Sports are coming back — if not a bit quieter than before.
But, while everyone is eager to cheer for their favorite teams, it is easy to forget that at its heart, sports is a business — and like any business, sports relies on insurance to manage risk — and like the rest of the insurance industry, COVID-19 has thrown the sports industry a nasty curveball.
The back offices of sports teams and leagues purchase insurance policies each year ranging from property insurance to general liability insurance to health insurance and even business interruption insurance. And with the global pandemic, many questions have sprung up, and even more uncertainties lurk around the corner.
To begin with, though, it is important to point out that, like most business insurance policies, many sports insurance policies saw the current pandemic coming in a way.
After the events of SARS and bird flu, insurers already started writing language into many of their existing policies specifically excluding pandemics and communicable diseases.
But outside of those explicit exclusions, many gray areas have teams scratching their heads and searching for answers.
The Basic Insurance Policies
When businesses purchase general liability and umbrella liability insurance policies, they are doing it to ensure that if something unforeseen happens that would expose them to liability, they are covered. In general, teams and leagues use these liability policies if a spectator is hurt at a game or at an event or at a team facility.
In theory, general liability policies are what would kick in to cover the team or league if someone contracts COVID-19 on their watch and then turns around and sues the team.
But as stadiums and arenas begin to reopen, many teams are scouring their policies to see if there are communicable disease, virus, or pandemic exclusions — and in some cases, they are disappointed to find out that those policies were not meant for today’s risks. But, in the majority of cases, for now, if a fan or an usher contracts coronavirus and then later sues the team, the general liability policy would offer some protection.
When it comes to employees getting sick, that’s typically where a health insurance policy kicks in.
For the non-players, such as the team officials, coaches, and business staff, health insurance functions as it does for any other business. Each team purchases its own health policy that conforms to the insurance regulations set by federal law and the state they operate in.
But that is not the case for players, who are typically covered by a collective bargaining agreement between their league and player association. Those agreements mandate that the league provide a single policy for all the players, so no matter what team they play for, their coverage moves with them.
In all cases, the affordable care act requires that COVID-19 be covered by health insurance.
That said, when it comes time to renew those policies for 2021, it is hard at this point to say what is going to happen to the premiums, but it is equally hard to imagine they are going anywhere but up.
The unique risk for sports today is with cancelations.
Most every business insurance policy includes a provision for business interruption. And by the sound of it, business interruption insurance should kick in if the business is, well, interrupted.
But there are a few big reasons why teams and leagues aren’t leaning on their business interruption insurance policies right now.
First off, business interruption insurance is designed for something less like a pandemic and more like a hurricane – the facility is damaged, and the team suddenly has to move to another facility while the repairs are being made. Sure, the team will lose some income when all the season ticket holders can’t fill their usual seats. The team will incur some expenses to continue operation away from their home facilities, but in general, things can continue in some form, and the business interruption insurance will kick in and cover each of those costs, even if they ran into the millions.
COVID-19 is different.
Teams can’t just up and move to another market or another facility. With entire leagues shut down, teams can’t make up some lost revenue with limited ticket sales at their remote location. Without games being played, teams can’t cash those lucrative TV royalty checks.
Business interruption insurance policies just weren’t designed with a global pandemic — and its ensuing billions of dollars of losses — in mind.
But, in a way, the scale of policy is beside the point. That is because almost universally, sports business interruption policies already had communicable disease exclusions written in. So, even if the scale of the policy was up for the task, a global pandemic is automatically off the table.
That is all not to mention that most business interruption policies require damage to the facilities before they kick in because they are extensions to the business property coverage.
So, while business interruption insurance never was meant for the reality of the best-case scenario of games being playing in front of empty stadiums, and at worse, having to cancel an entire season, that doesn’t mean teams and leagues aren’t exploring all the options they might be able to tap to get some interruption coverage. To be sure, they are working frantically with their brokers and lawyers to see if any of the financial hemorrhaging can be stopped, but business interruption insurance probably isn’t likely going to be sports’ savior.
If Disaster Strikes
Despite the risks, many leagues are forging ahead with plans to recoup at least something of a 2020 season. But that raises the question of what happens when players inevitably contract coronavirus.
Each of those cases is handled differently depending on what league is involved.
Because players are covered by collective bargaining agreements, each league has nuances on how player disability is handled.
For example, in the NBA and NHL, player contracts are guaranteed. If a player gets hurt, they are still paid the full salary until the end of the contract. If a player is beginning a five-year contract and blows out a knee, the team would still have to pay out for the remainder of the contract. Illnesses, whether it be COVID-19 or cancer, are generally handled in the same way — if a player physically can’t play, they are still paid in full.
