Why banning fans at the Olympics isn't a total financial loss

Less than three weeks after Japan lifted its third pandemic-related state of emergency, the country has now declared its fourth, effectively barring all spectators from around the world from attending events in the already-postponed 2020 Summer Olympics in Tokyo.

The Games are slated to start on July 23 as more than 15,000 athletes, 50,000 officials, 70,000 volunteers and others prepare for what could be the most unusual — and costly — Olympic Games in history.

Economic toll

The economic toll in preparation for Tokyo 2020 has already reared its head, with cancelled sponsor events adding to the financial woes associated with this year’s Olympics. An estimate earlier this year found that it may cost over $26 billion to host. Though this figure may seem astronomical, the 2014 Winter Olympics in Sochi cost $55 billion to host, with the 2008 Summer Olympics in Beijing following closely behind at over $40 billion.

According to Reuters, the projected bill for the postponement alone has risen to $3 billion, up from $2.8 billion organizers claimed last December. On top of this, the decision to not allow fans to spectate events will virtually eliminate the prospect of $800 million in ticket sales for the Tokyo organizing committee.

According to Kenneth Shropshire, CEO of the Global Sport Institute and professor of global sport at Arizona State University, the construction of new sporting venues is by far the largest of the expenditures for hosting the Olympics.

“It's hard to comprehend how you really get into the billions in terms of construction, but that's really what it is,” Shropshire told Yahoo Finance. “When you look at whatever football or baseball stadium you're familiar with locally, [they may cost] $1 billion, $1.5 billion, or $2 billion dollars, for the largest ones. And you're doing multiple venues for the 20+ Olympic sports.”

As for how Tokyo may be looking to recoup the costs spent on new stadiums and facilities that will be empty come July 23, Rick Burton, professor of sport management at Syracuse University, said that the city will likely be looking to host whatever events they can in the future.

“I think Tokyo will now bid for the Soccer World Cup, the Rugby World Cup, a Formula One race, the darts championship, or the world championships in track and field or swimming or gymnastics,” Burton said. “I mean, Tokyo now has the finest facilities in the world.”

Profit is not guaranteed

Even for previous Olympic Games that have not been subjected to today’s pandemic-related complications, there's no guarantee that host nations will generate a profit. According to Burton, there have been scenarios in which countries have done well, broken even, and lost money.

In the case of the 2016 Summer Olympics, held in Rio de Janeiro, hosting the Olympics left the city with crumbling stadiums and crippling debt. The state of Rio became billions of dollars in debt and crime surged within a year of the end of the Games.

“I think in the case of Tokyo, my guess is that it's a shared expense [with] organizing committees receiving funding, undoubtedly, from Tokyo—the city, the municipality or the prefect—but also receiving funding from the Japanese government,” Burton added. “And so it is hard to say who may be about to make money or lose money. But my guess is without spectators, all of the Japanese parties that are involved with staging these games know that the revenue generation that might have been hoped for eight years ago, is not going to be there because of everything that's going on.”

However, hosting the Olympics can provide host nations with a plethora of economic benefits, which provides an explanation for why some cities clamor to win the host city bid process. And yet recently, especially after the pandemic, potential host candidates have been less inclined to apply.

“The reason that a number of cities were hosting the Games, though, and the economic value that they saw was [that] it was a longer term play,” Shropshire said.

At least five cities withdrew applications for hosting the 2022 Winter Olympics after failing to receive popular support for the games in voter referendums and public polls. With spiraling costs associated with hosting the games, some cities have been less eager to submit bids.

'Made-for-TV event'

Despite no revenue from ticket sales, the lack of fan attendance in Tokyo may actually reduce some costs for the city. This is because the majority of the money made from the Olympics comes from TV deals negotiated with major networks to broadcast the Games worldwide.

“It's a made-for-TV event,” Lisa Neirotti, associate professor of sport management at George Washington University, said. “Yes, there's about 300,000 to 400,000 international fans that may have traveled to Japan and watched the games [live] at one point or another, but there's a billion that watch it on TV around the world. And the number one thing for the Olympic movement is that the broadcast of the Games goes on.”

The real money, Neirotti said, is in the TV broadcast rights. Additionally, some of the other expenses associated with hosting may be avoided by disallowing spectators.

“Many of the volunteers were there to help the spectators get to their seats, like, welcoming them into the stadium, showing them around,” Neirotti said. “So without all those spectators, you don't need as many volunteers.”

Thomas Hum and Ihsaan Fanusie are writers at Yahoo Finance. Follow them on Twitter: @thomashumTV and @IFanusie.

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