Sport Industry Group

02 Aug 2010

Becky Munday, chief executive of fixed fee promotional insurance specialist Mando, explains the complex world of risk assessment in sport.

Big sporting events have always been considered a powerful draw for brands and there is a growing belief that sport + product = sales. But it’s not just a case of designing a clever promotion around your chosen event and then going to market. There are serious issues regarding protecting your brand from excessive costs and over-redemption.

Risk assessment for sports-based promotions is unique as it is worked out on a two-fold risk analysis. You have a redemption risk that relates to the number of people who will actually take part in a promotion, and a sporting risk that is about the actual sporting outcome; such as the number of goals scored or the number of gold medals won. The latter would be worked out through complex sporting analysis, such as, in the case of England in the FIFA World Cup, the average number of goals scored in a World Cup tournament compared with their current performance.

Redemption risk, on the other hand, is influenced entirely by consumer behaviour. We can compare the proposed promotion with others in our extensive database to determine the likely uptake of the offer. From this we can calculate the likely financial exposure of those redemptions and then offer brands a fixed fee to cover each and every application as well as the logistical costs of fulfilling the brand’s promise to its customers.

However, sports risk premiums are further complicated by the fact they are calculated on a real-time basis, and there can be huge fluctuations in cost due to the current performance of an individual or team, or their opponents.

On top of this, the closer you get to an event the less capacity there will be in the market to actually buy insurance, therefore what cover is available will become more expensive. For example, individual insurers or funds may decide to only place £10m at risk on a particular outcome of a sporting event and as that £10m pot gets used up, so the cost of cover goes up.

The message we try to get over to brands is that they know a long way in advance that they are going to be running promotions around sporting events, so they can save themselves a lot of money by getting their risk management company involved early.

Of course, you can’t predict the unpredictable an injury to Wayne Rooney, for example, would have seen our premiums drop dramatically. Conversely, we work with golf brand Callaway on a promotion based around Phil Mickelson winning The Open, and with the demise of Tiger Woods we have seen the cost of covering a Mickelson win rise significantly over the past two years.

One thing, however, that is a given throughout all of this, is that promotions around sporting events have the highest participation rates of any promotional activities. It’s also important to point out that they are not just an exclusive club for sponsors; any brand can associate itself with a key sporting event providing it is careful – for example, using phrases such as “this summer’s hottest football event” instead of World Cup.

Now the World Cup is over brands will be turning their attention to the next big sporting event on the horizon; the 2012 Olympics. While this brings with it a new set of challenges, as it is the only sporting event brand protected in law, it still offers brands a fantastic opportunity to get to know more about their customers and boost their sales. They just need to make sure they’re properly covered.