To protect teams from that liability, many organizations purchase disability insurance policies for their star players who have big-ticket contracts. These policies have big deductibles, but they would reimburse the team if they have to come out of pocket to make the player whole. These policies are especially valuable if a player has a season- or career-ending injury.
Player disability insurance policies are expensive, and not everyone on the team is worth covering. But if you sign a $324 million blockbuster deal with your new starting pitcher, a player disability insurance policy might make some sense.
The NFL is a little different because teams can cut players. Teams still have to continue paying sick or injured players until they are cleared to play again by a doctor, but at that point, the team could cut them and are under no obligation to pay out any unearned portion of the contract.
Because of that, not many NFL teams buy the insurance for their players, but it does depend on how the contract is structured. For example, if there was a $63 million signing bonus all guaranteed on the front end of a $503 million quarterback deal, a disability policy might make sense.
Player disability polices protect the teams, but what about the players? That is where disability policies agents or managers can buy for their players kick in.
Player’s disability policies cover the athlete in the case that they get hurt outside of playing – say a snow-skiing accident for example. The team may have an exclusion in the contract saying they would no longer be paid because the accident was outside the sport, but the player’s policy would kick in and make sure they are covered and made whole.
The same applies if a player contracts COVID-19. If the player got sick during a team activity, the team would be on the hook according to the contract rules. But if the player was engaging in risky behavior away from team facilities, then they may need their own coverage to protect them. But that is all assuming there isn’t a communicable disease exclusion on that policy to start with.
All that said, if the season itself is canceled, the outcome varies by the league – with each league handling contracts according to their collective bargaining agreement. Some leagues allow contracts to be adjusted so not as much is paid out, while others are more rigid.
From an insurers’ perspective, sure there is a lot of money involved in pro sports, but amateur sports may be the more lucrative and attractive market for insurance policies because, while there may only be a handful of NFL games each week, there are potentially tens of thousands of youth and recreational league games that all need insurance coverage, and there are plenty of insurers interested in covering those amateur sports, even in the times of COVID-19.
In days long gone, people used to be able to grab a group of friends and just run down to a park for a pickup game. Now, increasingly, for any kind of organized, or even semi-organized use of a field or court, liability insurance is required.
With the risk managers and lawyers increasingly involved, municipalities and or property owners are asking for certificates of liability coverage, and they want to be named as additional insured on those policies.
The policy many insurers offer for this are so-called combination policies. These are general liability policies, as well as participant liability policies, along with an accident medical policy bundled in.
These policies are written on an “excess basis” for accident and health, meaning that if an individual involved has their own coverage, be it private health insurance or a liability coverage through their homeowner’s policy, for example, those private policies would be tapped first. Only after those limits were surpassed would the sports policy kick in.
In the case of someone who was not already covered, such as if they were unemployed and lost their medical coverage through their employer, then the sports policy would still cover them, less a deductible of course.
Insurance policies are often required, even if the municipality or league has the participants sign waivers. That is because, while waivers can be useful in court to show that the person understood they were undergoing a risky activity and understood there were risks involved, most states won’t let people sign away their rights, even if they sign a waiver.
Courts do take waivers into consideration, though, when it comes to things like punitive damages.
And speaking of waivers, many college teams are asking their returning players to sign waivers acknowledging the inherent risk if they were to play and then later contract COVID-19, attempting to limit the liability for the university.
Professional sports leagues aren’t the only ones being canceled — things like charity fundraising golf tournaments are also getting the coronavirus ax. This is where event organizers can turn to contingency and events cancelation policies.
These policies are meant to limit the financial risk for these kinds of events, and believe it or not, they are still available, and still being written.
But, while you can still get quotes for special events coverage, many of the cancelation policies now have language recognizing, if not excluding COVID-19.
So, while you can get a contingency insurance policy to cover your charity polo match, that policy will take into consideration the number of people at the event, as well as the inherent risk that people might not show up or might not be allowed to show up.
Insurers are also being more selective and pricing the higher risk in through higher premiums. And in the case of a claim, organizers may have a higher burden of proof and reporting requirements in order to get any reimbursements.
Insurers will also likely require a formal risk management plan, covering everything from personal protective equipment and social distancing guidelines, to crowd control and even plans to check participants for symptoms prior to participating.
Just like any other insurance market, COVID-19 has touched nearly every aspect of sports insurance and is likely to leave its mark moving forward in the form of potentially higher premiums and more.
Just look at when the NFL faced the lawsuits regarding head trauma several years ago. After those lawsuits settled, insurers began writing exclusions for head trauma into coverages in other sports as well — not just football, but also basketball, hockey, and more.
Because concussions are a hard risk to manage, insurers just decided it was better to exclude the risk altogether.
The same is likely to happen with pandemics — any policy that did not exclude infectious disease before will surely address it moving forward.