Effective Risk Management Means Planning for the Worst In Unsettled Times

Oct 23, 2009

By Jordan Mamorsky
For attorneys representing clients in the lucrative billion-dollar sports industry, learning how to plan for potential business interruptions, event cancellations and emergency scenarios are of paramount importance. In many instances, the ability of a client sports league or venue operator to effectively manage potential liabilities created by adverse weather conditions and unforeseen emergency circumstances may make the difference between realizing financial and publicity goals and failing to break-even on event costs and consumer expectations.
On October 9, 2009, the American Bar Association (ABA) hosted leaders and experts in the sports management field for its annual Forum on the Entertainment and Sports Industries. The forum addressed important concerns related to appropriate risk management among sports league entities, venue owners and individual sports teams
The discussions were moderated by University of Southern California Associate Professor of Sports Law Vered N. Yankovee along with Milton Ahlerich, Vice President of Security for the National Football League, Anthony Avitabile, Director of Industry Risk Management and Financial Reporting for the Office of the Commissioner of Baseball, and Carla Varriale, partner of the firm Havkins, Rosenfeld, Ritzert and Varriale, LLP. All spoke on issues pertaining to terrorism-risk protections achieved through client SAFETY Act certification, maximization of client returns on insurance premiums spent on property and liability policies, and proper review and auditing of insurance policies designed to protect against losses from business interruption.
Since the tragedy of September 11th, sports leagues have sought out preemptive liability protections against future terrorist attacks that could threaten the viability of live and future sporting events. As the preeminent providers of live sports entertainment in major venues across the United States, the National Football League (NFL) and Major League Baseball (MLB), have looked to ensure that terrorist liability protections exist to protect their teams, venue operators, and fans.
In reaching this goal, the NFL and MLB have reached divergent internal policy decisions. While the NFL has favored the governmental liability protections set forth in the SAFETY Act, the MLB has largely left its insurance protections to the private sector due to doubts in the reliability of SAFETY Act protection. Passed as part of the 2002 Homeland Security Bill, the SAFETY Act seeks to provide government sponsored insurance liability protections to certified providers of anti-terrorism technology.
The NFL may not usually be thought of as a provider of anti-terrorism technology. However on December 19, 2008, the league was certified as an anti-terrorism provider under the act for its extensive security manual entitled “Best Practices for Stadium Security.” Developed with a team of security experts, the manual details NFL policies meant to defend against potential terrorist attacks at its many venues, “The Manual provides venue game day and non-game day threat assessment, emergency plans, and operational deployment,” Mr. Ahlerich said. “We wanted a means to protect our fans, players, teams, and venues. Certification under the SAFETY Act was a very good experience.”
Despite the NFL’s choice to rely on the government insurance option detailed in the SAFETY Act, Major League Baseball League (MLB) does not entirely believe the insurance policies within the act are invincible because the act’s protections are untested. Accordingly, the MLB relies upon internal risk management policies and private insurance plans to guard against potential terrorist liability.
“There are limitations to the benefits of SAFETY Act protection,” Mr. Avitabile said. “Thankfully the protections under the act are untested and we don’t know what injury will occur. As a result, we don’t think the SAFETY Act is necessarily a silver bullet.”
Fortunately, the utility of SAFETY Act protections have not been put to the test. Venue operators and event planners have had to grapple with challenges posed by adverse weather conditions and other factors that result in event cancellations and postponement instead. This has especially been problematic for the MLB and its venue operators because a main source of their revenue, the performance of their games, often hinges upon satisfactory weather conditions.
In order to defend against the possibility of millions of dollars in losses because of unsavory weather, Mr. Avitabile explains that planning costs in advance and finding insurance coverage as early as possible is a necessity. “You try to find coverage as early as possible for two reasons,” Mr. Avitabile said. “You lock in rates and you lock in coverage. For example, we only have one day to play our All-Star game. By incurring our expenses for the game way in advance we are able to buy a policy that covers all our expenses so we can’t lose money in the case the event is cancelled or postponed.”
Whether an insurance policy is implemented by venue owners, sports leagues, or individual teams to guard against anticipated losses resulting from event cancellation or emergency situations, one guiding principle is clear: the insurance plan must work. As an expert sports risk management attorney that has represented countless teams and players in Major and Minor League Baseball, Ms. Varriale emphasized the importance of venue operators signing onto a plan that they can have confidence in as well as assuming pro-active risk management methods themselves in their own daily business operations.
In fact, Ms.Varriale counsels her clients on the practicality of insurance plans based upon her own experiences with emergency insurance liability protection arising from the September 11th attacks. “My firm’s law office was destroyed on September 11th,” Ms. Varriale said. “We were able to continue our operations because of our insurance plan. Our managing partner had the foresight to have business interruption insurance, and we were able to make pay roll and stay in business.”
While no expert insurance or risk management attorney could have foreseen the exceptional events of September 11th, it is the ability to diligently plan for all potential future weather conditions, emergencies, and disasters which can mean the difference between successful risk management and having to counsel a client that has lost millions due to an unforeseen event cancellation.
“Everyone thinks of these issues as dry and pedestrian,” Ms. Varriale said. “But that is not the case. If you fail to adequately plan, you are planning to fail.”
Jordan Mamorsky is a third year student at New York Law School where he is Managing Editor of the Media Law & Policy Journal. Prior to law school, Jordan worked as a Special Projects Editor for Sports Illustrated Magazine. In 2006, the Southeastern Journalism Conference named Jordan the “Number One Sports Writer in the South” for his work as Sports Editor of the Vanderbilt Hustler, the school newspaper at Vanderbilt University.


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