An Olympic Blunder in Risk Management?

Millions in revenue lost for delays, cancellations and rerouting of sports events

rio under the rain

It was the first day medals were to be awarded for the Olympic rowing regatta, and yet no racing was taking place. Rain and persistent strong winds lashed the Rodrigo de Freitas lagoon in Rio de Janeiro leading to the postponing, and eventually, the cancellation, of racing, with organizers and team managers scrambling to prepare a revised schedule for the following day. Similarly, tennis competitions were delayed on outside courts.

In fact, the weather has been a hot topic for a number of sports this year. In June, it sparked outrage among players in the French Open, with the first complete cancellation of matches at the French Open since the year 2000 and other damp days resulting in delays and frustrations from players and organizers alike. Guy Forget, the Director of the Roland Garros Tournament, took the brunt of criticism for the controversial decision to play as long as possible, even in conditions considered difficult if not dangerous, by the competitors.

For cyclists, high winds and rain are just a couple of the many dangerous conditions that racers have been subjected to over the years. Freezing rain, snow accumulation on the road, strong winds, extreme temperatures, poor visibility, and air pollution have all wrecked havoc on pro races. Just this past year, a new Extreme Weather Protocol was entered into by the cycling governing body, the UCI, for road racing stipulating what actions are to be taken in case of adverse weather conditions, including modification of the start venue, start time or finish venue, or the use of an alternative course, neutralizing a section of the race, or cancelling a race altogether.

But for each of these measures, what are the financial consequences, and for whom? As we all know, sports is big business. Most obviously, if an event is cancelled, spectators are fully reimbursed, and the shops and restaurants selling merchandise and food on-site are impacted. If a sports event doesn’t go ahead, it also cannot be televised, which leads to substantial losses in commercial advertising slots as well.

To give an idea of just how much money is lost, tournament organizers claim that June’s cancelled matches at the French Open resulted in two million euros in lost revenues per day. Whilst the Roland Garros tournament organizers say that they clear enough profit to be able to absorb one day of lost revenues, repeated days are unlikely to be so easily written off.

For the majority of outdoor tournaments, event cancellation insurance is available. This covers tournament organizers for any and all reasons that an event is cancelled and can be purchased in traditional insurance format. Such standard insurance is traditionally put in place for large outdoor events running for a defined time period. However, traditional event cancellation usually entails a high premium and a large deductible from any eventual claim, particularly for events that go on for an extended period (such as baseball or golf season). Moreover, such insurance has no benefit if a sporting event goes ahead despite the poor weather, despite the fact that this will undoubtedly result in reduced ticket and merchandising sales.

For sports events that go on for a long period, with the risk covering multiple consecutive days separated over many months, and which may go ahead despite poorer than expected weather, the organizers may wish to employ a more nuanced, sophisticated insurance than blanket event cancellation, and will undoubtedly wish to reduce the premium and eliminate the deductible altogether if possible.

Step in index-based weather insurance, an innovative solution to insuring sports events or sporting facilities offered by Meteo Protect. Not only does it allow for insuring any period of time for any peril anywhere in the world, there are no field loss adjustments or deductibles. The payout is automatic.

For instance, a golf course needs to be compensated in that it rains or is too cold for golfers to go out just as a baseball team will need to be compensated in case games are cancelled and fans have no game to watch. Whilst the traditional thinking is that a golf course or baseball team makes the bulk of their profits from (prepaid) annual passes and thus don’t need to be compensated for bad weather, they still stand to lose substantially from missed sales during inclement weather, from cancelled tournaments, as well as those annual pass holders who refuse to buy the following year if they didn’t get to take advantage of their passes and hit the greens enough this year.

The advantages of index-based weather insurance to the sports industry is significant. Indeed, Meteo Protect has a number of such clients in Europe and the United States who are hedging their weather risks. They are aware that they can no longer turn a blind eye or absorb these weather risks, not least of which is because with climate change and the fact that weather volatility has doubled in the last decade alone, absorbing the losses in revenues or the additional costs resulting from continued adverse weather conditions is not sustainable.

By putting in place index-based weather insurance coverage, they are able to ensure they receive adequate compensation in the event that the weather affects their sporting season, and they can either apply these funds to cover their lost profits or increased costs, or provide weather promotions to their clients (including reimbursing ticket sales for cancelled events, or compensating annual ticket holders for reduced use of their annual passes).

Alternatively, they may wish to apply these funds to upgrading their facilities, such as building a roof on an outdoor sporting facility, or building more indoor facilities (as driving ranges for golf courses) to provide an alternative venue in the case of poor weather conditions. In both ways, they are able to increase customer loyalty and satisfaction.

Thus, as the Olympic Games continue, savvy sports organizers know that like those competing, with the benefit of index-based weather insurance, they too can go for the gold this summer.