By Sujit Bhar
What happens if the Tokyo Olympic Games, already postponed once because of the Coronavirus pandemic, are forced into another postponement or even a cancellation? One of these looks very probable now, with the US government’s recent advisory to its citizens to not travel to Japan due to Covid 19. Such an advisory, just two months ahead of the Games—the Olympics are scheduled to run from July 23 to August 8, and the Paralympic Games from August 24 to September 5—is bound to shake up all Olympic bound nations, including India and, then, is bound to induce insomnia in financial institutions, including major insurance companies.
Most importantly, though, a cancellation could leave the organisers—and Japan, to be specific—with a loss of up to $43 billion, according to a recent study, a postponement will incur a loss of $6.2 billion.
The US advisory came from the Centers for Disease Control and Prevention (CDC). It is what is called a Level 4 Travel Health Notice for Japan due to Covid-19, indicating a “very high level of Covid-19 in the country.” The advisory also said that there are restrictions in place affecting a US citizen’s entry into Japan.
The resistance to the Olympic Games, postponed from last year, has come from the citizens of Japan themselves. According to a recent Kyodo News survey, almost 80 percent of Japanese people want both the Games to be cancelled or postponed. Some want it pushed to 2024 (when Paris is scheduled to host the Olympic Games).
If the financial details are massive, so are the legal knots. When the first call for the postponement of the Games had come up, the International Olympic Committee (IOC) had signed an agreement with the then Japanese Prime Minister Shinzo Abe. The agreement said that the Games “must be rescheduled to a date beyond 2020 but not later than summer 2021…” The reason the IOC gave for this was that this had to be done to “safeguard the health of the athletes, everybody involved in the Olympic Games and the international community.”
That is complete hogwash. The IOC is more intent on protecting its bottomline and itself from the multiple litigations that it could face if the Games were postponed further or cancelled. The IOC has little interest in “safeguarding the health of the athletes” or of anybody else, for that matter.
The financial implications for Japan and the sponsors are humongous. Even if the two Games—Olympics main and the Paralympic Games—are held before empty stadiums, according to a study conducted by Prof Katsuhiro Miyamoto of Kansai University, there will be a $3.7 billion loss in spending related directly to the Games. This is 90 percent of what was originally projected for the event.
An Olympic Games is not an IPL match. It is a series of events in which an entire country participates, in which hundreds of thousands of spectators mill around, buying tickets, souvenirs, visiting venues and staying in hotels. It is a complete ecosystem in itself. The Olympic Games change the spending pattern of a people. According to Prof Miyamoto, household consumption expenditures would halve to $2.7 billion (from what had been projected) and there will be concomitant reduction in corporate marketing activity.
Other projections were about promotional sporting and cultural events which would be slashed to $8.2 billion, again half of previous levels. The entire preparatory mode of Japan’s tourism industry—which might have been an antidote to Japan’s decades-long deflationary trend—would just disappear into thin air. It can be argued that such projections for this sector were, anyway too optimistic within this Covid atmosphere, but with the waning of the first wave, there was hope that certain sections of events could be resuscitated.
For another postponement, according to Prof Miyamoto, there could be losses of up to $6.2 billion. Even if the stands aren’t empty and, with strict social distancing, the numbers are reduced to half, that segment would see a loss of $13.5 billion.
These are scary figures for Yoshihide Suga, who took over the premiership of Japan from Shinzo Abe in September 2020. With Suga forced to declare a state of emergency in several areas, including Tokyo, and then with Kyoto virtually crumbling recently under the pressure of infections, the situation is dire.
That, however, is the tip of the iceberg of problems. When IOC President Thomas Bach claimed recently that there was “no reason whatsoever” for the Olympics not to open on July 23 and that there was no “Plan B”, he sounded pretty hollow. It has yet to be decided by Tokyo 2020 President Yoshirō Mori whether spectators will be permitted to attend the Games. And this is the face of 4.48 million tickets already sold for the Olympics and 9,70,000 for the Paralympics. Here is the rub. The tickets are valid for 2021, with only 8,10,000 of Japanese ticket holders for the Olympics requesting refunds last month. What happens if it falls through? Who picks up the tab, and who fights the numerous cases?
