• Monday, July 15, 2024
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2021 Tokyo summer games: Lessons from most expensive Olympics ever


Tokyo’s 2021 Olympics are already the most expensive summer games ever and that’s before the games have even taken place. Before the Tokyo 2020 Olympics were delayed by a year because of the COVID-19 pandemic, they were already the most expensive summer games. Experts estimate that they will cost more than $26 billion. The Japanese public was largely against them during the crux of the pandemic and there was no guarantee it was going to happen at all. But other problems run deeper than the delay.

When Tokyo won the bid for the Olympics in 2013, the cost estimate was $7.3 billion. Today expert estimates run to $26 billion. The problem starts with the venues (43 of them to be exact). The National stadium is meant to be the site of the opening and closing ceremonies as well as track and field events and soccer. It was already a financial disaster before a single brick was laid. Japan hired the star architect Zaha Hadid for the design, but cost estimate quickly ran well over budget, and when the price hit $2 billion, the plan was scrapped.

While cost ‘overruns’ at the Olympics are a sort of biennial tradition, a number of factors made Japan’s expenditures worse

Version two did not fare much better, Japanese architect Kengo Kuma designed the 60,000 seat stadium with a mix of steel and wood from every single one of Japan’s 47 prefectures summing up to a cost of $1.4 billion. The design of the gymnastic center basically did not change but the cost more than doubled from $81 million to $200 million by the time it was completed in 2019. Sayuri Shirai an Economics Professor at Keio University in an interview stated, “As a result of depreciation, import costs are much higher; with 60% of the construction materials being imported from other countries, which thus gave rise to additional cost in the construction sector”.

With Eight (8) new venues and ten (10) temporary ones, costs added up quickly. There are different plazas segmented into: Badminton and Pentathlon ($330 million), Aquatic center for swimming and diving ($540 million), Volleyball Arena ($320 million) and the Canoe and Kayak center ($65 million) and that’s just to name a few. Bent Flyvbjerg a Management Professor at Oxford University stated, “The interesting thing about the Olympics is that it is the only project type found that cannot produce a single sub-project that was done on a budget; each and every one of them have run over-budget”.

While cost ‘overruns’ at the Olympics are a sort of biennial tradition, a number of factors made Japan’s expenditures worse. Sayuri indicated that the construction costs were rising partly because of the rising cost of materials as a result of labor shortage in the construction sectors. That is part of why the construction of 21 buildings in the Olympic village has a price tag of nearly $2 billion. That cost is supposed to be off-set by selling apartments to the general public after the Olympic Games; today, they are sitting empty.

Former Tokyo 2020 CEO, Toshiro Muto last year stated, “The postponement has just been decided, so we have not yet considered additional costs. The year-long postponement increased operational costs by another $1.6 billion. Tokyo covered maintenance for all venues, ramped up security and paid to rent the Olympic village for a year instead of a month. These included cancelling many of the warm-up events that would have brought in revenue. The controversy over holding the games grew amidst rumors that “Japan decided to cancel the games”; though the rumors were quickly denied by the government and the IOC (International Olympic Committee). The IOC does not invest in infrastructure but maintains requirements and venue sizes. They also have interests in getting the best shows with the most viewers but are not really concerned about costs. The Olympics draws millions of TV viewers around the world; nearly three-quarters (¾)of the IOC’s revenue comes from selling these rights to broadcasters like NBC. The opening and closing ceremonies attract the biggest audience, featuring hundreds of performers, Laser-light shows, fireworks and the lighting of the Olympic cauldron. Those events in Tokyo have an estimated cost $118 million. For all the burden of hosting the games, Tokyo would see almost no share in the valuable broadcast rights, and the Host city could be out even more with the loss of ticket sales, which are expected to reach more than $850 million. If the games do go forward (which it would), $900 million and added COVID precautions would bring the total cost of the delay to $2.8 billion. The Tokyo Olympic organizers will thus have to prepare about 300 doctors everyday plus an additional 400 nurses to oversee the event. While all these numbers seem like a burden for a whole city to endure, there’s also the cost to the individual athlete. Allan Bower is a gymnast on the US national team, training to make his first Olympics. He stated that his world flipped upside down when the COVID-19 pandemic hit. He went further to state that he had a couple of gyms send some equipment for training during the pandemic.

There’s still a real chance that the Olympics might get cancelled outright. Some event organizers already learnt their lessons. The Wimbledon Tennis tournament took out insurance against virus related pandemics in 2002, when SARS threatened to become a global pandemic. Yet Wimbledon netted about $140 million this year when it had to cancel because of COVID. In Japan, insurance losses of a complete cancellation are estimated at $2 to $3 billion, not even half of Tokyo’s original bid to host the games. The Tokyo organizing committee now says its budget is $15.4 billion but experts and even Japan’s auditor disagree.

Morgan Housel stated, “Big risks are easy to overlook because they’re just a chain reaction of small events, each of which is easy to shrug off. A bunch of mundane things happen at the right time, in the right order and multiply into an event that might look impossible if you only view the final outcome in isolation. Prediction is hard, but exponential prediction is deceiving… COVID is the same”.

It’s a boondoggle that may change the Olympics forever, whether the party in Tokyo happens, remains to be seen but the bill is coming due.