Death, Taxes And Olympic Spending Over Budget

by 9 months ago

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Death, Taxes and Olympic Spending Over Budget

The Japanese government’s Board of Audit has determined the country will spend at least $25 billion in preparation for the 2020 Summer Olympics, nearly 4x the amount projected in their ’13 winning bid ($7.3 billion at the current exchange rate). In December 2017, the Tokyo organizing committee operated under the assumption that the 2020 Games would cost $12 billion, but in January ’18 Tokyo Governor Yuriko Koike authorized a project that included “barrier-free facilities for Paralympic athletes, training programs for volunteers, and advertising and tourism plans”, adding $7.1 billion to the budget. Some poor accounting (Tokyo organizers excluded $5.6 billion in expenses from the initial budget) and an increase in national government spending (+$5.8 billion) has pushed the total expenditure on the Tokyo Games to just shy of $25 billion, with the event still 2 years away.

Howie Long-Short: The only guarantee in this life as certain as death and taxes are the Olympics coming in over budget. In fact, “The Oxford Olympics Study 2016” was unable to identify a single Olympiad that came in on or below budget.

The reason the math ($12 + $7.1 + $5.6 + $5.8 = $30.8, not $25) doesn’t make sense is because of ongoing disputes surrounding what is (and what is not) an Olympic expense (think: road construction, incoming tourism) and who bears the responsibility for paying for it. The IOC and local organizers claim much of the money being spent is on “regular administrative costs”, expenses that fall “outside of the overall Games budget.”

It’s remarkable that local organizers and the IOC have said they’ve been committed to cutting spending (by using existing venues, slashing other construction costs) over the last several years and the 2020 Tokyo Olympics are still going to cost upwards of $27 billion, as a “large amount of spending is expected to continue after 2018 leading up to the event”, but tight deadlines and little transparency between government branches, the IOC and local organizers makes it difficult to control costs.

Wondering who is going to pick up the $25+ billion check? The IOC will contribute $1.7 billion and sponsorship, merchandise and ticket sales should account for another $3.6 billion; the balance (80%) falls on Japanese taxpayers.

Fan Marino: The IOC has a new TOP sponsor with Allianz (OTC: AZSEY) agreeing to an 8-year deal (begins in ’21, runs through ’28 LA Summer Games) worth an estimated $400 million; an agreement that also extends the company’s global partnership with the IPC. The German insurance provider intends on using the games to “demonstrate its digital transformation and attract younger customers”. While Allianz has minimal sporting presence in the U.S. (American Jews haven’t gotten over their association with the Nazi party), the company holds the naming rights to 2 major European venues; Bayern Munich’s Allianz Arena and Juventus’ Allianz Stadium. For those wondering, the IOC generated $1.02 billion from its TOP sponsorship program during the 4-year cycle ending in ’16, a +7.6% increase over the quadrennial ending in ’12.

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Champion Driver, Team President Robert Hight on the Business Side of Drag Racing

With 3 races left in the NHRA Mello Yellow Drag Racing Series Countdown to the Championship (their playoff system), Robert Hight is atop the leader board (50-points ahead of J.R. Todd). Aside from being a 2x champion driver, Hight serves as the President of John Force Racing (the team he races for). Robert was recently in New York and JohnWallStreet had the chance to sit with him to discuss how drag racing became a billion-dollar business, why NHRA has one of the youngest fan bases in sports and the importance of car sponsorships.

JWS: Drag racing has become a billion-dollar industry. Where is the money coming from?

Robert: It’s really driven through sponsorships and attendance. Fans have to come to the races and then we need them to tune in on TV. It (the sport’s economics) really changed when Fox Sports took over (the television contract in 2015) and our viewership grew by more than 70%, because you need eyeballs on your sport (to generate the big sponsorship dollars).

JWS: NHRA has one of the youngest fan bases among all sports properties. Why is that?

Robert: It fits the new generation. They (the fans) don’t have to sit in the stands and watch cars go round and round for 3-4 hours. There’s some racing, you go back in the pits – there’s some entertainment back there – watch some more racing; it just fits the attention span of today’s youth.

JWS: Is the NHRA business model so reliant on sponsorship that if a team were to lose a major sponsor, they would be forced to fold-up shop?

Robert: It costs $4 million to run a single NHRA Funny Car for a full season. We could not compete if we lost a sponsor, the hope would be to find a new one. Our organization signs long-term deals (to avoid that fate). We don’t sign year-to-year deals, it’s a 3-year minimum.

JWS: Nearly all NASCAR tracks are publicly owned. Is that the same with NHRA drag strips?

Robert: No, most of them are private – a lot of family owned tracks, but Bruton Smith owns quite a few of our events and honestly, they are the best events we go to. Beautiful tracks, beautiful facilities, very well run.

Howie Long-Short: Robert’s primary sponsor is Advance Auto Parts (AAP). Back in August, the company reported Q2 earnings. Sales (see: brakes, batteries & Spring related categories) rose +2.8% YoY (to $2.33 billion) with comparable stores growing sales +2.8% (nearly twice the +1.5% max projected for FY18), as EPS climbed +24.6% YoY (to $1.97). AAP also announced its board had approved a $600 million share repurchase program to replace the $500 million program ($415 million remained) approved back in ’12. Shares are +12.6% since earnings were reported in mid-August and are +54% YTD. They’ll open at $163.17 later this morning (10.11.18).

Fan Marino: Bruton Smith is the founder and CEO of Speedway Motorsports, a publicly traded company (TRK) that owns 9 racing venues (that hold NASCAR, IndyCar and NHRA events); Atlanta Motor Speedway, Bristol Motor Speedway, Charlotte Motor Speedway, Kentucky Speedway, Las Vegas Motor Speedway, New Hampshire Motor Speedway, Sonoma Raceway, Texas Motor Speedway and North Wilkesboro Speedway. Back in early August, the company reported Q2 total revenues had declined -2.4% (to $4.2 million) as the company “experienced poor weather during almost all of the events it held during the quarter.” TRK shares will open at $16.64 on Thursday (10.11.18), just north of their 52-week low.

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What is JohnWallStreet?

JohnWallStreet, located at the intersection of sports and finance, is a destination for the educated sports fan.

While we won’t be publishing “hot takes” on LeBron’s relative greatness to Jordan, we will be offering up the most relevant sports related business news, in easily digestible bites, with commentary from both the sports money and sports fanatic perspectives.

We’ll cover publicly traded professional teams & stadiums (MSG, RCI, BATRA, MANU), television networks (DIS, FOXA, CMCSA, CBS, TWX, MSGN), apparel & footwear companies (NKE, UAA, ADDYY, FL, LULU), equipment companies (GOLFELY, FIT), ticketing companies (EBAY, LYV) content and facilities providers (CHDN, DVD, ISCA,TRK, LMCA).  If it trades on Wall Street, and has a sports angle, it’s in our wheel house.

Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star, blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.

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TAGS2020 Tokyo OlympicsNHRAOlympicsRobert Hightsports finance report