Whilst winning a tournament brings kudos, silverware and prize money, it can lead to serious financial implications if contractual bonuses aren’t insured and/or managed effectively.
When England reached the Final of the 2019 Rugby World Cup, an unusual headline hit the National press surrounding the financial impact of a win for the Rugby Football Union (RFU). Like many professional sports, winning a tournament or event not only brings with it kudos, silverware and prize money but also significant financial gains from contractual bonus agreements.
In the case of England Rugby Union, a victory would have netted the players, coaches and management a reported £6m in bonuses. The most staggering piece of the news however was the decision not to insure the bonuses, leaving the bean counters at the RFU in a predicament and showing them that ‘success can be costly’.
Financial incentives triggered by performance thresholds being surpassed are commonplace across all sports, including individual sports like golf and tennis through to team sports like football and baseball. Furthermore, they operate at numerous levels, from low league domestic competitions to Major international events such as the football World Cup.
The common consensus is that insurance policies are limited to mundane classes like personal cars, houses, marine and aviation, with little awareness of the ability to mitigate the risk of the financial exposures attributed to sports performance.
Contractual Bonus policies form part of a larger class of insurance – contingency. This class encompasses a broad range of the weird and the wonderful, from quirky body part insurance policies to insuring the cancellation of rock and pop concerts to lotteries and sporting contractual bonus. It’s really the home for all non-traditional insurance activity.
As sport has grown, so have the financial obligations of clubs, brands and sponsors. In order to protect budgets and balance sheets against the contractual liabilities assumed, increasing numbers of contractual bonus policies are being placed in the insurance market.
Another prime example was when a top-level domestic rugby union team had an extremely successful year; they won almost all there was up for grabs. This ended up costing the club substantial amounts through travel, accommodation and other unforeseen costs – all because of a hugely successful performance, which seems completely nonsensical. Insuring successful performance doesn’t only help avoid possible expenditure but helps to incentivise the players, team or sponsor.
At McClarrons Sport, we are experts in structuring and placing Contractual Bonus policies, giving our clients the peace of mind that whatever happens on the pitch, it doesn’t lead to detrimental financial impacts off it.
Email Tom Landale at email@example.com.