The first part of our “Unpacking Doyen’s TPO deals” blog series concerns the agreements signed between Doyen Sports and the Dutch football club FC Twente. In particular we focus on the so-called Economic Rights Participation Agreement (ERPA) of 25 February 2014. Based on the ERPA we will be able to better assess how TPO works in practice. To do so, however, it is necessary to explore FC Twente’s rationale behind recourse to third-party funding. Thus, we will first provide a short introduction to the recent history of the club and its precarious financial situation. 

I. FC Twente 2004-2015

When local millionaire Joop Munsterman took over FC Twente in December 2003, the club was on the verge of bankruptcy. Munsterman certainly did not lack ambition and wanted to turn FC Twente into the best club of the Netherlands. With help of external investors, he quickly managed to reinforce the team with quality players such as the Swiss international Blaise N’kufo, the man who would later become FC Twente’s all-time top scorer. A few years later, in 2010, FC Twente won the Dutch League (Eredivisie), thereby defying the decade long dominance of Ajax, PSV and Feyenoord. By now the club was considered an example for a modern, innovative and successful football governance, and an inspiration for other smaller clubs. Through “excellent scouting” it managed to attract players from all over the world capable of winning the league and securing a spot in Europe’s most important and lucrative club competition, the UEFA Champions League. Moreover, Twente’s success on the field also led to financial success off the field. For example, Costa Rican international Bryan Ruiz was signed from KAA Gent in 2009 for €5 million and sold to Fulham in 2011 for €12.5 million, which makes for a healthy profit of €7.5 million.

The taste of the 2010 success and the additional earnings for participating in the Champions League created hunger for more. The club started spending large amounts of money on the transfer market, including the signings of Leroy Fer in 2011 for €5.5 million and Dusan Tadic in 2012 for €7.7 million. Furthermore, with the ambition of playing the Champions League consistently, the club decided to renovate and expand its stadium. Although FC Twente is the owner of the stadium, it did not have the means to finance the renovation. Therefore, it had recourse to external investors, including the municipality of Enschede, who provided a loan of €20 million.

Fast-forwarding to 2015, little is left of that over-ambitious FC Twente. The club currently finds itself in the lower ranks of the league table and is fearing relegation to the second league. Much-needed revenue from Champions League participation did not materialize since the club was not able to qualify after 2011 and many of the recent signings did not lead to transfer profits. In May 2014 the Dutch FA, KNVB, placed FC Twente into the so-called “Category 1”, a category dedicated to clubs in financial difficulties, which could face disciplinary sanctions if the financial situation is not improved swiftly.[1] In early 2014, FC Twente had probably taken on way too much financial risk and was in dire need of fresh money. In this context, the ERPA with Doyen was dearly needed to repay outstanding short-term debts. 

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II. The ERPA dissected

The ERPA between FC Twente and Doyen Sports is dated from 25 February 2014. The ERPA consists of two separate agreements: a first general agreement signed on 27 December 2013; and a second agreement added on 25 February 2014. By means of the ERPA, Doyen purchased part of the economic rights of seven players who at the time were all registered and playing for FC Twente, namely Castaignos, Promes, Ould Chikh, Mokhtar, Eghan, Ebecilio and Tadic. In return, Doyen provided FC Twente a fee for each of the players for a total amount of €5 million.

As stated, Doyen did not obtain all of the economic rights of the players, but only a share. The share acquired by Doyen varied from player to player and fluctuated between 10% (for Tadic) and 50% (for Castaignos). At first glance, the mechanism seems relatively straightforward: once a player is sold to another football club Doyen receives an amount equal to its share of the economic rights attached to the player. However, the story is a bit more complex. The ERPA provides for a minimum fee per player that is superior to the amount Doyen invested in that player. In other words, regardless of the transfer fee paid, Doyen will always make a profit. The bank always wins! Doyen’s minimum fee for each player has been set at a basic amount equivalent to the fee granted to FC Twente plus a fixed 10% to be increased at an annual rate of 10% elapsed as from 15 November 2013.  

The ERPA further sets out different scenarios which are described below.

