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Volume 23 No. 9
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Disruption of Olympics would mean a steep cost

The Games are scheduled to start in Tokyo on July 24, with billions of dollars at stake.
Photo: getty images
The Games are scheduled to start in Tokyo on July 24, with billions of dollars at stake.
Photo: getty images
The Games are scheduled to start in Tokyo on July 24, with billions of dollars at stake.
Photo: getty images

Every four years, the Summer Olympics kicks off a multibillion-dollar global transfer of cash: Broadcasters and sponsors give fees to the International Olympic Committee, which then turns over much of that money to about 250 sports properties spread across every continent, many of which then further distribute funds to athletes and local organizations.

 

But the coronavirus pandemic has cast serious doubt on that process for the first time in modern Olympic business, meaning that a cancellation or serious disruption to the Games would have far-reaching ramifications throughout global sport.

Some of the recipients depend immensely on the transfers, such as the International Sport Shooting Federation, which raises just one dollar from its own operations for every four it receives from the IOC. Others receive smaller but still crucial amounts, like the U.S. Olympic & Paralympic Committee, which received IOC payments equaling about 44% of its total top line during the four years ending with Rio 2016 (but the USOPC returns some back to the IOC under its unique contract).

This is not to suggest the recipients are necessarily in dire straits if the Games are canceled — the IOC has a $2 billion cash reserve plus event cancellation insurance. But exploring the path of money around the Olympic movement illustrates how complex and fraught is the IOC’s decision about Tokyo.

First, consider the outsized importance of the Summer Games. In the four-year Olympic budgeting period that ended with Rio 2016, 61% of all IOC revenue came in the final year, $3.52 billion out of $5.66 billion. Of that sum, 72% came from global broadcast rights fees.

NBC’s $1.22 billion rights fee for Rio 2016 alone was 21.5% of the IOC’s total revenue in the quadrennial. This year, NBC is to pay $1.41 billion, per its 2011 rights agreement.

But the overwhelming majority of the broadcasters’ promised rights fee for the Tokyo 2020 Olympics isn’t actually paid until the Games, a little-known detail that is becoming more relevant by the day. Earlier this month, IOC President Thomas Bach said he did not to know the details of its event cancellation insurance, but prior to London 2012 the body said its policies were designed to defray forgone broadcast money.

Sponsorship income is treated much differently, and is less susceptible to a possible cancellation. Global sponsors pay every month or quarter of their term, and their contracts generally do not include a guaranteed refund if the Games don’t occur — only that all sponsors will be treated equally in that case, said Terrence Burns, executive vice president of global at Engine Shop. That’s because sponsors, at least theoretically, derive value from their exclusive association with the Olympics year-round, in every country.

That is notable this year because sponsorship revenue has grown much faster in the past few years than media rights. However, broadcast rights still make up the majority of the pie.

Most at risk is the IOC’s Solidarity Fund, which redistributes broadcast fees with an emphasis on poor countries and athletes. The IOC budgeted $509 million in grants to dozens of national Olympic committees and athletes from 2017-20, a figure based on broadcast revenue from the 2016 and 2018 Games.

All told, the IOC distributed $540 million to the 206 national Olympic committees from 2013-16, and another $540 million to the 40 international federations that govern Olympic sports, according to financial reports. It sent the USOPC $404.4 million in that same period.