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Japan: how coronavirus crushed Abe’s Olympics dream

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Via Financial Times

On New Year’s Day, before a 58,000-strong crowd, Vissel Kobe clashed with Kashima Antlers in the 99th Emperor’s Cup. The football was so-so, but the setting was stunning. It was the first event to be held in Japan’s just finished $1.4bn National Stadium and a test run for the spectacle it would soon host: the Tokyo 2020 Olympics and Paralympics.

The test was flawless and the run-up to the July 24 opening ceremony looked like a cakewalk. Among Olympic organisers, who had overseen more than $25bn of preparation, and among Japanese and international companies, who have paid more than $3.1bn to make the 2020 games the most heavily sponsored sports event ever, there was a collective sigh of relief.

For the Tokyo Metropolitan government, which estimated that from the winning of the bid in 2013 to a decade after the games in 2030 the event would give a ¥32tn ($294bn) boost to the national economy, all seemed on course. And for Shinzo Abe, Japan’s longest-serving prime minister, the games offered a potent symbol of national recovery from the 2011 Tohoku earthquake and of his “Abenomics” policies of revitalisation and reform.

Coronavirus has stopped every part of that in its tracks.

After months of watching helplessly as the disease morphed from a crisis in the Chinese city of Wuhan to global pandemic, Japan last week accepted the inevitable and agreed with the International Olympic Committee the first ever postponement of the summer games — a delay until no later than summer 2021.

Japan's Prime Minister Shinzo Abe, fourth from left, and Tokyo's Governor Naoki Inose, third from left, celebrate with other members of the Tokyo delegation after the International Olympic Committee President Jacques Rogge announced that Tokyo will host the 2020 Olympic Games during the 125th IOC session in Buenos Aires, Argentina, Saturday, Sept. 7, 2013. Tokyo defeated Istanbul in the final round of secret voting Saturday by the International Olympic Committee. Madrid was eliminated earlier after an initial tie with Istanbul. (AP Photo/Ian Watson, Pool)
Shinzo Abe, fourth from left, and Tokyo’s Governor Naoki Inose, third from left, celebrate after Tokyo heard it will host the 2020 Olympic Games during the 125th IOC session in Buenos Aires © Ian Watson/AP

The key questions now revolve around how badly the economy will be hit, how debilitating will be the confusion and even whether the games will be able to go ahead next year. Japan’s hospitality industry — already mauled by cancellations in February and March — had hoped that the 2020 games would allow them to claw back some income this year. Shigemi Sugo, secretary-general of the Japan Hotels and Ryokans Association, told reporters his members are already reporting cash flow concerns.

More broadly, there is the sense of a great national project scuppered.

“I came to this exact place as a 14-year-old for the 1964 Olympics,” says Kane Tabata, taking pictures of the National Stadium the day the postponement was announced. “I didn’t have tickets then, but I had two this time. I don’t want my money back. I just want to be alive for when they happen.”

Masamichi Adachi, UBS’ chief economist in Japan, says such displays of pessimism need to be taken seriously. The Olympics, and the chance of it going ahead at all, has become a grim gauge of how quickly the world can recover from the pandemic.

Average real economic growth in developed countries that have hosted the Olympics since 1992 show the strongest growth in the years ahead of the games as money is spent on construction. The actual year of the games itself delivers only a limited boost. Under that analysis, postponing the games is unlikely to cause serious economic harm in the short term.

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“The concern is the long-term consequences if the games are completely cancelled next year, especially given that such a situation would mean the pandemic is not yet under control. [That could] weigh on long-term growth expectations,” says Mr Adachi.

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Reflecting those concerns, Mr Abe told the nation on Saturday that the Olympic torch, which arrived in Japan last week, would remain lit and in the country until the games.

“This torch is the light of hope that will guide mankind to the exit of the long dark tunnel we are currently facing,” he said, heaping even more expectation on the two-week sports event. “My aim is to make the games a symbol of mankind’s victory.”

Until the Olympics was awarded to Tokyo in 2013, many people — both in Japan and outside — had concluded that the ageing, shrinking country with an economy that had suffered three “lost decades” might never shine brightly or globally again. The games, despite misgivings about the heat of Tokyo in summer and the considerable cost overruns, was a chance to reset that. The 1964 Tokyo Olympics had proven Japan’s recovery from war; the 2020 games were to have proven its resilience to demographics, its technological relevance and the fortitude of its people.

Beyond its direct financial value to Japan, says the chief executive of one of the 15 “gold” sponsors of the games, Tokyo 2020 was “a national act of economic messaging” that had kept the country’s stock markets, companies and reforms under the international investment spotlight for seven years. Fund managers of global portfolios say it drew attention to good domestic growth stories in Japan — like tourism and exposure to China — that might otherwise have been overlooked.

