Amid growing opposition to the Summer Olympics that will be held in his capital city in July, and amid crescendoing calls from citizens and doctors to cancel the Games, Japanese Prime Minister Yoshihide Suga recently suggested the decision was not his.
“The IOC has the authority to decide,” Suga said last month. “And the IOC has already decided to hold the Tokyo Olympics.”
But what if COVID-19 spreads, and leads Japanese authorities to push back against the IOC’s insistence that the Games “will go ahead”?
Technically, Suga is right. Legally, neither Japan, Tokyo, the Japanese Olympic Committee (JOC) nor the Tokyo 2020 organizing committee has the power to cancel the Games. A contract they signed back in 2013, when they won the right to host these Olympics, grants that power exclusively to the IOC.
The so-called host city contract, legal experts say, is extremely “one-sided” or “imbalanced.” It gives the IOC broad leeway to terminate it. On the other hand, “Tokyo does not have any contractual right to terminate its contract with the IOC, even in the exceptional circumstances presented by COVID,” said Leon Farr, a senior associate at Onside Law, a London-based firm specializing in sports.
Several international sports lawyers noted that Swiss law, which governs the contract, gives parties an out "if the commitment to the contract has become unreasonable for the party in general due to changed circumstances.” Said Farr: “The Japanese could argue that COVID makes it virtually impossible to host the Games and that as a result, the contract should be voided.”
But multiple experts said Tokyo would likely lose that “just cause” argument. “The hurdle that case law sets for the existence of just cause is very high,” explained Kai Ludwig, an attorney at the Zurich-based Monteneri Sports Law firm. “It must be a very weighty reason and termination must be the only and last resort.” In this case, it wouldn’t be — cancellation would be a subjective and controversial decision based on a risk assessment.
If the IOC is determined to hold the Games, then, Tokyo’s only way out of the Olympics would be to unilaterally break the contract. Doing so could cost it what Japanese lawyer Yoshihisa Hayakawa calls “a gigantic amount of money.”
The cost of cancellation
That’s because the host contract also grants the IOC sweeping legal protection, and heaps liability onto Tokyo, the JOC and the organizing committee. It gives the IOC the right to “take legal action against” Tokyo, the JOC and the organizing committee. It also forces Tokyo to answer to “any claim by a third party arising from, or in connection with, a breach.”
In other words, think of all the entities who’ve paid money to be associated with the Olympics — a complex web of broadcasters, sponsors and the like. They’ve all essentially bought a product, the Olympics, that the IOC owns. If the IOC doesn’t deliver the product as promised, hundreds of these “third parties” would want their money back. Per the contract, if Tokyo is in any way responsible for the Games not happening, Tokyo would be responsible for coming up with all that money that the IOC would owe.
How much money would that be? If the IOC sued, the case would go to the Court of Arbitration for Sport in Switzerland, where damages would be calculated. Estimates of the total amount range from hundreds of millions of dollars to tens of billions. Ludwig, the Zurich-based lawyer, said they’d be at least several billion dollars.
According to Andrew Zimbalist, an economist and Olympics expert, the IOC could theoretically “sue for international TV money plus sponsorship money minus insurance coverage, probably coming to around $4 to 5 billion.”
The host contract, Farr noted, “does not impose any limit on Tokyo’s potential liability.”
But all of this, experts said, is unlikely to get to court, and unlikely to result in such colossal losses, for two reasons.
Would the IOC sue Japan?
One reason is insurance. Both the IOC and Tokyo organizing committee are insured, either separately or jointly, per the host city contract. Major broadcasters take out cancellation insurance as well. What the public doesn’t know is the specifics of those insurance policies.
“The provisions of the contracts with the insurance companies are vital,” said Alexandre Miguel Mestre, a Portuguese lawyer and author of The Law of the Olympic Games. “And the interpretation of the concept of event cancellation due to a ‘force majeure’ situation is decisive.”
The host city contract itself does not include a full “force majeure” clause, which would essentially free both sides of liability in the face of extraordinary circumstances, but insurance policies will lessen the blow. Those policies, which have been dissected over the past 15 months, are extensive, according to a British sports lawyer whose clients include many with ties to Olympic sports. Industry experts have estimated that the payouts would total more than $2 billion.
“But they will still have limits on the policy,” the British lawyer said. “And those limits will almost certainly be less than the actual losses that would flow [from cancellation].”
The other reason, experts said, is that the IOC almost certainly wouldn’t sue an Olympic host city for billions of dollars. Doing so would equate to disastrous public relations, particularly during a pandemic.
It would also dissuade potential future hosts. Bidders for Olympic Games had already dried up pre-pandemic, in part because many cities now realize how one-sided the host contract is. A lawsuit against a host would send “a horrific message,” the British lawyer said. “I can't imagine people will be rushing to court. I think there'll be a lot of negotiations.”
In the end, all of this is leverage in those negotiations. The IOC’s leverage is the contract, which protects it and exposes Tokyo. Tokyo’s leverage is that the IOC wouldn’t dare do what the contract allows it to do.
The upshot is that, despite Japan’s unease, the Games will likely happen. Dick Pound, the IOC’s longest-serving member, said that the probability is “very close to 100%.”
The decision, Pound said, “would be a joint decision with the organizing committee, the Japanese government, the IOC, and the public health authorities.”
“In the case of a difference of opinion, between whether it would be safe or not safe,” Pound said, “the IOC would have the trump card.”
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