Introduction
Sports brings the world together as a community and there is a perceptible adrenaline rush when the mega sports events are going on. Avid sports fans seem to be immersed in a kind of sports-mania at that time.
Amidst all the sports and media-hype one does wonder about how much does it all cost to put up a major sportsevent?
Hosting international sports events such as the Olympics, Fédération Internationale de Football Association–(FIFA) World Cup or the Super Bowl is quite costly for the organizing host countries.
When a country desires to host a major sports event, it is initially required to invest millions of dollars in evaluating, preparing, and submitting a bid to the committees in charge. To obtain approval, they have to spend on planning, hiring consultants, organizing events and the related travel. This happens before the hosting country is even chosen. After a country is chosen to host, it has to find a venue large enough to host all the ceremonies and it also has to enhance and upgrade all its sports facilities too. Other general infrastructures that countries must invest in include; the need to build new hotels, organize transportation services and the construction of roads, train lines, and airports. All this entails expenses in millions of dollars.
Hence, impressive financial outlays in these events make itimperative that security is beefed up and insurance protection obtained for unforeseen contingencies which can jeopardize the event and cause huge losses to the organizers.
Correspondingly, this sports arena opens up many interesting dimensions to analyse from the insurance perspective.
Need for insurance of sporting events
Major sporting events garnera great deal of attention andconsequently attract big financial outlays from corporates and broadcasters the world over.
Television broadcasters also have impressive advertisement revenues at stake which can be disturbed due to any interruption in the telecast of a live game.
The contingencies attached to these events are also quite varied.Many natural or man-made contingencies can derail such events. A rain washout or a terrorist threat or stadium/pitch invasions by angry fans or spectators are realistic perils for the organizers. Pandemics which were earlier a remote contingency are no longer so.
Thus the financial exposures at stake here call for an insurance solution to mitigate losses for the sponsors in case of unexpected contingencies causing a unexpected cancellation of the event.
Event Insurance and Sports Insurance
Sports Insurance is a specialised branch of Event Insurance. Event Insurancein itself provides a package cover for the sponsors of public or private events, such as concerts, festivals, conferences, trade shows and sporting events against unexpected cancellations and a variety of other perils which can jeopardise the event.
Sporting events more specifically include a gamut of sports such as football, basketball, golf and cycling to horse riding, gymnastics and more. Depending upon the financial exposures of the associated entities – public liability, equipment cover and cancellation cover can be obtained in tailor-made sports insurance solutions geared to specific needs.
Events costs depend on the scale and type of the event.For example, the 2018 FIFA World Cup held in Russia cost an estimated USD14.2 billion.Some estimates indicate that the 2022 FIFA World Cup is going to cost Qatar approximately USD 220 billion.
Event costs will include direct and indirect costs.Direct costs are those costs that are easy to identify and measure as belonging to the event. The cost of trophies and medals or the prize money is a typical example. Another important component is cost for the venue. Venue costs also include hidden costs such as security, supervision, heating and lighting.Some of the other heads of expenses include travel, accommodation and salaries for officials and employees,medical expenses, promotional charges, transport and insurance to name just a few important direct charges.
Indirect costs are costs that cannot be directly attributed to the event. The staging of the event increases these types of costs but the increase cannot be measured accurately. Instead, the amount of indirect cost attributable to the event is roughly estimated.
Generally speaking, irrecoverable costs and potential earnings which cannot be recouped in case of an unexpected cancellation are insured against losses.
Event cancellation insurers have had a tough year as a result of the pandemic with festivals, conferences and sporting events postponed or cancelled the world over. In these cases, infectious disease cover was obviously a part of the package though it may have been viewed as a remote contingency. Broker Howden estimates COVID-19 event cancellation losses have cost insurers approximately USD 5-6 billion.
Some recent major sporting events
To assess the financial magnitude and correspondingly the insurance implications of major sporting events, the expenses and insurance obtained in respect of the 2020 Tokyo Olympics as well as the 2020 Wimbledon Tournament have been analysed on the basis of the information available in the public domain.
The 2020 Tokyo Olympics& its related costs
The 2020 Tokyo Games, originally scheduled for the summer of 2020 were postponed by a year due to public health concerns occasioned by the COVID-19 pandemic.They were held from 23 Jul 2021 – 8 Aug 2021 and it was one of the grandest sporting events in recent memory. It was a multi-sport event which though devoid of spectators in the stands, kept sporting enthusiasts enthralled world-wide through live telecasts.
Held with the uncertainty of a world in the grip of a pandemic, the Olympics were preceded by debates about whether they should at all be held and would another postponement be required?
Searches in the public domain revealed that the Tokyo Olympics ran up a bill of USD 15.4 billion. However, some estimates indicate that it may even be as much as USD 25 billion.
Olympic costs have been analysed in a study by the University of Oxford, which found that all Games since 1960 have had cost overruns averaging 172%. Tokyo’s cost overrun is estimated at 111% or 244% depending on which cost figure is selected.
These huge figures correspondingly lead to the subject of the quantum of insurance premium and the nature of coverage for the corresponding event cancellation insurance cover which is inevitably requiredwith such high monetary stakes, in the offing, as it were.
2020 Tokyo Olympics as seen from the perspective of insurance
Lloyd’s of London insurers are among those active in the event cancellation market along with international insurers, and global reinsurers such as Munich Re and Swiss Re. The Olympics are typically insured by Lloyd’s of London firms such as Beazley and Tokio Marine Kiln.
