Cancel the Olympics? Economic Effect of a Second Delay
As the world continues to grapple against the invisible enemy, the future remains uncertain. Many events are either postponed, moved to a virtual setting, or completely canceled.
Trump announced the cancellation of the Republican Convention in Florida, the state that has recently become Ground Zero for the virus. On the other hand, the NBA season has picked up again in the heart of Orlando in the Disney ‘bubble.’ There is little consistency in the great state of Florida. Are we surprised though?
Even though the US has surpassed China and Europe with the highest number of virus cases, other countries who have done a better job of controlling the pandemic are also regrouping, postponing, or even canceling events. Arguably, the biggest event in the world, the Olympics, is now under the microscope.
Summer of 2020 was supposed to be the summer of the Olympic games, but as with everything else, changes were made. Postponed to 2021, the Olympics still do not seem the safest bet for the nation of Japan. With less confidence and no viable vaccine to be available soon, the effect of an Olympic cancellation can add fuel to the fire, further burning many industries and the Japanese economy.
The Olympic games themselves are not valuable to the host nation. Japan does not have the rights to the games; Japan gains economic benefit from the Olympic effect, or the increased tourism, consumerism, and manufacturing. Disruption of this effect either from another delay or cancellation can have dramatic effects on private industry and the economy of Japan.
No Fly Zone
1.17 million. That is how many tourists visited the Rio 2016 Olympics. That can fundamentally change the economy of an entire city, nay an entire country. Loss in revenue is the silent killer. The question that the economy of Japan will continue to ask itself for years to come is ‘how much money COULD we have made?’
The hit on the airline industry is obvious. Just from the impact of COVID, Delta has lost 56%, Southwest 43% and United 56% of its stock price in the YTD. The buybacks and relief packages may have given the airlines a second breathe, but can it afford losing the travel caused by the Olympics? Yes, but it is not pretty.
The trickle down effect of less travel has an impact on another industry: oil and gas. We saw the detrimental effect the global shut-down caused to oil and gas producers. With everyone hunkered into their homes, borders shut down, and cases rising, summer travel, business trips, and general commute decreased, causing a decreased demand for oil.
Simple economics: decrease in demand combined with an increase in supply leads to a decrease in price. With more postponed events, more restriction, and less confidence, many airlines’ bottom dollar cannot withstand another fatal revenue blow. Buybacks have already been done in the US, but foreign airlines might not have the same luxury that the Trump administration has bestowed upon them.
Airplane manufacturing companies like Boeing are already seeing decreasing demands in new airplanes, and as smaller airline companies begin digging for gold, they will not find it in former lifelines like the Olympics.
No, most airlines will not go belly-under, but also do not expect that airlines get a rejuvenation or revamp anytime soon, especially if the Tokyo Olympics get delayed or canceled. Quarterly earnings and the short-term outlook for airlines cannot be predicted accurately. Why? Sentiment is changing too fast, and the second-wave of the pandemic is hitting nations harder than the first wave.
AirbnBust
The hotel and hospitality industry cannot catch a break. The still young Airbnb does not have the same lifelines as more mature competitors like Hilton. Airbnb may have seen a huge boom in PR and revenue when it announced it would be an official sponsor of the Tokyo Olympics.
Promising cheaper and more personal stays, Airbnb was poised to become a leader in the hospitality industry post summer 2020. It would have been in the same breath as its major competitors, but again with the postponement and less consumer confidence, Airbnb faces the uphill battle of losing a huge short-term boost that would have been the Olympics.
Like the airline industries, Airbnb’s short term outlook remains uncertain and rough. The main issue is that with the global shutdown already hitting the industry hard companies like Airbnb or the airlines are pushed up against the ropes, and they are waiting for the round to end.
Airbnb was able to raise 1 billion USD in April through private funding. Its valuation dropped from 31 billion USD to 18 billion USD. For a company that was preparing to go public in late 2020, Airbnb’s private equity holders are now feeling the fire, even its leadership team. Do not be surprised by the departure of those in leadership. The virus is poking holes in many industries and companies, and Airbnb’s youth does not help.
Regardless, Airbnb needs to catch a break. That break can be the Olympics in 2021. The problem is: will it happen in 2021?
Japan is Drowning
Japan did a great job flattening the curve to all-time lows in mid-May. Not so much now.
They opened their economy and thought that life could go back to normal. Cases are now increasing at a greater rate than at the peak of the first wave. This has caused growing sentiment amongst the people of Japan to cancel the Olympics altogether.
A chart from the Economist showed some alarming statistics. I have attached the link to the article at the bottom.
Over 60% of surveyors who were Japanese adults stated that the Olympics cannot be held in 2021. 35% mentioned it should be canceled with 20% saying that it should still be held in 2021. The rest explained that it should be delayed.
That is frightening. It should scare the crap out of industries, sponsors, marketing firms, and most importantly sports-fans.
Japan’s economy is not so good.
“There’s no mistake that there will be a downward revision (of GDP),”
said Takeshi Minami, chief economist at Norinchukin Research Institute.
Daniel Leussink of Reuters wrote,
“Manufacturers’ spending shrank by 5.3% in January-March from the same period a year earlier, compared with an initial estimate of a 0.6% increase, while non-manufacturing spending rose 2.9%, down from 6.2% seen originally.”
This has become a melting pot of unfortunate events. Japan’s political situation may be in danger with the growing tensions between China and the US. Japan now is in between rock and a hard place and how it maneuvers its economic ties will be interesting to watch.
What Now?
The Olympics games draw fans and patrons from all across the world. It draws people of all nations to root for their home country and support phenomenal athletes. Another delay or cancellation can be heartbreaking for athletes and fans. It can also be detrimental to the economy of Japan and private industry.
A cancellation or delay until 2022 will be a reflection of the future. It is a future where large international gatherings like the FIFA World Cup, Winter Olympics, and festivals will not occur for years to come. As the world slowly but surely plans to recover from the pandemic, new economic and health policies must and will be put into place that will inevitably affect the way the Olympics and other major events affect local and federal economies.
The push back from the people of Japan can have rippling effects across the global markets. A delay or cancellation may be another drastic blow to many industries, domestically within the US and in Japan. Including other economies, Japan is playing against the clock.
Markets must prepare for the worst. No one would have imagined that the Olympics would have been delayed. A second delay is not out of reach. Even if the Olympics were to continue without fans, it is not a powerful remedy in an economical sense. Remember that Japan does not make money from the games; it makes money from the effect of the games.
As the world adjusts to a new normal, the way we analyze world events must be viewed with an all-seeing eye. We often do not directly see the effect of certain events on world markets. It becomes prevalent (and even costly) when those effects do not happen.