A. Scenario 1&2: The Transfer offer

The first eventuality, and most likely the mutually desired one, is the transfer of the player. Under the first agreement (this part was central to its amendment), in case of a transfer offer for one of the players concerned by the agreement, FC Twente could choose to accept or reject the offer. If it accepted the offer, Doyen was entitled to the agreed share of the proceeds of the transfer. If this amount was inferior to Doyen’s minimum fee, then Twente had to pay the fee. In case Twente would refuse the offer, no further contractual consequences were foreseen. (Scenario 1). It appears from the latest release of footballleaks (available here) that the first agreement actually entailed a different scenario, which was later deleted from the ERPA and inserted in an additional agreement. This second agreement, added later to the ERPA and not communicated to the KNVB, radically changed the transfer scenario (Scenario 2). 

Under the second agreement, in case of a transfer offer equal or superior to the minimum market value of the player is received and rejected by the club, FC Twente is obliged to compensate Doyen by an amount equivalent to Doyen’s share of the proposed transfer fee. By way of illustration, say a given football club offers FC Twente €10 million for Castaignos, while his minimum market value is €8 million (see table 1). Should FC Twente reject this transfer offer it will be obliged to compensate Doyen for an amount of €5 million (50% of the proposed transfer fee of €10 million). Similarly, if the proposed transfer fee is equal or above 50% of the minimum market value and FC Twente rejects it, it could also be obliged to compensate Doyen. Using Castaignos again as an example, say the proposed transfer fee was not €10 million but €4 million. This amount is exactly 50% of Castaignos’ minimum market value. Should FC Twente decide to reject this offer and Doyen decides to make a written request to be compensated, Doyen could claim €2 million from FC Twente. 

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B. Scenario 3: Exchange of players

If Twente decides to exchange a player covered by the ERPA against another player, to which an additional fee might be added, the agreement foresees that Doyen will have three different options. First, Doyen can, in case of a partial exchange involving a complementary fee, decide to keep the same share of the economic rights attached to the new player and get the agreed share of the fee received by the club. If a one-to-one exchange takes place, Doyen can only keep the same share of the economic rights attached to the new player. Finally, in both types of exchanges, Doyen has the option to demand that FC Twente pays the minimum fee for the player.

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C. Scenario 4: A loan

In the third scenario, the player is loaned out to another club. If the loan fee received is higher than the wage bill of the player at FC Twente, the club makes a profit on the loan. Consequently, Doyen is entitled to receive a percentage of the loan fee. Doyen’s share of the loan fee is calculated on the basis of its share in the economic rights of the player concerned. If Castaignos were to be loaned out to another club and FC Twente receives a loan fee higher than its salary, Doyen would receive 50% of the profit on the loan fee.

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D. Scenario 5: Renewal of the player contract by Twente

The fourth scenario is also modified by the additional agreement signed on 25 February 2014. Under the original agreement, if the player renews his contract with FC Twente, Doyen simply keeps the same share of the economic rights for the total length of the new contract. However, Doyen does have the right to choose a new put option date or, importantly, simply stick to the old put option date (on the put option date see below scenario 6). Under the additional agreement, Doyen also has the possibility to request that the minimum fee be paid by FC Twente. 

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E. Scenario 6: The Put Option

In the ERPA, Doyen and FC Twente have agreed a put option, this alternative is covered in Scenario 5. A put option is a right given to Doyen to sell back its share of the economic rights linked to a player at FC Twente, at a given date and for a given price. The put option date was set at 31 August 2015 for all seven players of Twente(see table 1). To use a concrete example, Ebecilio was not sold before 31 August 2015. In fact, he currently still plays for FC Twente. In accordance with the particular conditions of the ERPA, Doyen had the right to sell to FC Twente its share of the economic rights of Ebecilio, and FC Twente would have the obligation to buy back those rights, for a fixed put option fee. According to Table 1, the put option fee for Ebecilio is €780.000. Whether Doyen actually exercised this option in the Ebecilio case is not clear, but it would have guaranteed the investment company a profit of €180.000. 

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F. Scenario 7: The player is unable to remain a professional football player

Point 8 of the ERPA foresees that FC Twente shall enter into a policy with an insurance company insuring the risk of the player’s death and the risk of the player suffering an incapacitating injury or any injury which may patently reduce the player’s ability as a professional football player. In the case of such events, Doyen will receive an amount equal to the put option fee, irrespective of whether the insurance policy claims are lower or higher than the put option fee.