Munich Re has a USD 500 million exposure to the Tokyo Olympics said one source who communicated with Reuters. Munich Re declined to comment in this regard.
Swiss Re has a USD 250 million exposure, its Chief Financial Officer John Dacey reportedly told analysts last year.
German insurer Allianz has signed an eight-year insurance agreement with the IOC (International Olympic Committee) covering Winter and Summer Games, including the Summer Games in Paris in 2024 and Los Angeles Games in 2028.
Analysts at Jefferies have estimated the Tokyo Olympics was insured for around USD 2 billion, plus a further USD 600 million for hospitality.
The International Olympic Committee (IOC) normally takes out around USD 800 million of protection for each Summer Games, which covers most of the roughly USD 1 billion investment it makes in each host city.
In addition, the local organising committee in Tokyo will have taken out a further policy, estimated at around USD 650 million, while broadcasters are also insured for large sums.
“TV networks, sponsors, professional sports teams, entertainers and other organisations could all have event cancellation policies protecting their interests in the Olympics,” said Leigh Ann Rossi, Chief Operating Officer at Broker, NFP Sports and Entertainment Group.
Thus the aggregated insurance premium paid out by different interests would be an impressive figure indeed, which no doubt represents a big business opportunity for insurers.
To come to the dimension of claims, one estimate by Fitch indicates that the Tokyo Olympics whichwere held without spectatorswill possibly cost reinsurers up to USD 400 million in pay-outs for ticket and hospitality refunds.
Be that as it may, insurers were fortunate to avoid a USD 2-3 billion loss were the Tokyo Olympics cancelled this year.In the global event cancellation market this would have amounted to the largest ever single-event insurance loss in history.
The 2020 Wimbledon Tournament
Wimbledon, run by the All England Lawn Tennis and Croquet Club (AELTC), has always had a sense of tradition. The Wimbledon Championship is one of the four major Grand Slam tournaments in tennis and also one of the oldest and the most prestigious tennis event in the world.
Wimbledon generates revenue from sponsorships, broadcasting rights, tickets, concessions and merchandise.
Though Wimbledon does not break down its revenue, but estimates by experts indicate Wimbledon gets roughly USD160 million from broadcasting rights, USD 47 million from ticket sales, USD 47 million from sponsorships and USD 35 million from concessions and merchandise sales.
The 2020 Wimbledon Tournament as seen from the perspective of insurance
The 2020 Wimbledon Championships set to run from 29 June to 12 July, 2020 were cancelled due to public health concerns linked to the coronavirus epidemic. This was the first cancellation of the tournament since World War II. The 134th Championships were to instead be staged from 28 June to 11 July, 2021.
The All England Lawn Tennis Association, which organizes the Wimbledon tennis tournament, will recoup almost half of its losses from cancelling the event thanks to the USD 2 million pandemic insurance it has reportedly taken out every year for the last 17 years.Media reports indicate that the organizers are set to receive a USD 141 million payout thanks to their coronavirus pandemic insurance policy.
The Wimbledon organizers have had the foresight to have paid out a total of USD 34 million for over the last 17 years in insurance premium for their pandemic insurance following the SARS outbreak in 2003.Ben Carey-Evans, insurance analyst at GlobalData, the London-based platform that provides data analytics and expert analysis about the world’s largest industries termed it “a very sensible investment,” as they will reap the benefits of this investment and minimise their financial damage.
Media reports say that the AELTC has not confirmed the figures, but said that the club has “always sought to buy the optimum insurance coverage available.”
The way ahead
It would be pertinent at this juncture to assess the insurance fall-out of the cancelled Wimbledon Championships and the postponed Tokyo Olympics.
Pandemic insurance will now be in demand by other such organizers as well. Ben Carey-Evans, insurance analyst at GlobalData said, Wimbledon is “one step ahead of most businesses by having insurance in place for current events.”
“Reputable sporting events, such as the Premier League and The Open [golf tournament], have been cancelled or postponed, causing the organizers to lose a lot of their investment,” he said.
“This unprecedented disruption to events caused by COVID-19, and the significant pay-out to Wimbledon will surely see all event organizers around the world look to invest in this product in the future, he added.
“This could see pandemic insurance move from being a niche product to an essential one for sports and music organizers,” he noted. “Insurers will face challenges in pricing premiums due to a sharp rise in popularity and the significant level of risk attached to the product.
The scenario will not be very different in respect of the Olympics.
Insurers dodged a multi-billion-dollar loss on the Tokyo Olympics. But as COVID-19 remains a global pandemic which has not yet fully receded, securing a financial safety net for the Paris and Los Angeles Games later this decade in 2024 and 2028 respectively will be much more difficult. Communicable disease coverage is now a grim reality and the expenses may be prohibitive for the Olympic Games organizers.
The Olympics are usually insured years in advance. The 2028 Summer Games, set for Los Angeles, are currently in the market. The Los Angeles City Council have finally published the elusive ‘Games Agreement,’ defining how the Citywill be hosting the Olympics.
Los Angeles intends to secure an insurance policy that covers “natural disasters, communicable diseases, terrorism, civil unrest, cyber-attacks, event cancellation, and coverage for reduced ticket sales and other revenue losses should the events become less appealing.”
Communicable diseases and cyber security are likely to be two of the major concerns for the insurance industry. Providing covers for these risks will be quite challenging.
Be that as it may, major-sports events now demand huge concentration of financial outlay on part of all the interested parties and also generate earnings for them. It is big business for the organizers and insurers alike. But to do justice, the risks taken on are also huge and the claims potential mind-boggling, to be fair.
