[English Version, for Japanese Version, click here]
In the Summer of 2020, Tokyo will once again host a Summer Olympics, with a lot at stake for Japan’s government and corporate sponsors. What impact can we expect to the Japanese economy, and how will Japan’s corporate sponsors leverage the event? Let’s explore these questions.
A Little Background
Tokyo joins a short list of seven cities to have hosted the Olympics twice, having last hosted in the summer of 1964. The 1964 Olympic Games were significant for Japan, as they provided:
a re-welcoming of Japan into the global community after the Second World War
the centerpiece for a major modernization project for Tokyo
a global showcase of Japan as a new hub of business and technology
Japan has submitted bids to host summer games since then, such as the 2007 bid for Summer 2016, which was awarded to Rio. The 2020 bid was led in the 2011 timeframe by then Tokyo Governor Shintaro Ishihara, and the 2020 Summer Games were awarded to Tokyo in September of 2013, less than a year after Shinzo Abe took office as Japan’s Prime Minister. With the games now less than one year away, the majority of the investment, preparation, and planning is already complete.
Hosting the Olympics: Costs, and Benefits
In their 2016 study, Going for Gold: The Economics of the Olympics, economists Baade and Matheson evaluated costs and benefits of hosting an Olympics and concluded that:
in every case costs are underestimated (as has been the case in Tokyo)
hosts usually lose money, and taxpayers usually carry the majority of the burden
While initial cost estimates for Tokyo 2020 were around $7B in 2013, some estimates put that figure at $20+ billion, which would make this the third most expensive Games of all time behind Beijing 2008 and Sochi 2014. Debate continues about whether all of the $20B+ expenses are fully attributable to the Olympics, as some construction and revitalization projects might have occurred in some form with or without the Olympics, creating some fuzziness around the true cost. The Tokyo Metropolitan Government recently released a figure of 1.35T JPY ($12.6B). Regardless of how categorized, infrastructure spending will peak in the 2018 timeframe, with about 90% of the sports venue construction complete as of July 2019. Regarding longer term prospects for payback from increased tourism, since 1988, only two Olympics, Barcelona 1992 and Salt Lake City 2002, have shown statistically significant positive growth in tourism due to the Games and likely because they were “hidden gems”, overshadowed by nearby cities that were better known. Tokyo is hardly hidden or unknown, and so will not see this kind of benefit. However, with tourism identified as a pillar of economic growth by the Japanese government, steps have already been taken to get the most out of Tokyo’s Olympic exposure, from easier visas to lower airfares that have stimulated Japan’s tourism industry. Abe sees tourism as a pillar to take the Japanese GDP to 600 Trillion JPY ($5.6T) by 2030 . Tourism is already way up, and the new 2020 target of 40M visitors is double the initial goal of 20M visitors by 2020, which was set back in 2014.
Japan’s Olympic Sponsors
The timing of benefits are different for Japan’s Olympic sponsors. Their big moment in the sun still lies ahead and their payback is still to be determined. A challenge to their return on investment is that Japanese corporate sponsors are agreeing to record-high sponsorship deals with the International Olympic Committee (IOC). Corporate Olympic sponsors fall into two categories:
Worldwide Olympic Partners with multi-year deals that span multiple Olympics
Tokyo 2020 Sponsors (mostly Japanese Companies)
We’ll look at each category, and consider what some participants hope to gain from their sponsorship fees, which total $3.1B.
