The Economic Impact of the Tokyo 2020 Games

[CONTRIBUTED ARTICLE] Just how much of an economic impact did the spectator-less Olympic and Paralympic Games Tokyo 2020 have? Nagahama Toshihiro, chief economist at Dai-ichi Life Research Institute Inc., explains.
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1.4 Trillion Yen Loss Without Spectators

Last year's Tokyo 2020 Games were, unfortunately, held without spectators. It could be said that in light of the spread of COVID-19 in Tokyo, the decision to hold the event without spectators under the state of emergency was unavoidable.

However, it is highly likely that nearly 80% of the Tokyo 2020 Games' economic impacts had already materialized a year prior to the event.

That is because if we apply the upward swing in the average economic growth rate of countries that have hosted the Summer Olympics since Los Angeles in 1984 to the current scale of Japan's economy, the boost to GDP (gross domestic product) would be 9.2 trillion yen in the three years leading up to the Games, and 1.7 trillion yen in the year of the Games alone. The reason why the economic impacts are so great beforehand is because of infrastructure development. And based on past empirical data, a boost to GDP of approximately (9.2-1.7=)7.5 trillion yen is calculated to have already materialized in Japan by 2019.

In this context, the biggest impact from holding the event without spectators was likely the loss of ticket revenue and transportation, food and beverage, and accommodation-related consumption. For starters, the lack of spectators resulted in an estimated loss of about 90 billion yen in ticket revenue. In addition, the GDP boost from hosting the Tokyo 2020 Games without spectators is estimated to have shrunk to around 0.3 trillion yen. As such, holding the event without spectators may have possibly resulted in a loss of about 1.4 trillion yen in GDP compared to if the event had been held in its full form.

Even without spectators, hosting the Tokyo 2020 Games is thought to have had a certain effect on demand accompanying the replacement cycle for durable consumer goods. There was further demand related to transportation, accommodation, food and beverage, and security for the athletes and officials. It can thus be said that although the Tokyo 2020 Games ultimately had no spectators, hosting them in and of itself was a partial economic boon.

Effects on Inbound Tourism Expected Following the Olympics

A further effect of holding the Olympics and Paralympics, even without spectators, is surely the global publicity from acting as host. Japanese landscapes and ads from corporate sponsors were distributed all over the globe across various forms of media, so it can be presumed that even without spectators, the Tokyo 2020 Games were able to generate a certain degree of appeal among those who watched around the world.

In fact, taking a look back at trends in foreign tourism in Summer Olympic host countries since the Olympics were commercialized in Los Angeles in 1984, it can be seen that the number of foreign tourists has increased in many after the Games have been held. This has most likely been due to the fact that improved living standards in emerging countries and the expansion of transportation networks have set inbound tourism on an upward trend, and on top of this, hosting of the Olympics has acted as a supporting factor in attracting foreign tourists.

The industries expected to benefit from these increases in inbound tourism include construction and cement, housing and real estate, and tourism. To begin with, most of the revenue for construction, cement, and other related segments from the stadiums and athletes' villages, as well as other facilities and equipment, has already been realized. But with Japan having hosted the Tokyo 2020 Games, it is expected that these industries will also benefit from post-COVID redevelopment in other areas when inbound traffic increases after the pandemic subsides globally.

In terms of housing and real estate, demand is also expected to increase at hotels and some commercial facilities should the number of tourists increase post-COVID, having temporarily diminished due to the pandemic. In the same vein, it is anticipated that the transportation sector will see a resurgence in tourism to Tokyo as well, which saw development to make the city more attractive and convenient in preparation for hosting the Games.

Further, the media and consumer electronics industries were among those that saw limited adverse effects from the fact that the event was held without spectators. Media companies had been engaged in recruiting sponsors as marketing partners for the Games, benefiting from increased revenue as a result. That said, a negative impact on expected earnings from the Olympics being held without spectators is likely inevitable. In the consumer electronics sector, on the other hand, special demand for SLR cameras and camcorders was lost due to the lack of spectators, but it is highly likely that demand for TVs and recorders was stimulated.

As such, even without spectators, the Tokyo 2020 Games have not only had a positive impact in terms of special demand for home appliances to watch the Games, but are also expected to have a beneficial influence on future inbound tourism.

Success or Failure to Depend on Post-Olympic COVID-19 Infections and Future Inbound Tourism

Nevertheless, hosting the Olympic and Paralympic Games, two of the world's major sporting events alongside soccer's World Cup, was not simply expected to contribute to stimulating sports in Japan as the host nation, promoting social infrastructure development centered around sports facilities, enhancing the name recognition and image of Tokyo as the host city, nurturing public participation and volunteerism, and promoting international exchange among people. It was also expected to bring significant economic activity to the country through increased demand in industrial sectors, particularly in construction, manufacturing, commerce, transportation, and personal services. Hence, it can be said that holding the event without spectators has caused no small loss to not only business performance in related industries but also the national psyche.

However, taking into account the continued rise in COVID-19 infections and the declaration of the state of emergency, no matter how many Games would have been held without spectators, hosting the Olympics would not necessarily have boosted the economy, at least during that period. That is because the state of emergency declared during the Olympic period is estimated to have depressed GDP by about 1 trillion yen. Thus, even if hosting the Tokyo Olympics without spectators had boosted GDP by about 0.3 trillion yen, the net effect would still be a 0.7-trillion-yen loss in GDP with the state of emergency's impact taken into account.

The Tokyo 2020 Games thus had a clear economic impact at least prior to the event, with a boost in GDP accompanying infrastructure investments and other factors, though this impact would have materialized regardless of whether the Games were held or not. In the end, hosting the event without spectators had an extremely limited economic impact, and considering the losses from the state of emergency, the net economic impact during the event may have even been negative. Whether or not Japan can make up for the loss will depend on how much additional inbound demand the country is able to capture following the global return to normal.

Nagahama Toshihiro

Chief Economist, Economic Research Department, Dai-ichi Life Research Institute Inc. In charge of long-term domestic and international economic forecasting, economic statistics, and empirical macroeconomic analysis. Graduated from Waseda University's Faculty of Science and Engineering and received a Master's from the University of Tokyo's Graduate School of Economics. Joined Dai-ichi Life Insurance in 1995, the Dai-ichi Life Economic Research Institute in 2000, and has been in his current position since 2016. Also serves as a guest researcher at the Cabinet Research Office of the House of Representatives' Research Bureau, a member of the Ministry of Internal Affairs and Communications' Consumer Statistics Research Group, and as a part-time lecturer at Atomi University.
Translation by Amitt