Mandatory Credit: Photo by KIMIMASA MAYAMA/EPA-EFE/Shutterstock (10592116e) Visitors take commemorating photos with the New National Stadium (background), venue of the opening and closing ceremony of the Tokyo 2020 Olympic and Paralympic Games, in Tokyo, Japan, 24 March 2020. Japanese prime minister Shinzo Abe is scheduled to hold phone talks with International Olympic Committee (IOC) president Thomas Bach regarding the possible postponement of the Tokyo 2020 Olympics due to the coronavirus COVID19 pandemic. Tokyo 2020 Olympics and Paralympics, Japan - 24 Mar 2020
Visitors take photos with the New National Stadium, the venue of the opening and closing ceremony of the Tokyo 2020 Olympic Games © Kimimasa Mayama/EPA

All of that has been knocked aside, putting the leadership of Mr Abe — who on Saturday committed the government to an “unprecedented” stimulus package to deal with the virus — under even more intense scrutiny.

“No one knows for sure whether the outbreak will be under control in a year and that Japan would be able to carry out the Olympics next summer,” says Shigeru Ishiba, the former defence minister widely tipped to succeed Mr Abe. “If it was [further] delayed, it’s unclear whether there would be the general mood for Mr Abe to do another three years of premiership.”

The IOC and Japanese organisers are expected to spend the next four weeks hammering out the basic details of the postponement. The IOC’s main sources of revenues are global broadcasting rights and sponsorship deals. These relate to the games themselves, so contracts are expected to be rolled over. The organisation earned $5.7bn in the four year “Olympic cycle” covering the Sochi 2014 Winter Games and the Rio de Janeiro 2016 Summer Games.

Domestic sponsors risk losing face if they pull out, especially now that the 2021 games have been explicitly cast by Mr Abe as a beacon of hope for the world’s recovery from coronavirus.

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But advertising executives say the national unity that seemed to underpin Tokyo 2020’s commercial backers is already looking vulnerable. Senior executives at several major sponsors say that they cannot see any clause covering postponement in their contract and so cannot yet assess where they stand financially. Others have said that when, or if, they are asked for more money to roll the sponsorship deals into next year they do not know if already stretched marketing budgets will cope.

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“We would like to continue our sponsorship,” says Takashi Uchida, president of Tokyo Gas, a leading sponsor. “But at this moment we can’t definitely say whether or not we will do so as we have no information at our hands how much extra financial burden we will have.”

Before the postponement decision was taken — as coronavirus spread across the globe — Japan’s comparatively slow rate of infection allowed the Abe administration to present a “business as usual” approach to the games. But since the announcement last Tuesday the country appears on a different footing.

Infection numbers have begun to climb more steeply and the nation’s leading experts have warned of a “second wave” in coming weeks. As Tokyo, the world’s biggest city, faces a lockdown, the government has formed a new crisis task force.

For weeks many people questioned Japan and the IOC’s reassurances in the face of the rising global death toll and mounting criticism from athletes — that postponement or cancellation did not even appear to be on the agenda. Some have accused the government of suppressing the stated infection rates in an effort to keep the Olympic hopes alive — an accusation strenuously denied.

A campaign banner for Tokyo 2020 Olympic Games of Coca-Cola, a Worldwide Olympic Partners, is displayed at New Chitose Airport in Chitose, Hokkaido, northern Japan February 27, 2020. Picture taken February 27, 2020. REUTERS/Issei Kato - RC2WKF98SSY9
A campaign banner for Tokyo 2020 Olympic Games of Coca-Cola at New Chitose Airport in Chitose, Hokkaido, northern Japan, in February © Issei Kato/Reuters

In reality, say people directly involved on both sides, the weeks leading up to the postponement were marked by a desperate churn of emergency meetings, conflicting proposals and negotiation deadlocks as both Japan and the Olympic movement were pushed ever further into new territory.

On March 16, IOC president Thomas Bach held a marathon series of conference calls with its so-called “Olympic family”: the heads of 33 summer sports federations, seven winter sports bodies, 206 national Olympic committees and 220 elected representatives for athletes.

IOC executives had begun to investigate a postponement but had then been confronted by the nightmarish logistical implications. For instance, most of the apartments in the Olympic Village, where thousands of athletes were due to stay, have already been sold with people due to move in after the games. Some Olympic venues were unavailable next year and hundreds of thousands of nights had been booked in hotels.

Column chart of Millions showing Tourist arrivals had topped 30m a year ahead of Japan's Olympic games

But the plan was to carry on. The IOC said that “with more than four months to go before the games there is no need for any drastic decisions at this stage.”

Within seven days, that position had fallen apart. It was undermined when other big sporting bodies began to take action. On the same day the IOC said it would soldier on, football’s governing bodies decided to postpone for a year the Euro Championships and Copa America — flagship national tournaments due to be played in June in Europe and South America. Olympic athletes also began to go public about their concerns as more and more qualifying events were being cancelled.