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G. Scenario 8: The player becomes a free agent

Point 9.1 of the ERPA stipulates that FC Twente “shall use its best endeavors to prevent the Player from becoming a free agent and acknowledges that such endeavors are considered normal and ordinary business practice for professional football clubs”. The notion of “best endeavors” remains undefined and mysterious. Nonetheless, in the case a player’s contract expires and he becomes a free agent, FC Twente will be obliged to pay Doyen the minimum fee agreed in the particular conditions (see table 1). 

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H. Scenario 9: The economic rights are assigned to a third-party

After the signature of the ERPA, it is still possible to trade the economic rights attached to the same players with third parties. However, if Doyen wishes to sell the economic rights of one of the seven players, it would firstly have to offer those rights back to FC Twente on the same conditions as those that would be offered to third parties. Moreover, Doyen may not assign any share of the players’ economic rights to any Dutch club or to any other third party which is not suitable to hold them. In turn, should FC Twente wish to sell (part of) the remaining economic rights of a player, it would firstly have to offer these rights to Doyen before offering them to another assignee. 

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I. Scenario 10: Termination of the contract by the player without just cause

Final scenario, if the player terminates his contract without just cause (see Article 17 FIFA RSTP), the ERPA foresees that FC Twente shall pursue a claim for unlawful termination of the employment contract against the player before any competent judicial institution.^[2] If the relevant judicial body grants compensation to FC Twente, Doyen will get a share of the compensation equivalent to its share of the economic rights of the player. In the event the share of the compensation awarded to Doyen is less than the minimum fee, FC Twente will have to match the minimum fee. 

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III. The aftermath of the ERPA

On 26 November 2015, FC Twente told the Dutch press that it had bought off the TPO contract with Doyen. On that same day, footballleaks published a Settlement Agreement between Doyen and FC Twente. According to this settlement, the parties agreed to terminate the ERPA on the condition that Twente would pay to Doyen a compensation of €3.344.519. Whether the settlement agreement was signed by the two parties remains unknown since it does not include a date nor any signatures.

What is known is what happened to the seven players whose economic rights were partly sold to Doyen. Based on the information provided by the German website http://www.transfermarkt.de/, we made the following table summarizing the situation:

Since the signing of the ERPA (27 December 2013), five players have been transferred to other football clubs and two (Eghan and Ebecilio) are still under contract at FC Twente. Two players, Tadic and Promes, were sold for a relatively high fee (€13 million and €11.4 million respectively). For Tadic’s transfer, it is known that Doyen received a 10% of the transfer, since the fee was higher than the minimum fee. In fact, footballleaks provides a document called “Liquidation of Economic Rights Participation - Tadic”, holding that Doyen received €1.091.250 from Tadic’s €13 million transfer to English side Southampton. Doyen’s interest in Tadic was 10%. In principle this would mean that Doyen would receive 10% of €13 million, i.e. €1.3 million. However, based on article 7.2. of the ERPA, agent fees, solidarity contributions and the claim of another club (Groningen) were deducted to arrive at the final figure. The same process will have applied to the transfer of Promes.

Castaignos, Chikh and Mokhtar were sold for relatively low transfer fees (€2.5 million, €1.5 million and €1 million respectively). It is now possible to predict what truly happened to Doyen’s share of Castaignos’ economic rights. As Doyen’s share of the economic rights attached to Castaignos was 50% (see table 1), it should get €1.25 million (50% of €2.5 million). However, the particular conditions also stipulate that in such a case Doyen would be awarded the minimum fee, on 1 July 2015 it amounted to €1.8 million. Because Doyen’s share of Castaignos’ transfer fee (€1.25 million) is lower than the minimum fee (€1.8 million), it probably received the latter.

As to Ebecilio and Eghan, both remained at FC Twente after the put option date passed (31 August 2015), whether Doyen exercised its put option or not remains unknown. If Doyen has exercised this option, it would have received €780.000 for Ebecilio and €650.000 for Eghan.

Typically, these fees are not paid immediately at the date of the transfer. Instead the payment is divided in separate instalments. It is possible (even likely in light of its price tag), but we lack definite information on this point, that the settlement agreement between Doyen and FC Twente covers all outstanding instalments regarding previous transfers.  

