Footing the bill: mitigating risk around high-profile sporting events
In an increasingly dangerous world, where more and more high-profile sporting events are being held in emerging market economies, the risks of them being cancelled prior to being held or disrupted once they are underway are rising sharply. Organisers need to be alert to the possible issues they face, as well as the tools available to them to transfer those risks and protect both their balance sheets and reputation.
A spreading risk
Moroccan officials recently refused to host the African Cup of Nations competition in January 2015 because of fears about the Ebola virus. As a result, the Confederation of African Football (CAF) has had to find a new host country in a hurry. However, despite Equatorial Guinea stepping up to the plate and offering to host the tournament, CAF may be left facing significant logistical problems and a potentially enormous bill.
For us, as specialist insurance brokers, this is exactly the sort of scenario that should remind event organisers why event cancellation insurance is so vital. I do not know if the CAF and Moroccan officials have bought a policy, but I hope for their sake they have, as there will be many financial interests riding on this event ranging across ticket sales, merchandising, TV rights, sponsorship deals, hotel bookings and corporate entertainment packages – to name but a few.
Timing in event cancellation – as in so many other aspects of life – is vital. If event cancellation insurance for the tournament was taken out by the CAF in the early planning stages, when the risk of Ebola was unknown, then cancellation because of a communicable disease (such as Ebola) is likely to have been included in the original policy. Today, given the current situation in West Africa, insurers are only prepared to provide Ebola cover for west African territories on a very limited, risk by risk basis, so it is unlikely that Ebola cover for the tournament to be held in Equatorial Guinea will be included at this late stage.
This issue also highlights the problems relating to Fifa’s drive to bring football tournaments to emerging economies. Although the goal – to spread the financial benefits that a major football tournament can bring to new, and often emerging economies – is a worthy one, the risks are also not inconsiderable.
For example, the Qatar 2022 Fifa World Cup has been surrounded by controversy and its physical proximity to the political uncertainty of other parts of the Middle East cannot be ignored. Equally, the situation with Russia and the Ukraine could impact the 2018 World Cup in Russia. As a result, it is likely that there are a number of rather nervous event cancellation insurers preparing for some significant losses in the new decade.
Prevention rather than cure
So what can event organisers do to protect their financial position and their reputations? ‘Contingency’ insurance cover can be bought to protect balance sheets of football associations and clubs should they be forced to cancel, postpone or reschedule major football matches. At its most basic level, it will provide financial protection should a match or event be affected by consequences beyond the insured’s control. The costs that can be covered include the total expenditure or gross revenue.
In addition, some policies can be extended to provide cover for pre-contracted profits linked to circumstance, for example not enough people being able to get to the event due to unforeseen events such as damage or destruction to the venue, adverse weather conditions, unavoidable travel delays, political and civil unrest, and communicable disease. The cover can be purchased by any party that has a financial interest in an insured event including venue owners, event organisers, promoters, managers, broadcasters and ticket providers.
The policy is not standard and the risks complex, so specialist advice is a good idea to navigate the right path through the different issues and to find the right insurer. Any association, club or entity wanting insurance will want a close working relationship with their adviser so they can identify what sort of insurance they need and how much financial protection it should provide. They will also need to establish robust risk management procedures and policies to make sure the policy works as it should.
The right insurance partners will also work with the insured to put in place emergency measures to try to prevent the event from having to be cancelled or abandoned. Equally, if the worst should happen, they will provide much needed assistance in communicating with, and where appropriate reimbursing, ticket holders, clubs, TV companies and all the other financial stakeholders in the event.
As we all know football tournaments are big business, and with risks at an all time high, there is much at stake. So I hope that any entity with an interest in forthcoming competitions has robust risk mitigation plans in place that include comprehensive event cancellation insurance cover with quality insurers.
Robert Barron is the assistant vice president of Accident, Health, Sports & Contingency – a Division of Lockton Companies LLP.
Date published: 07 January 2015