Japanese Prime Minister Shinzo Abe announced on Tuesday morning that the International Olympic Committee (IOC) has agreed to postpone the 2020 Tokyo Games until the Summer of 2021. The decision became inevitable once Team Canada declared Sunday evening that its athletes would not be participating if the Summer Olympics were held as scheduled; Australia’s national Olympic committee and the U.S.O.P.C. had also urged the IOC to delay the international sporting competition. While postponing the world’s largest sporting event in the interest of public health was the right call, sponsors, advertisers, broadcasters and organizers alike are all expected to feel the financial repercussions of the unanticipated disruption.
Howie Long-Short: Olympic sponsors and advertisers will try and reallocate as much of the $1.2 billion dollars they’ve earmarked for marketing this year, to next. In a perfect world, the deals would simply roll over and most ‘lost costs’ would be avoided, but with the economy headed towards a global recession it’s not hard to imagine corporate partners bailing before next summer.
If there’s an upside for Olympic corporate partners it’s that delaying the Games should give the economy a chance to bounce back. “No one knows what [the economic picture] will look like going forward, but the hope is that it will be healthier next summer than it is right now.” If that’s the case, former U.S.O.C. chairman Harvey Schiller says “this summer’s postponement could end up being a saving grace [for sponsors and advertisers seeking a return on their Olympic spend].” For reference purposes, Morgan Stanley is expecting the GDP to decline -30% in Q2. It’s not the right time for most companies to be out hawking products.
Moving the Games to ’21 will force broadcasters worldwide to bump existing commitments from their calendars (which may result in some net losses), but it’s the struggling global economy that poses a greater threat to Olympic media partners. Former CBS president Neal Pilson explained “if advertisers don’t have the cash available [in ’21] to pay the rates they were committed to paying in 2020, [broadcasters will be hurt].” Of course, should that happen rights holders (which are responsible for 3/4 of all IOC revenue) would almost certainly look to the International Olympic Committee to adjust their agreements accordingly. If there is an upside for NBC and the other networks carrying the Games around the world (think: Eurosport in Europe) in the postponement, it’s that with the Olympics slated to take place in ’21 they’ll have another year to promote the event.
Expect the organizers of Tokyo 2020 to also look to bump some hard costs into 2021 (think: stadium rentals etc). Their success in doing so will determine how large the losses associated with the postponement end up being. The country is said to have invested $12 billion into the Games to date.
It’s too early to tell if there will be a net loss on ticket sales, but organizers should certainly find themselves in a better financial position next summer than they would have if the IOC opted to hold the Games in 2020 in empty stadiums (which would have ensured all ticketing revenue was lost).
It should be noted that the IOC intends on maintaining the name Tokyo 2020 – despite the Games taking place in 2021; as Bloomberg’s Eben Novy-Williams pointed out, doing so will “allow the dozens of companies that pay billions to associate themselves with the games to keep their logos, packaging, media assets and products the same heading into next year.” It also prevents organizers from having to take a complete loss on the products they’ve manufactured to date.
One would assume that many/all of those affected by the rescheduling of the Games are insured against force majeure (Schiller noted that NBC was covered in ’80 when the U.S. decided to boycott the Soviet Olympics), but Pilson says collecting in full on those policies could be an uphill battle. “The networks and the IOC are likely insured against lost costs [and can reasonably expect to collect on them], but it’s much more difficult – and expensive – to insure against lost profits.” Even if they have protection against a pandemic, proving the full amount lost will be a challenge with the Games taking place at a later date.
Among the groups that likely won’t be pleased the Tokyo Games are moving to next summer are organizers of the 2022 Beijing Olympics. Schiller reminds “[the Chinese] are going to want to start marketing and licensing [products at least a year out from the Opening Ceremonies], but [with the Tokyo Olympics scheduled for July ’21] retailers will be forced to decide between buying from Japan or China.”
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