IV. Is the ERPA in breach of KNVB and FIFA Regulations?

The Dutch media is full of rumours about the terrible things that are about to happen to FC Twente. Is the club going to go bankrupt? Or, will it be “only” losing more points in an already difficult battle to save its place in the Eredivisie? Until now, with few exceptions, very little substantial legal analysis has been provided. The KNVB and FIFA are the two main private regulators susceptible of going after FC Twente, though UEFA has also been mentioned in the press, but we are unable to identify under which legal basis it could get involved in the matter. One thing is certain, entering an ERPA with Doyen is a losing bet for a club. It takes huge financial risks and is the only actor facing disciplinary sanctions as Doyen escapes the jurisdiction of the football associations.

A. Has FC Twente breached the rules of the KNVB?

Pursuant to Article 57(1) of the KNVB Regulations, it is prohibited for clubs to reach any agreement that allows a third party to influence the club’s independence regarding the transfers of players. This provision is a mandatory transposition by the Dutch FA, as provided by article 1.3 of the FIFA Regulations on the Status and Transfer of Players (RSTP), of article 18bis RSTP (See below). The KNVB has stated that it was aware of the existence of the ERPA between FC Twente and Doyen and that it even intervened to prevent unauthorized influence by Doyen. However, the Dutch FA was apparently not informed of the existence of the additional agreement signed between Doyen and FC Twente and a KNVB insider was quoted saying that those provisions “appear to show that Doyen does exert influence on FC Twente”. Yet, at the time of writing, it remains unclear whether FC Twente is subjected to a formal investigation by the KNVB.

In fact, the difference between the original agreement and the additional agreement is flagrant and crucial. In the former case FC Twente was entirely free to refuse a transfer offer whatever its amount, while, in the latter, if an offer reached a minimum amount, the club was forced to sell the player or to pay out Doyen’s share on the offer. At this point in time, all parties must have been perfectly conscious that FC Twente was unable to disburse any cent to buy back the economic rights owned by Doyen. Hence, its transfer policy was entirely at the goodwill of the investment fund and the potential buyers. The fact that FC Twente did not disclose the additional agreement to the KNVB obviously vindicates this assessment. Moreover, the latest release by footballleaks shows that the original ERPA signed in December 2013 included some of the most controversial provisions regarding transfers. These were later redacted out of the agreement and inserted in the additional agreement, probably to circumvent the control of the KNVB. It will be extremely difficult for the KNVB to deny that Doyen exercised a substantial influence on FC Twente’s transfer decisions regarding the players subjected to the ERPA. The potential sanctions are listed in Article 11 of the License Regulations (page 78-90 of the KNVB Regulations) and include a fine, a points deduction or withdrawal of the license. Having in mind the severe financial situation FC Twente finds itself in, this could lead to the full-blown bankruptcy of the club. 

B. Has FC Twente breached the FIFA Regulations?

FC Twente might be facing a FIFA sanction as well. As everybody knows by now, the FIFA ban on TPO entered into force on 1 May 2015.[3] However, the ERPA between FC Twente and Doyen is not falling under the ban, as it is not applicable retroactively. Hence, its conformity to FIFA regulations can only be assessed in relation to the FIFA Regulations on the Status and Transfer of Players (RSTP) in force at the signature of the ERPA. Back then article 18bis of the RSTP on third-party influence on clubs provided that: 

1.      No club shall enter into a contract which enables any other party to that contract or any third party to acquire the ability to influence in employment and transfer-related matters its independence, its policies or the performance of its teams.

2.     The FIFA Disciplinary Committee may impose disciplinary measures on clubs that do not observe the obligations set out in this article.