Students of Ariake-nishi Gakuen School wear protective face masks, following the outbreak of the coronavirus, as they attend an event Six Months to go until Tokyo 2020 Paralympic Games in Tokyo, Japan, February 25, 2020. REUTERS/Athit Perawongmetha - RC2M7F9MPZBR
Ariake-nishi Gakuen school students wear face masks following the outbreak of the coronavirus as they attend an event Six Months to go until the Tokyo games, in February © Athit Perawongmetha/Reuters

Any decision had to be mutual, say legal experts, because the IOC’s host city agreement means if either side unilaterally postpones or cancels the games, they could expect multibillion-dollar lawsuits. But as the criticism grew, Mr Bach’s private position shifted decisively in favour of postponement. The problem was trying to convince the Abe government.

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“The Japanese feared a loss of face, a failure to deliver the games,” says a person close to the IOC leadership. “When it became less about Japan, and more about the rest of the world travelling there, it let Abe off the hook politically.”

The emphasis is now on limiting the hit to the Japanese economy which looked likely to enter recession even before the Olympics was pulled. For several years Tokyo has gorged itself on Olympic hype, hotel bookings, and the commercial anticipation of a nation that has, since winning the right to host the games, seen inbound tourism jump from 10m visitors a year to almost 32m in 2019. Analysts estimated that those numbers would be boosted in 2020 by another 2m.

Observers say it is premature to expect a rescheduled 2021 games to provide any additional economic boost.

Kiichi Murashima, Japan economist at Citigroup, offers a stark assessment of what might happen next. On one reading, he says an estimated ¥275bn of spending by inbound visitors could be lost. Even if the macroeconomic impact of the postponement is not as large as some fear, he says the damage to some sectors is likely to be severe.

FILE - In this April 4, 2016, file photo, Team Canada's Hayley Wickenheiser wears her silver medal after losing 1-0 to Team USA in the gold medal game at the women's world hockey championships in Kamloops, British Columbia. Regional Olympic officials are rallying around the IOC and have backed its stance on opening the Tokyo Games as scheduled. Their support comes one day after direct criticism from athletes amid the coronavirus outbreak. “I think the IOC insisting this will move ahead, with such conviction, is insensitive and irresponsible given the state of humanity,” said Wickenheiser, a four-time Olympic hockey gold medalist from Canada. (Ryan Remiorz/The Canadian Press via AP, File)
Hayley Wickenheiser, the former Canadian ice hockey player who represents athletes as an IOC member, called the continued insistence that Tokyo 2020 would go ahead as planned ‘irresponsible’ © Ryan Remiorz/AP

“The policy response will be critically important, in order to prevent corporate bankruptcies especially of small firms and the resultant impact on credit costs of financial institutions,” wrote Mr Murashima in a note to investors, adding that total loans by domestic banks, shinkin banks — regional lenders — and other financial institutions stood at about ¥3.5tn to the accommodation industry and ¥4tn for eating and drinking services at the end of March 2019.

If Japan is seen as suffering a particularly heavy hit from coronavirus because of its preparations for the games, that could also be awkward for the IOC. The Olympics — facing increasing scepticism over the business model of the games and a shortage of bidders — desperately needed a host as gung-ho and as deep-pocketed as Tokyo.

Mandatory Credit: Photo by FRANCK ROBICHON/EPA-EFE/Shutterstock (10593353d) Tokyo Governor Yuriko Koike holds a board reading 'explosive infection crisis' during a press conference in Tokyo, Japan, 25 March 2020. Tokyo Governor Koike asked for people to not go outside this weekend following a sharp increase in the number of coronavirus infections in Tokyo. So far, 200 people have been tested positive to the coronavirus in the Japanese capital. Coronavirus pandemic in Tokyo, Japan - 25 Mar 2020
Tokyo Governor Yuriko Koike has warned that the city could be locked down as it faces an ‘explosive infection crisis’  © Franck Robichon/EPA

Bent Flyvbjerg, professor of major programme management at Oxford university, is author of a 2016 report on Olympic finances that convinced some cities to withdraw their bids as potential hosts. His study of winter and summer games dating back to 1960 shows that costs have always overrun and the hosts have consistently overestimated the benefits that would accrue.

“The optimism is natural,” says Prof Flyvbjerg. “[But] there is always a huge discrepancy between the expected revenues and what is actually delivered.”

After the games were postponed, Yasuhiro Yamashita, the president of the Japanese Olympic Committee, said that the time had come to “reset our mindset”. It was an emotional exhortation to do what Japan has been forced to do so many times before after devastating earthquakes, war and even the arrival of foreign gunships at its coast in the 19th century. Some doubt that is possible, others suspect that Japan, with its history of constant adaptation to disaster, may be uniquely well placed to do so.

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