The IOC have announced today that the Tokyo Olympic and Paralympic Games will be postponed until 2021.
Many are asking, why did the IOC take so long to make the decision? UEFA made a swift call to postpone Euro 2020, but the Olympic Games is a far more complex beast. Here are just some of the considerations that the IOC will have been mulling over in recent weeks:
The Host City Contract
As is typical with an event of the magnitude and appeal of the Olympic Games, the Host City Contract between the IOC, Tokyo City and the Japanese Olympic Committee strongly favours the interests of the IOC and there will have been little room for negotiation on its terms. Consequently, the IOC has the final say on the scheduling of the Games, a right to terminate where participants’ safety might be threatened and limits the host’s legal remedies. Whilst there are no express provisions around postponement, it seems clear that the IOC has a strong argument for imposing a change of date or even terminating the contract. However, that would have been the last thing that the IOC wanted to do. The business of the IOC relies on hosting the Summer and Winter Olympic Games in each cycle; and the trust and reputation of the IOC and the Games in the eyes of hosts, participants, audiences, broadcasters, sponsors and a multitude of stakeholders is critical. As with many rights holders at this time, whilst it is of course important to understand the contractual position, finding a workable solution, involving the host, and trying to keep as many of those stakeholders as possible happy, will be the IOC’s number one priority – even if the IOC has to spend some money to do so.
Huge amounts of money, resources, manpower, marketing and political capital have already gone into planning for the delivery of the Olympic Games in Tokyo in 2020. Postponement will have a significant impact in all of those areas. The Tokyo budget before this crisis was reported as being around $12.6 billion. Of course, much of this will not be wasted with postponement. However, some will. Expect the final budget to be far higher. Key commitments such as government budget underwrites and tax and immigration undertakings will have to be extended by a further year.Major facilities and infrastructure will have to be secured for the alternative dates. In the case of the athletes’ village, for example, this may well require postponing commitments to private tenants. Contractors will have to be engaged for longer than anticipated; hotel block bookings and pricing commitments will have to be deferred and secured for the new dates; equipment will have to be deferred or alternatively stored for a further 12 months. Some other 2021 events, both sporting and non-sporting, may have to be postponed or cancelled in Tokyo and more widely in Japan to accommodate. All of that and a gubernatorial election for Tokyo likely at some point this year, gives a flavour for some of the logistical headache for the host city.
National Olympic Committees
The National Olympic Committees of each participating nation, and their sponsors, rely on the IOC and the Olympic Games for their income. Planning for the Games is done many months in advance and money on travel, accommodation, staffing and equipment will have been spent and committed in anticipation of the Games going ahead this year.
The safety of athletes must of course be paramount. With the spread of the COVID-19 pandemic accelerating around the world their health and safety can’t be assured – this is undoubtedly the main reason why the Games could not go ahead this summer. Athletes across all sports usually taper their training programmes and events to peak in the summer of for an Olympic Games. The postponement will at least allow athletes to resume training and work towards the rescheduled Games, albeit many may not feel that they are at their peak. For many athletes, 2020 was set to be a bumper year for revenues from ambassador partnerships with brands, particularly following recent easing of Rule 40 restrictions on personal sponsor communications around the Games. Many of these deals will now be on hold. Finally, it is inevitable that the postponement may rob some athletes of their Olympic dream altogether, whether due to health, selection or conflicting commitments.
The 33 International Federations representing the Summer Olympic sports all oversee packed calendars of National, Regional and International championship events built around the 4-year Olympic cycle. The postponement will put these out of synch and likely to require multiple major events (and their associated hosting and commercial arrangements) to also be postponed or even cancelled. The most notable of these is the World Athletics Championships due to take place in Eugene, Oregon in 2021.
Broadcasters will have planned their summer schedules around the Games and have sold advertising revenue around the event. NBC, the national broadcaster for the US, has surpassed $1billion in such sales alone.
Olympic TOP sponsors have also invested billions of dollars in acquiring the rights to associate with the biggest show on the planet and in activating those rights to the global audience. Those activation plans will have to change and some campaigns cancelled, resulting in wasted costs.
Travel and hospitality packages will have been marketed and sold around the Games. These are likely to need to be refunded at significant cost to some companies, and arrangements will need to be put in place for a re-arranged date. On the ground in Tokyo, hotels and local tour operators will have been gearing up for a very busy year, which will now not happen.
The Olympic licensing and merchandise programme is a huge global operation. The IOC has trade mark registrations around the world for “Tokyo 2020”, covering almost all goods and services imaginable and many officially licensed products will have already been developed or even be in production. Will the IOC maintain the Tokyo 2020 brand (as UEFA are reported to have decided for the Euros)?
The Olympic Games is the largest and most complex sporting event on the planet. A multitude of logistics is required to ship people, equipment, provisions and even (in the case of equestrian sport) animals from all around the world to the host city. Within the host city, temporary infrastructure is acquired, contractors and volunteers are contracted and organisational staff are engaged. The number of related contracts is likely to run into the many thousands – all of which would be impacted by the postponement.
Some of the largest stakeholders are likely to have some insurance coverage for direct losses due to event cancellation, although it remains to be seen whether such coverage extends to postponement. Many of the stakeholders will have no insurance coverage for such losses at all. Almost all stakeholders will be out of pocket in some way, making practical commercial measures from the IOC crucial.
Whilst no other rights holder or host will be dealing with all of the complexities that the IOC and Tokyo are managing, there are some lessons that can be learnt across the industry:
- It is of course important to assess what your contractual position is with regard to postponement or cancelation. However, the importance of long-term commercial relationships cannot be ignored – finding sensible, practical, commercial solutions to minimise the damage to key stakeholders is key.
- The host city will often invest the most, through a combination of rights fees and infrastructure and operational costs. This also means that it has the most to lose. Involving the host in decision-making and finding a solution that works for the host are imperative for the delivery of a successful event.
- The scheduling implications must be thought through carefully. There will already be limited windows in 2021 to host an event without the distraction of competing sports and entertainment properties. This needs to be managed with broadcasters, the host and other related organisations such as the IFs in this case.
- For future contracts, ensure that the terms are clear. This includes not just a right to terminate (for example using a standard ‘force majeure’ clause), but also a framework for making decisions around postponement or cancellation, and the financial and practical consequences arising from it.
- There are a seemingly infinite number of different parties affected by a postponement. Sadly, some will lose out significantly. However, this network of service providers, suppliers and staff are critical to the ultimate success of the event. Again, consideration needs to be given to minimising the impact on even the smallest of stakeholders.