The whole legal debate will hinge, as for KNVB proceedings, on whether Doyen had the ability to influence the policy of FC Twente in employment and transfer-related matters. As we have argued above, the agreement points a loaded financial gun at FC Twente’s head each time a transfer offer of a certain amount is made, or when the club wishes to renew the contract of a player subjected to the ERPA. There is very little doubt that the transfer policy of a club in financial difficulties will be directly influenced by an investor, which can financially pull the plug on the club at virtually any time if it refuses to sell a player for a certain fee. The problem now for FIFA (and KNVB) will be to find an appropriate sanction for the club. It is the only party facing disciplinary proceedings (Doyen is out of FIFA or KNVB’s disciplinary reach). In the end, the supporters and players are the victims of a gross mismanagement of the club’s affairs due to the hubris of an irresponsible president. FIFA will also have to decide whether the many other ERPAs signed by Doyen (you can find a probably incomplete list of Doyen’s investment in players here), which include similar provisions (see Doyen’s model ERPA here) are also in breach of article 18bis. If yes, and we think there is no reason to decide otherwise, then a number of clubs (think Atletico, Sporting or Porto) might face  FIFA (or national FA) sanctions in the near future. This case is not ending with FC Twente, it is about all the clubs that have signed an ERPA with Doyen Sport in the past.

Additionally, it is also possible that FC Twente be found in breach of Annexe 3 of the FIFA RSTP, which regulates the use of the FIFA ‘Transfer Matching System’ (TMS) in the case of a transfer. The TMS is an online system that intends to make international transfers of players between clubs quicker, smoother and more transparent. Under article 4.4 of Annexe 3, in case FC Twente transfers a player (five of the players concerned by the ERPA have been transferred), it must introduce in the FIFA TMS a ‘Declaration on third-party payments and influence’. It is thinkable that FC Twente did not include the full ERPA in the TMS system and might also, therefore, face the FIFA sanctions provided in article 9.4 of the Annexe.

In a nutshell, FC Twente is now in deep(er) trouble because it decided to play Maltese roulette with a ruthless investor.

[1] In fact, the KNVB has already deducted six points from FC Twente in the 2014/15 season for financial mismanagement.

[2] Point 9.4 of the ERPA.

[3] More information on the TPO ban can be found in our previous Bogs, such as “Blog Symposium: FIFA’s TPO ban and its compatibility with EU competition law – Introduction”.

Editor's note: Yuri Yagi is a sports lawyer involved in Sports Federations and Japanese Sports Organizations including the Japan Equestrian Federation (JEF), the International Equestrian Federation (FEI), the Japanese Olympic Committee (JOC), the Japan Sports Council (JSC) and the All-Japan High School Equestrian Federation.

1. Introduction

Japan has held three Olympic Games since the inception of the modern Olympics;Tokyo Summer Olympic Games in 1964, Sapporo Winter Olympic Games in 1972, and Nagano Winter Olympic Games in 1998. Therefore, the Tokyo 2020 Olympic Games (Tokyo 2020) are supposed to be the fourth to be held in Japan, the second for Tokyo. Tokyo 2020 were originally scheduled for 24 July 2020 to 9 August 2020. Interestingly, the word ‘postpone’ or ‘postponement’ does not appear in the Host City Contract (HCC).

However, the International Olympic Committee (IOC), the Tokyo Metropolitan Government (TMG), the Japanese Olympic Committee (JOC), and the Tokyo Organising Committee of the Olympic and Paralympic Games (TOCOG) decided on 24 March 2020 that Tokyo 2020 would be postponed because of the pandemic of COVID-19. Later on, the exact dates were fixed ‘from 23 July 2021 (date of the Opening Ceremony) to 8 August 2021 (date of the Closing Ceremony).

The process of the decision is stipulated in the ‘ADDENDUM N° 4’ signed by IOC, TMG, JOC and TOCOG.

This paper provides an overview of the current situation, along with legal and other issues in Japan that have arisen due to the postponement of Tokyo 2020 due to COVID-19. The overview is offered from the perspective of a citizen of the host city and includes a consideration of national polls, the torch relay, vaccination, training camps, ever increasing costs, and the related provisions in the Candidature File and the Host City Contract.

2.    The Situation of COVID-19 in Japan

According to the Government, the first COVID-19 case in Japan was confirmed on 16 January 2020. On 24 March 2020, when the postponement of Tokyo 2020 was decided, the reported number of new COVID-19 positive cases in Japan was 64 (Japanese population is around 126 million). As a comparison, reported cases in Japan on 28 May 2021 was 3,706.

