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Commentary

A Run-Through of the Tokyo Olympics

March 25, 2021

COMMENTARY

Dear Clients and Colleagues:

From the onset of the COVID-19 pandemic in 2020, questions were raised about the feasibility of hosting events, such as the Tokyo Summer Olympics, which were expected to be one of the more notable economic casualties. In what marked a year of many firsts, the International Olympic Committee (IOC) made the unprecedented decision to postpone the event to 2021, instead of cancelling it. Why is that? An easy answer would be that the only other times this decision had to be made, during World Wars I and II, decision-makers did not know how long the Olympics would have to be postponed, making it an easier choice to cancel the games altogether.

A more thorough look at the economics of Olympic events provides a more complex answer. It is well known that hosting the Olympics is a costly endeavor, and has become more so over the years as the number of participating countries and number of sports have increased significantly. Since 2000, the average cost of hosting the summer Olympics has been upward of US$5 billion in infrastructure investments and operational costs. Further, the benefits of hosting the event are heavily debated, with many arguing that there is no net benefit, even when accounting for indirect gains from tourism and other variables. As such, following the US$45 billion Beijing games in 2008 and the US$20 billion Rio de Janeiro games, many cities voiced their skepticism and withdrew their candidacy for the 2022, 2024 and 2028 games. The wave of withdrawals forced the IOC to assign the 2024 and 2028 Olympics to Paris and Los Angeles as early as 2017, as they were the only remaining viable options.

With that in mind, it is not hard to imagine why the IOC would be wary of not giving Tokyo the opportunity to recoup some of its costs after almost a decade of preparation and a well-known failed bid for the 2016 Summer Olympics and Paralympics that cost the city US$150 million. Indeed, the Olympic Committee has strict infrastructure requirements for hosting the summer games, which is usually much bigger in scope than the winter games. For example, the committee requires the host city to have a minimum of 40,000 available hotel rooms, in addition to other transportation requirements, such as airport capacity and train lines¹.

One of the more direct ways for host cities and the IOC to recoup their costs is through sponsorship programs. The highest level of partnership is through the Olympic Partner Programme, which grants category-exclusive marketing rights to the Summer, Winter and Youth Olympic Games to a select group of global companies and is used to fund IOC activities and costs. Created in 1985, the Olympic Partner Programme provides the IOC with a range of support, such as technology, staff deployment, marketing, essential services to athletes, and broadcasting experience.

Under the Olympic Partner Programme there are three categories of local sponsorships to support the staging of a specific Olympic event. The local sponsorship programme for the Tokyo Olympics is comprised primarily of Japanese companies that stand to enhance the image of the events. Unlike other sporting events, no commercial advertising is allowed at the venue under the Committee’s clean venue policy. Instead, the sponsors obtain various levels of rights to use Olympic and Paralympic designations and imagery, such as the logo, as well as to the right to supply their products and services to athletes and spectators.

Global Alpha owns shares in a company that is directly involved in the local sponsorship programme for the Tokyo Olympics: ASICS. ASICS is a renowned manufacturer of sports shoes, sportswear and sports equipment that sponsors many Olympic athletes around the world involved in activities such as tennis, running, wrestling and more. Headquartered in Japan, the company was created in 1949 under the name of Onitsuka Tiger. The modern name ASICS is derived from the Latin proverb “Anima Sana In Corpore Sano,” which means a “sound mind in a sound body,” and the company has remained committed to this philosophy to this day.

In 2015, the 2020 Tokyo Olympic Committee announced that ASICS was selected as a gold partner of the Tokyo 2020 Olympics, the highest local sponsorship level, and that it would be supplying the uniforms for the Japanese teams and volunteers. Under the IOC product-category exclusivity policy, ASICS is the only company allowed to advertise under the sporting goods section, often thought to be one of the more lucrative sections. We expect the company to hold up well to the scrutiny stemming from the exposure.

Strength

  • Solid brand recognition
  • Strong expertise in biomechanics and material science, reflected in their shoes’ quality
  • Outstanding ESG profile

Weakness

  • Lagging in fashionable sports shoes and sportswear

Opportunities

  • Growing worldwide interest in healthy activities, especially performance running  
  • China embracing performance running, as reflected in the number of marathon events rising rapidly

Threats

  • Competition within the industry
  • Rising costs of raw material and labor

While the company is not allowed to disclose the cost of the sponsorship, it expects to spend a total of $US128.5 million on event-related expenses. Unlike some of the experiences of past host cities, there is good reason to believe that Asics will be able to make a profit from its investment, and that the event will provide a good tailwind for the company over the next few years.

Have a good day.


The Global Alpha team

1 Going for the Gold: The Economics of the Olympics

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