Sporting chances

Scandal and a blaze of negative publicity rocked Australian sport and the NRL and AFL in particular in February, after the ACC released its report into organised crime and drug use in professional sport.

DrugsinSport_HS

While there is a range of contingency insurance policies, such as cancellation and abandonment, or prize indemnity, which can be taken out to insure sports associations against certain events, insuring against drug use by players is not one of them.

“Drugs in sport is a tricky area and not one that I know anyone is specifically insuring against because of the illegal nature of drugs,” says Damian Kerin, Sydney underwriting manager for sports and leisure insurer Sportscover. “The basic rule is if it is illegal, you can’t cover it.”

One type of insurance that may be applicable in this scenario is association liability insurance, which protects sporting organisations for general liability, professional indemnity and management liability for claims against their employees, directors and officers.

“There are a lot of variables with this,” Kerin says. “Whether D&O [directors and officers] insurance applies would depend if the club was aware of a wrongful act [regarding the drug taking]. If they were aware then they are unlikely to be covered. If they didn’t know then you’d still have to look at the circumstances before a claim would be admitted.”

Loose lips protection

In the aftermath of a sport scandal, association liability insurance could also protect directors and officers who may have made damaging statements and defamed other parties, says Kerin.

“The directors of sporting clubs may carry association liability insurance that would insure them against defamation,” he says. “For example, the sports scientist Stephen Danks has been reported in the media to be suing the NRL’s Cronulla Sharks for defamation saying his reputation was ruined and he was defamed without evidence and if this proves to be true the club could claim on its association liability insurance. But this type of insurance generally won’t cover a club for turning a blind eye to drug use.”

But while drug use by sporting players and teams is in the spotlight, Kerin says it largely remains an unknown area for insurers and one they are likely to leave alone for now.

“It is too hard for insurers and they don’t want to carry the exposure,” he says. “I imagine a lot will sit back and see what happens in the market. It is too early yet.”

Improving the odds

OAMPS Insurance Brokers works with a wide range of sporting associations, from small local clubs to professional teams. The practice leader for its North Sydney Corporate and Specialty branch, Natasha Barker, says she doesn’t believe there is a specific “drug abuse” insurance policy. However, she says repercussions from this situation may be covered under certain policies, such as legal costs incurred by directors or officers defending allegations of inadequate procedures.

“Another way clubs can manage this risk is by keeping the responsibility on the players not to abuse drugs in their code of conduct, which would help indemnify the club against infringements.”

Barker says OAMPS offers contingency cover, where each policy is typically designed around a particular risk or circumstance and exclusions vary depending on the type of risk. “As you may expect, we’re now seeing ‘drugs in sport’ exclusions included in some policies.”

OAMPS principal broker and head of its sports national business line Steve Van Leeuwen says his company has seen a trend in the sports sector to place a much greater focus on cyber risk (such as any risk associated with the internet, mobile phones or information systems).

“There have been a number of public examples of this in Australia over recent years, largely in regards to personal information about players,” he says. “Some of the risk mitigation practices we would encourage include education of the club coaching staff and the playing group.”

Falling stars

As well as association liability insurance, sponsors of high-profile players can look at buying death and disgrace cover to manage the risk of damage to promotional activity through reliance on a sporting celebrity.

Sponsors spend big money on advertising campaigns that use sport stars and athletes. And if their star attraction is disgraced in some way – think Lance Armstrong or Tiger Woods – that money can be considered a waste. But death and disgrace insurance can insure against the risk of a spokesperson disgracing themselves, such as through taking illegal drugs.

This type of insurance can cover costs involved in having to rerun an advertising campaign, break a contract with the disgraced sportsperson, or even from the loss of revenue if a campaign is pulled because of a celebrity’s poor behaviour.

Because of the large commercial downside faced by sponsors if their stars disgrace themselves, an increasing number of companies are using death and disgrace insurance as a risk management tool, making this an area brokers could focus their attention on.

“The disgrace aspect of the cover typically extends to criminal acts or any offence against public taste or decency committed by the insured sporting personality,” Kerin says. “Should a campaign or sponsorship have to be withdrawn this can have a significant cost to a sponsor’s brand.”

Notes on a scandal

In February, the Australian Crime Commission released the findings of a 12-month probe into the integrity of Australian sport and found widespread use of banned drugs, such as peptides and hormones, in professional sport and links with organised crime.

The document revealed record numbers of seizures, detections and arrests and increasing reports of use by sportspeople. It also found the use of illicit drugs within some sporting codes was significantly higher than recorded in official statistics.

The report triggered a storm of media coverage, prompting the Australian Sports Anti-Doping Authority to launch a wide-ranging investigation, with a special focus on players from the NRL and AFL. It is expected to last months.

Sporting heroes, and their downfall

Once a sporting hero has been disgraced, such as through exposure as a drug cheat, it can be all downhill. Not only do they have to deal with a competition ban but also they are generally dropped by sponsors who don’t want to see their brands tarnished with a negative image.

The most high profile case to come to light recently is that of cyclist Lance Armstrong. There had been drug allegations leveled against Armstrong for many years but early this year, he went on national television to admit he was a drug cheat and used substances throughout his cycling career.

The ramifications were immense. He lost his titles, was banned from cycling for life and had his sponsors sever their association with him. He is also being sued by a number of parties. In one class action suit Armstrong and FRS, which makes nutritional supplements for which Armstrong served as a spokesman, are said to have engaged in false advertising when Armstrong said in ads that FRS was the secret weapon to his success. In another, an insurance company that covered bonuses for three of his Tour de France victories is claiming $US3 million for fraud and breach of contract.

Armstrong lost his titles, was banned from cycling for life and had his sponsors sever their association with him.

Armstrong is not the only sporting hero who has been disgraced. In 2009, the media outed golfer Tiger Woods for cheating on his wife. Again, this disgrace led to his reputation suffering and many sponsors – such as Accenture, Gatorade, and AT&T – walking away, although some stayed.

It is likely that both Armstrong and Woods’ sponsors had insurance policies, such as death and disgrace, for such a scenario occurring. Millions of dollars are at stake here and it is important for sponsors to cover themselves for associated costs spent on marketing and promotional campaigns that use such spokespeople in the event they fall from grace.