3.    National State of Emergency

Since the start of the pandemic, National states of emergency have been issued three times in Tokyo, the first time was from 7 April 2020 (the reported number of positive cases on that day in Tokyo was 87) to 25 May 2020 (8 cases), the second time was from 8 January 2021 (2,459 cases) to 21 March 2021 (256 cases), and the third began on 25 April 2021 (635 cases) and is still in effect (539 cases as of 29 May 2021). A national state of emergency is not similar to the lockdowns issued in several other countries. It is basically the government’s request that people stay at home. Under National states of emergency, the Government asked businesses, especially restaurants and bars, to close earlier than usual or completely.

4.    National Poll as to Olympic Games

According to a national poll carried out by Japan Broadcasting Corporation (NHK, which is Japan's only public media organization) and published on 10 March 2020, 14 days prior to the decision of the postponement, 40% of respondents answered that they believe the Olympics will be held as scheduled. Conversely, 45% answered that they do not.

The telephone survey of 1,300 Japanese residents carried out by NHK and published on 23 July 2020 showed that 35% said that Tokyo 2020 should be postponed further, 31% said that they should be cancelled, and 26% said that they should be held as scheduled.

In the national poll published by NHK in May 2021, 49% answered Tokyo 2020 should be cancelled, 23% answered they should be held without spectators, 2% answered they should be held as usual.

In addition, people who demanded the cancellation of Tokyo 2020 collected more than 350,000 signatures in an online petition.

5.    Torch Relay

The Olympic Flame was lit in Greece on 12 March 2020 and arrived in Japan on 20 March 2020, just prior to the decision to postpone. However, most related ceremonies were cancelled or downsized and there was less excitement among Japanese citizens than originally expected.

The postponed torch relay started on 26 March 2021 in Fukushima Prefecture, which was severely damaged by a tsunami following The Great East Japan Earthquake in 2011. The torch relay is still ongoing and is live streaming every day on the internet. However in many places, the torch relay has been replaced with stage events instead of running on public roads. Japanese citizens have been asked to not attend the torch relay or the events. As a result, the torch relay has turned out to be totally different from what was expected.

6.    Slow Rollout of Vaccine

COVID-19 vaccination started in Japan on 17 February 2021, first for frontline workers, and at the time of this article (31 May 2021), they are mainly being administered for elderly people over 65 years old. It is a relatively late start and a slow rollout compared to other developed countries (for example vaccination started in December 2020 in the US, the UK, Itally,  France, Germaney, and other countries). As of 30 May 2021, only 0.25% of residents in Japan have been fully vaccinated (twice) and 3.67% have be vaccinated once.

Japanese Prime Minister Yoshihide Suga announced that IOC had struck a deal with Pfizer to provide vaccines for all Tokyo 2020 participants. Accordingly, JOC announced that about 1,600 athletes and other members of Japan's potential delegation to Tokyo 2020 will be vaccinated from 1 June 2021.

7.    Pre-Event Training Camps and Games-Related Events

COVID-19 has also had an effect on Games-related plans such as pre-event training camps and cultural programs planned by local governments. As of 18 May 2021, training camps and Games-related cultural exchange events have reportedly been cancelled in many local governments (reported number was 54) because of the infection risks and the delays of the qualification process.

However it is also reported that the Australian softball team plans to come to Japan for a training camp on 1 June 2021. If this plan is realized, they will be the first team to arrive.

8.    Increasing Cost and Decreasing Revenue

Because of the increasing cost incurred as a result of the postponement, the IOC offered an additional support of reportedly 650 million USD. To reduce costs and support COVID-19 infection prevention measures, TMG and IOC agreed to simplify Tokyo 2020. It has already been decided that spectators from other countries will not be allowed to attend the games. As for domestic spectators, a final decision is expected to be made by the end of June 2021. At any rate, the revenue from the ticket sales will be significantly less than originally estimated.

The postponement of Tokyo 2020 has also resulted in additional costs related to the extension of the employment contracts of the TOCOG staff members, lease contracts of the TOCOG office, and no doubt, countless other contracts. As to domestic sponsorship contracts for Tokyo 2020, they were originally for terms ending December 2020. However, due to  the postponement of the Games, all 68 domestic companies agreed to extend the contract until the end of 2021, despite also facing an unprecedented stagnant business situation.

