By Jared Zola and Shaun Crosner
Although recent attempts to schedule the mega-fight between two of boxing’s biggest stars, Manny Pacquiao and Floyd Mayweather, have become somewhat of a soap opera, conservative estimates suggest that the event would generate hundreds of millions of dollars in revenue. It goes without saying, however, that the participation of both Pacquiao and Mayweather is essential to the event’s projected financial success. Indeed, if either fighter could not participate for any reason (including, for instance, because of illness or injury), many individuals and entities would stand to suffer considerable financial loss.
One need look no further than the recent match between Andre Ward and Carl Froch to realize the financial fallout that can result from a boxer’s inability to participate in a scheduled match. The Ward-Froch match was initially set for late October 2011, and the match’s promoters estimated ticket sales in excess of $1 million. However, the fight was postponed to mid-December when Ward suffered a deep cut over his right eye during a training session leading up to the match. Ticket sales for the rescheduled match netted only $600,000, a 40 percent revenue drop from the projections for the October fight. Additionally, the rescheduled match required additional promotional and advertising expenditures, further reducing the match’s anticipated profit margins.
This phenomenon is by no means limited to the sport of boxing. The financial success of many sporting events hinges in large part on the participation of a particular athlete or athletes. For instance, when turmoil in Tiger Woods’ personal life forced him to withdraw from several PGA tournaments, the sport of golf suffered a noticeable financial ripple-effect. Woods’ absence from the field at the 2010 Torrey Pines Farmers Insurance Open resulted in a 15-20 percent drop in ticket and sponsorship sales from the prior year, and many other tournaments from which Woods withdrew similarly experienced lower than anticipated profit levels.
As these examples demonstrate, the financial ramifications of an athlete’s failure to appear at a scheduled sporting event can be significant—especially when, as with boxing matches and tennis and golf exhibitions, the event is centered around an individual athlete. Because the financial success or failure of certain events hinges almost entirely on the participation of a particular athlete or athletes, non-appearance insurance coverage is an essential risk management tool for companies and individuals involved in the promotion and planning of live sporting events.
Understanding Non-Appearance Coverage
Non-appearance policies generally provide coverage if illness, injury, death, or unavoidable travel delay forces an insured athlete to miss a scheduled event. Coverage could apply to, among other things, lost advertising or broadcasting revenue, lost ticket sales, amounts paid to reimburse individuals who had already purchased tickets, and the costs of organizing and marketing a rescheduled event, if necessary.
Non-appearance coverage can be purchased as an add-on to a broader event cancellation policy, or as stand-alone coverage. This line of coverage can be purchased by anyone with a financial interest in a scheduled sporting event—including the event’s organizers, promoters, sponsors, and merchandisers. Non-appearance coverage can also be purchased by athletes looking to ensure that they receive their appearance fee if illness or injury prevents them from appearing at an event. Furthermore, those entitled to a percentage of an athlete’s appearance fee (such as an athlete’s agent or business manager) might purchase non-appearance coverage to guarantee receipt of their expected commission.
Commonly Excluded Perils
Non-appearance policies, like all forms of insurance, generally contain a variety of policy exclusions designed to limit coverage. For example, policies will typically exclude coverage for non-appearances stemming from the insured athlete’s use of drugs or alcohol. Similarly, non-appearance insurers will often exclude coverage if an athlete’s exhaustion or fatigue causes him or her to miss a scheduled event. It is also common for insurers to expressly exclude coverage for non-appearances caused by a contractual dispute involving the insured athlete (or his or her representatives).
Non-appearance policies are usually “manuscripted” (that is, not simply form policies). Accordingly, the terms of these non-standard policies need to be carefully reviewed in all respects to identify particular needs and applications. Moreover, many common exclusions can be re-worded or eliminated altogether, in some cases for little or no additional premium. For instance, although the forms used by many insurers exclude coverage for non-appearances related to any of the insured athlete’s preexisting injuries, some non-appearance insurers are willing to provide coverage for certain preexisting conditions and injuries—especially those conditions and injuries that are more remote in time.
The Mitigation Requirement
Non-appearance policies typically include a provision obligating the insured to take all reasonably practical steps to minimize (or “mitigate”) financial losses resulting from a non-appearance. Depending on the circumstances, this obligation may require the policyholder to reschedule the event for a later date when the insured athlete can appear or go forward with the scheduled event using a substitute for the athlete. Of course, the mitigation requirement does not obligate a policyholder to reschedule an event or find a substitute for the insured athlete if doing so would result in even greater losses.
Because the mitigation requirement is meant to minimize an insured’s losses (as well as the amounts paid by the non-appearance insurer), a policyholder should be able to recover reasonable mitigation costs incurred in connection with a rescheduled or restructured event. For example, expenses associated with the planning, marketing, and organization of the rescheduled event might be viewed as covered costs of mitigation. The same may also be true of a substitute athlete’s appearance fee. An insured should therefore focus upon the mitigation entitlements and obligations in its non-appearance policy and include mitigation costs in its claim for coverage.
Making a Claim for Coverage
As soon as it becomes clear that an insured athlete will not be able to attend a scheduled sporting event, the policyholder should carefully review its non-appearance policy and strive to satisfy all policy terms and conditions. Policyholders must be especially mindful of their policies’ notice-related provisions, which commonly require that the policyholder notify the insurer as soon as it has reason to believe that the insured athlete may not be able to appear.
The next step in making a claim for coverage will be determining the value of the claim. Some policies provide for a predetermined amount for the insured athlete’s non-appearance. However, it is far more common for non-appearance policies to obligate the insurer to pay a percentage of the policyholder’s total loss. In the event of a dispute concerning the valuation of the policyholder’s loss, non-appearance policies will typically provide for an appraisal process to resolve the dispute.
If a non-appearance insurer incorrectly refuses to acknowledge coverage for a particular claim, the policyholder has the right to initiate litigation or arbitration against the insurer. Policyholders should pay close attention, however, to timing-related limitations governing their rights. In some instances, the timeframe in which an insured can file suit or initiate arbitration is dictated by the express terms of the non-appearance policy. In others, a statute or regulation will provide the relevant limitations period.
In sum, the policyholder should carefully review all applicable policy terms and conditions when making a claim for coverage in connection with an athlete’s non-appearance. Doing so can, in addition to minimizing coverage disputes, provide significant economic benefit and help the policyholder maximize the value of its non-appearance coverage.
Jared Zola, a New York-based attorney and a deputy practice leader of Dickstein Shapiro LLP’s Insurance Coverage Practice, is a member of the firm’s Entertainment and Sports Insurance Initiative. Shaun Crosner, a Los-Angeles based attorney in Dickstein Shapiro LLP’s Insurance Coverage Practice, is co-leader of the firm’s Entertainment and Sports Insurance Initiative and an editor and primary author of LexisNexis’s New Appleman Sports and Entertainment Insurance Law and Practice Guide (2011). Mr. Zola and Mr. Crosner represent policyholders in disputes with their insurers.