1. Worldwide Olympic Partners
The elite list of Worldwide Olympic Partners is small - only 13 companies, 3 of which are Japanese. The details of their sponsorship deals with the IOC are shown in the following table, with deals struck after Tokyo won the Summer Games in 2013:
These new deals essentially reset the bar for pricing well above the historical values of about $25M per year. However, Japanese companies aren’t the only ones paying higher than average prices to the IOC for Worldwide Olympic Partnerships - in 2018 China’s Alibaba signed a 12 year worldwide sponsorship deal that sources have reported at around $800M, an average of over $65M per year. Motivations vary by vendor - for Panasonic it is more about selling AV technology solutions for the Olympics, whereas Toyota and Bridgestone focus on the marketing and branding value for global sales. There is evidence that hosting an Olympics has a positive impact on trade - Toyota and Bridgestone are counting on that. Toyota’s “Start Your Impossible” campaign is designed to spread the brand message that every person, in every part of the globe, should have the “freedom of movement” - a very feel-good message and a clever way to introduce robotics, an area where Japan and Toyota have a lot to offer. Toyota is also set to debut small level-4 autonomous boxy electric carts at the Olympics which will they say will be utilized to transport athletes and staff inside the Olympic Village. We would hope to see evidence that Toyota’s autonomous capabilities are somehow differentiated vs what self-driving global leaders Alphabet/Google/Waymo and Tesla can already do. If nothing else it will raise awareness about the potential of autonomous vehicles. With Prius sales lagging in the US, Toyota will also highlight refreshes to their line of commercial EVs. One innovation we’ll see that is quite unique to Japan and promoted heavily by Japan’s government is hydrogen fuel powered cars and buses. Japan would like to see a home grown hydrogen-fueled society, since they’re the world’s largest importer of Liquified Natural Gas (LNG) and they are among the top four coal and oil importers. If Toyota’s Mirai hydrogen car doesn’t catch on any time soon, at least Japan’s Panasonic has placed a bet supplying batteries to Tesla. However, the Tesla/Panasonic relationships is showing some strain, and Tesla’s ramping up in China brings new non-Japanese battery arrangements with it, demonstrating how competitive pressure from neighbors in Asia and elsewhere continues to get more intense.
2. Tokyo 2020 Sponsors
Tokyo 2020 has been an anomaly in terms of high corporate sponsorship pricing, lack of exclusivity below the Worldwide Olympic Sponsor tier, and a high number of sponsors overall. Some executives feel they were pressed into national service.
“In hard, practical terms, I am getting nothing,” says a top executive of a major Japanese company which paid around $100m to become one of the 15 domestic “gold” sponsors. Financial Times, August 15, 2019
Despite such concerns, a large field of Japanese sponsors below the worldwide level will use Tokyo 2020 to showcase many of Japan’s innovative technologies. See a complete list of sponsors here and a sampling of showcased technologies below:
JR East will display the efficiency of the Japanese train system, show off the new, quieter Shinkansen N700S Supreme, and might even debut their Maglev train which is planned to go into service in 2027.
NEC’s public safety group will pioneer the use of facial recognition technology to grant venue access to athletes, officials, and staff
The Olympics are a global event and the Games will need to be convincing and compelling for more than just the Japanese. Debuting technology of the future is all fine and well but truly global and competitive offerings will need to follow it up in order to justify the cost of the marketing event that will be Tokyo 2020. The true importance of the Olympics to Japan’s business community and economy reaches well beyond the direct economic benefit (or cost) of the 2020 Tokyo Olympics. The event is a multi-billion dollar marketing event for the Japanese nation and its business community. Whether Japan’s bet on the Olympics has long term benefits for Japanese companies on the global stage rests on two key factors:
Are there key innovations showcased that the world will embrace from Japan? (for example, will the robotics on display be inspirational and commercially viable, or somehow disturbing?)
Will Japanese multinational companies capitalize on an opportunity in the spotlight to become more impactful and innovative outside of Japan, and expand their influence through solid business execution in global markets?
Host the Olympics - Change the World
These games will undoubtedly be the most innovative we’ve seen, and will set a high bar for future sponsors like Beijing in Winter 2022. So will Tokyo 2020 help Japan’s global business standing? By itself, no. The official answer from the Games Vision has nothing to do with that either, but I get a warm feeling from reading it nonetheless:
“Sport has the power to change the world and our future. The Tokyo 1964 Games completely transformed Japan. The Tokyo 2020 Games, as the most innovative in history, will bring positive reform to the world by building on three core concepts:
Striving for your personal best (Achieving Personal Best)
Accepting one another (Unity in Diversity)
Passing on Legacy for the Future (Connecting to Tomorrow)”
There’s a lot to unpack here from religious foundations of the Japanese culture to broadly aspirational vision statements, but let’s save those for future blogs. Until then, let’s go with Tokyo 2020 bringing positive reform to the world - who can argue with that?