As to the case of deficit or budget shortfall, the Candidature File and Host City Contract (HCC) provides who will bear the loss.

9.    Candidature File and Host City Contract (HCC)

IOC elected Tokyo as the host city of the 2020 Summer Olympic Games in the 125th IOC Session took place in Buenos Aires, Argentina, from 7 to 10 September 2013. In the bidding process, Candidate Tokyo submitted a Candidature File to the IOC.

Case of Deficit or Budget Shortfall

As to the case of deficit or budget shortfall, the Candidature File and HCC provide that, if TOCOG incurs a deficit, TMG will guarantee to cover any potential economic shortfall of TOCOG, then if TMG should be unable to compensate in full, the Japanese government will ultimately provide the financial support.

Candidature File (*underline added by author for emphasis)

6.1 An OCOG budget fully guaranteed

6.1.1 TOCOG Budget guarantee

Tokyo 2020 is very confident the TOCOG budget will be balanced. Nevertheless, should TOCOG incur a deficit, the Tokyo Metropolitan Government (TMG) has guaranteed to cover any potential economic shortfall of TOCOG, including refunds to the IOC in advance of payment or for other contributions made by the IOC to TOCOG.

In addition, should TMG be unable to compensate in full, the Government of Japan will ultimately compensate for it in accordance with the relevant laws and regulations of Japan.

6.1.2 Compensation mechanism in the event of a budget shortfall

(…) if necessary, TOCOG will activate the compensation mechanism.

Under the compensation mechanism, TOCOG will consult with TMG and the Government of Japan to ensure that the Tokyo 2020 Olympic and Paralympic Games can take place as planned. Financial support will be primarily provided by TMG. In addition, should TMG be unable to compensate in full, the Government of Japan will ultimately provide the financial support in accordance with the relevant laws and regulations of Japan.

The compensation mechanism will function in a similar fashion in the event of full or partial cancellation of the Tokyo 2020 Olympic and Paralympic Games.

The Candidature File is referred to in the HCC, which was signed by the IOC, TMG and JOC on 7 September 2013. It provides that, the TMG and TOCOG shall be jointly and severally responsible for financial undertakings and the Japanese government shall support them.

Host City Contract (*underline added by author for emphasis)

4. Joint and Several Obligations of the City, the NOC and the OCOG

 (…) the City, the NOC (other than with respect to the aforementioned financial undertakings of the City and the OCOG) and the OCOG shall be jointly and severally responsible in respect of all damages, costs and liabilities of any nature, direct and indirect, which may result from a breach of any provision of this Contract. The IOC may in its sole discretion take legal action against the City, the NOC and/or the OCOG, as the IOC deems fit.

The foregoing shall be without prejudice to the liability of any other party, including without limitation, any Government, national, regional or local authorities that provided financial guarantees during the City's application or candidature to host the Games or otherwise.

 

7. Guarantees, Representations, Statements and Other Commitments

All guarantees, representations, statements, covenants and other commitments contained in the City's application or candidature file  (…) shall survive and be binding upon the City, the NOC and the OCOG, jointly and severally, (…).

On top of that, the HCC provides that the TMG, JOC and TOCOG must always protect IOC from all payments and other obligations in respect to any damages, claims, actions, losses, costs, and/or expenses. On the other hand, the TMG, JOC and TOCOG promised to waive any claims against the IOC in the HCC.

9. Indemnification and Waiver of Claims Against the IOC

a) Indemnity by the City, the NOC and the OCOG. The City, the NOC and the OCOG shall at all times indemnify, defend and hold harmless and exempt the IOC, IOC Television and Marketing Services SA, the OBO, as further detailed in Section 54 (a) below, and their respective officers, members, directors, employees, consultants, agents, attorneys, contractors (e.g. Olympic sponsors, suppliers, licensees (of the IOC, the National Olympic Committees and the Organising Committees of the Olympic Games) and broadcasters) and other representatives (each, an "IOC Indemnitee" and collectively, "IOC Indemnitees"), from all payments and other obligations in respect of any damages, claims, actions, losses, costs, expenses (including outside counsel fees and expenses) and/or liabilities of any nature (including injury to persons or property), direct or indirect, suffered by the IOC (or any IOC Indemnitee), including all costs, loss of revenue, and also damages that the IOC (or any IOC Indemnitee) may have to pay to third parties (including but not limited to Olympic sponsors, suppliers, licensees and broadcasters) (collectively, "Claims") resulting from:

i) all acts or omissions of the City, the NOC and/or the OCOG (…), relating to the Games (including in connection with the planning, organising, financing and staging thereof) and/or this Contract;

iii) any claim by a third party arising from, or in connection with, a breach by the City, the NOC or the OCOG of any provision of this Contract.

