The 2014 FIFA World Cup and the business of Insurance

The recently concluded World Cup in Brazil and was widely acclaimed as one of the best in the tournament’s history. Fans got to see their favourite players take the field, as the tournament had its fair share of upsets, grueling combats and striking footballing moments. In all this, there was one sector of business that was clearly rubbing its hands in glee – Insurance.

The FIFA World Cup, or for that matter any event of such a scale, has a business element attached to it. Whether it is the local revenues from match tickets or tourism or the sponsorship and TV rights, a lot of money is involved. And where there is a large amount of money at stake, one is bound to find insurance companies getting involved. Insurers and underwriters usually face a mammoth task as they plan to underwrite such events. Let’s take a small glimpse at what all factors may have to be considered:

Player Insurance

Messi and Ronaldo may be insured for a combined value of more than $ 300 million

The football players are clearly one of the most valuable assets of any World Cup. Whether it is Cristiano Ronaldo or Lionel Messi or Robin van Persie, they are all critical to their respective national teams. More than that though, from a business perspective, they are crowd pullers. The Messis and Ronaldos of the world attract fans to the sport and boost ticket revenues, local revenues generated from tourism and merchandise revenues. As such, an injury to one of these star players would be disastrous not only for their own teams but for FIFA in general. Add to this the fact that a medium or long term injury that rules out the player from football for more than a few weeks will also impact the prospects of the club where the player is currently under contract. To safeguard against these risks FIFA has instituted a “FIFA Club Protection Programme“. The genesis of this program goes back to the 2010 FIFA World Cup in South Africa when Dutch star Arjen Robben played with a hamstring injury that worsened as the tournament progressed, eventually sidelining the player for 6 months. His club, Bayern Munich were livid with the management blaming national team duties for loss of his services for an extended period of time. Bayern Munich sought to recover close to $1.2 million from the Dutch national football team (equivalent to two months’ worth of Robben’s wages at the time) but they did not receive any money partly through FIFA’s intervention. However, things were set into motion to come up with a comprehensive plan that protected the interests of the parent clubs while the players are on national duty.

The plan covers players from the time they join their national squads to the end of their respective World Cup campaigns and looks to indemnify clubs for any time a player is forced to spend on the sidelines due to injuries suffered in this period. For the 2014 World Cup, FIFA had negotiated personal injury cover of approximately $10 million per player per year, of course depending on the player’s individual contract with his parent club. Star players had insurance covers as high as $150 million against personal accidents that may cause losses to both FIFA and the player’s parent club in terms of loss of player income, payroll protection and even asset transfer value protection.

Even kidnapping had been identified as a substantial and insurable interest for this World Cup. London based Insurance giant, Lloyd’s prepared an internal research report that tried to estimate the net value of each World Cup squad. The valuations were based upon player contract values, wages, endorsement deals and other indicators to construct an economic model that estimates the player’s income until retirement. These valuations formed the basis of calculating the insurable value of the player. The collective value of the squads of all 32 nations that participated in this year’s World Cup finals was estimated at about $10.5 billion for almost 750 players. Germany was the most expensive squad with an estimated insurable value of just about $1.1 billion. That sets a value of $48 million per player, more than the entire squad values of Iran and Costa Rica individually. Spain ($1 bn) and England ($939 mn) were the other countries in the top 3 valued teams. Together the top 3 teams are valued at more than $3 billion, and more than the bottom 20 of the list put together.

These figures in themselves are mind boggling and give one an idea of the amount of money at stake when these star studded sides take the field for 90 minutes of football.

Rescheduling And Cancellation Insurance

One of the biggest threats apart from player injuries that FIFA faces is cancellation or disruption of matches due to causes “beyond their control“. These may include a wide variety of events such as natural disasters, civil riots, stadium failures or even unforeseen match circumstances. Although no official figures are available yet, it is estimated that a combination of about half a dozen insurers had insured the event for well over $2 billion just for such events. The insurance covered losses in sunk cost to FIFA, media rights holders, sponsors, practically anybody with a large financial stake in the World Cup. This also covered the match fee/prize money promised to competing nations that would otherwise have to be forfeited in case it was not possible to proceed with a match. Even individual ticketing agencies were insured upwards of $100 million against poor ticket sales, ticket refund costs in case of cancellations, and even cyber risks.

Brazil’s unique geography meant that there was a high probability of rain. While football matches do continue in the rain, insurers had to assess probabilities of events such as a sudden downpour of 2 or more inches that would prevent the match from starting especially in case of stadiam with older drainage system like the Maracana, which was the venue for the final game of the tournament. Brazil-specific problems also included the largely unruly traffic that could cause traffic jams and delays as players, officials and spectators navigated across the country between the 12 venues that staged the mega event.

A lot of infrastructure has also had to be constructed for the 2014 FIFA World Cup to be held smoothly in Brazil. With estimated stadia cost between $200-300 million, each to build (the Estadio Nacional in Brasilia reportedly cost $900 million to build) and the public unrest growing, vandalism insurance was a key insurable this World Cup as FIFA looked to protect itself from financial losses in the event of damage to the stadium structures that might require more money to repair. With a very high likelihood of riots restarting, the threat of disruption of the game schedule and loss and damage of property was a very realistic one for FIFA. Additionally, in-game vandalism caused by over jubilant and/or irate fans is an ever present threat. The alcohol and emotions involved especially in high pressure or high profile matches is more than sufficient to cause a bunch of fans to break a few chairs and before you know it, the entire stadium is burning flares and breaking the stands. While FIFA had been promised riot police support by the Brazilian administration and had itself arranged a mammoth steward task force to dissuade such disruptive behaviour, they did also need insurance cover for any such incidents that could cause millions of dollars worth of loss to a wide range of stakeholders.

Personal Insurance

Not to be neglected was the personal insurance sector. With almost 4 million visitors expected to visit the World Cup sites (including around half a million from abroad), there was a lot at stake even at the individual spectator level. Missing matches due to flight cancellations or reschedules was one of the major risks but that is only scratching the surface. People usually plan ahead for such trips, booking non-refundable flight tickets in advance and putting down deposits on hotels and car rentals to ensure a smooth visit. The busy itinerary of the tournament means that the spectators’ personal itineraries must be equally fine tuned. Hence, any disruption in this schedule throws off the entire plan costing the affected spectator money. Right from having to take emergency flights out of locations to missing the event completely due to unforeseen circumstances at home, insurers had spectators covered. Given the higher risk of exposure in Brazil, medical insurance was also high on the list of most foreign spectators. With base packages starting at insurable amounts as less as $50,000, a full-blown package with bells and whistles can have a sum insured as high as $5 million per person. That would include everything from political or emergency evacuation to optional hazardous activity covers. Most countries recommended to their nationals visiting Brazil to have at least a medical insurance and a base cancellation insurance to protect against the most basic risks that these spectators would be exposed to.

The 2014 FIFA World Cup thankfully passed off smoothly without incident. Organizers and other stakeholders would breathe a collective sigh of relief before they begin preparing again for the 2018 tournament that is scheduled to be held in Russia in four years’ time.

The 2014 FIFA World Cup and the business of Insurance

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