going to happen in Tokyo 2020.
And when TV doesn't broadcast these games live to an awake audience (the average viewer) then big sponsors aren't interested.
NBC, one of the largest American television networks, held the exclusive right to host the 2008 Summer Olympics Games coverage for the US. Despite generating over $1 billion in revenue from the Olympic coverage, NBC has reported a loss of undisclosed size in its third quarter. The network is still hopeful to come out with a profit at the end of the year, and claims its third quarter loss stems from the way Olympic revenues and expenses are booked by accountants.
My guess is that the availability of free online Olympic content played a significant role in contributing to NBC's financial loss.
So the question arises, will major TV networks keep investing a lot of money into Olympic coverage and compete with YouTube (and other popular participatory sites), when their Olympic profit margins are getting so thin or even negative?
I bet "No!"
So, let's tally:
The three factors that made profitable Summer Olympics since 1984 were:
1) Use of existing facilities
2) Corporate sponsors
3) Television deals and the advertising that goes along with them.
*Japan has already announced massive new spending on new facilities
*Corporate Sponsors? We're probably OK there... Just "OK."
*We are in bad shape in this area because of time zones and the Internet.
I don't see this turning out too well. I predict a hugely successful 2020 Tokyo Olympics...
I also expect a massive hangover and a huge tax bill leftover to pay for it too.
What do you think?
More? Read this: The Curse of the Olympics