 

c) Waiver of Claims against the IOC. Furthermore, the City, the NOC and the OCOG hereby waive any Claims against the IOC and the other IOC Indemnitees, including for all costs resulting from all acts or omissions of the IOC relating to the Games, as well as in the event of any performance, non-performance, violation or termination of this Contract. This indemnification and waiver shall not apply to wilful misconduct or gross negligence by the IOC.

As to the cancellation of Tokyo 2020, only the IOC has the right to make such decision on  ‘reasonable grounds’. In the  case of cancellation by the IOC for any reason, the TMG, JOC and TOCOG will be considered as waiving any claim or right of indemnity, and promising to indemnify and hold IOC Indemnities harmless from any third party claims.

XI. Termination

66.　Termination of Contract

a) The IOC shall be entitled to terminate this Contract and to withdraw the Games from the City if:

i)  the Host Country is at any time, whether before the Opening Ceremony or during the Games, in a state of war, civil disorder, boycott, embargo decreed by the international community or in a situation officially recognised as one of belligerence or if the IOC has reasonable grounds to believe, in its sole discretion, that the safety of participants in the Games would be seriously threatened or jeopardised for any reason whatsoever;

(…)

iii) the Games are not celebrated during the year 2020;

iv) there is a violation by the City, the NOC or the OCOG of any material obligation pursuant to this Contract, the Olympic Charter or under any applicable law; or if

(…)

In case of withdrawal of the Games by the IOC, or termination of this Contract by the IOC for any reason whatsoever, the City, the NOC and the OCOG hereby waive any claim and right to any form of indemnity, damages or other compensation or remedy of any kind and hereby undertake to indemnify and hold harmless IOC Indemnitees from any third party claims, actions or judgements in respect of such withdrawal or termination(…).

Dispute Resolution

According to Article 87 of HCC, in the case of dispute among parties, the applicable law is Swiss law, and the dispute is to  be decided by Court of Arbitration for Sport (CAS).

87. Governing Law and Resolution of Disputes; Waiver of Immunity

This Contract is governed by Swiss law. Any dispute concerning its validity, interpretation or performance shall be determined conclusively by arbitration, to the exclusion of the ordinary courts of Switzerland or of the Host Country, and be decided by the Court of Arbitration for Sport in accordance with the Code of Sports-Related Arbitration of the said Court. (…)  

10.  Conclusion

No one expected COVID-19 nor the impact that it would have on the Olympic Games at the time of the bidding process and of the signing of the HCC. As a result, the HCC and Candidature File provisions related to the losses caused by the postponement were not well understood among the Japanese people. Now people are starting to recognize the possibility that the TMG or/and Japanese government will likely incur huge losses as a result of the postponement or, in the worst-case, cancellation of Tokyo 2020.

Many Tokyo citizens and Japanese citizens were looking forward to Tokyo 2020 before COVID-19. However, judging from the national polls, now this excitement seems to turn into anxiety and concern.

While the whole world continues to prepare for the postponed Tokyo 2020,  the situation is still uncertain. In fact, the current number of COVID-19 cases in Japan is much larger than at the time when the postponement was decided in March 2020. It is very hard for involved individuals to maintain their motivation in light of this uncertainty. On the other hand, the vaccination push is expected to be a game-changer. Not only the TOCOG, TMG and JOC, but also multimedia outlets, sporting federations, sponsors, travel agencies, and the general public are preparing, believing Tokyo 2020 will be held. It’s natural and understandable that host city citizens have various opinions. However, athletes have been training for the chance to qualify and compete at the Olympic Games their whole life. Therefore, it is hoped the situation will improve and the Tokyo 2021 Olympic Games will be held safely and securely even if they are totally different from what we expected originally.