The organisers and IOC may face legal nightmares aplenty. What the Olympic Games involve are about 11,000 athletes, 15,000 media personnel and millions of coaches, spectators and volunteers. The entire system can barely function contact-free. People will meet people, surfaces will be touched and shared and it will definitely turn into a super-spreader event. It will be a high risk event.
If the Games are not held, thousands of contracts and sub-contracts will fall through. The force majeure part of the contracts may not help, because of the inherent limitations of force majeure.
Force majeure is a term used in contracts to describe unforeseen events, outside a party’s control, which may exempt a party from liability. During this Covid pandemic, this insertion in contracts has saved several business contracts around the world where businesses may have experienced supply chain disruptions or interruptions that impacted their ability to perform under a contract.
However, force majeure is not intended to excuse negligence, misconduct, or any other impropriety of a party, or situations where the intervening circumstances are specifically contemplated by the parties or already accounted for in the parties’ agreement. To put it simply, only an unforeseen contingency which alters the essential nature of the performance can be considered under this. What happens when a regular contract is expected to be executed in an acknowledged and proven high-risk environment? One cannot wish away the risk factor within a Covid-ravaged atmosphere where you want to go, knowing fully well the risks involved.
Consider an event involving highly insured individuals—an athlete such as Usain Bolt would qualify as an example, though he will not be competing. Which insurance company will be willing to risk its reputation and its money in insuring Bolt in a race where there are more than enough chances of being infected? Which athlete in a contact sport—wrestling and judo, for example, as well as swimming, where the medium of water may be the cause for infection—will be insured in this specially charged environment?
Insurance providers often avoid coverage to high-risk category personnel. In India some insurance providers offer life insurance coverage to the armed forces and these insurance packages vary from the usual packages offered to the general public. Will it be possible for all Indian athletes, say, to get these specialised insurance cover for this specific period, while putting their general insurance covers on hold? This has not been looked into, either by the Indian Olympic Association or the IOC. Will the IOC or the Japan Olympic organising committee be willing to insure all participants against any possible infection during the duration of the Games? There has been no word on that. All the IOC has promised is a contingent of doctors and personnel to make sure everybody is safe—a cheap and useless promise by any standard.
The IOC is in a fix. It stands to not only lose billions of dollars in sponsorship and television contract monies, but also stands to be sued in the billions if such television contracts are not honoured. Moreover, the IOC has the responsibility of ensuring that it recovers a certain amount of monies that it spends every year on sports promotion. The Olympic Games is the biggest property that the IOC owns. It has to sweat it vigorously to stay alive.
For Tokyo, the spectre of cancellation has not gone away altogether. The Olympic Games had been cancelled during the two World Wars. The 1940 Summer Games, scheduled to take place in Tokyo, were postponed due to war and moved to Helsinki, where they were later cancelled altogether. However, those days the Games weren’t so gigantic, economically. The loss was only for the athletes. Today every section of the Games is tied to another.
How big are the contracts that are in peril through a possible cancellation? Nearly a decade back, the NBC and the IOC agreed on a $4.4 billion deal that runs through the 2020 Olympics. The deal was extended to 2032 later, with NBC agreeing to pay $7.8 billion. How did the NBC agree to pay such a humongous amount to the IOC? The NBC had done substantial research into viewership, promotion, advertising and related factors that influence the value of a broadcast deal. These projections did not consider any pandemic situation. Even if there was a warlike situation contemplated, it would have been covered in the force majeure clause, protecting the IOC. One postponement is what the IOC can tolerate, financially. A cancellation? Never. Hence no Plan B.
It is possible that even another postponement can be adjusted relatively amicably among contract partners. There could be renegotiations. But with monies already paid, the IOC will remain under the obligation to deliver, and deliver quickly.
After all, it’s business all the way. And people’s lives matter little. This selfishness was evident as the Greek government went into a debt of 12 billion Euros in just hosting the Athens Olympic Games in 2004, one of the key reasons for the country sliding into bankruptcy later. Greek citizens had protested vehemently against the Games in a crumbling economy. Neither the country’s government nor the IOC had cared. Tokyo is reeling, under a different emergency today. And it does not matter that there is no plan B.
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