Gambling | The Smart Money

A risky business

The insurance and betting worlds are unlikely bed fellows in a bespoke service offering sports clubs coverage against various risks and results.

October 09 2010
Jamie Reid

“Play up! Play up! And play the game!” wrote the poet Sir Henry Newbolt in 1897. His faith in the character-building values of team sport was at the heart of Victorian and Edwardian attitudes. The game and how you played it was always more important than the result.

Such quaint views get short shrift in the world of 21st-century football. For the owners of Premier League clubs, their players and their corporate sponsors, the financial stakes are dizzyingly high. The Holy Grail is to qualify for one of the four places in the Champions League, which can mean as much as £20m in broadcasting and advertising revenues. That’s why Tottenham Hotspur were so ecstatic to clinch fourth place in May and why Manchester City, who finished fifth, spent around £130m on new players this summer.

Some clubs hedge against results on the pitch and the conventional route is to negotiate coverage with Lloyd’s of London. But insurance is expensive and John Nagle, director of an ingenious young company called Sportsrisq Capital, believes betting is a cheaper and more efficient way to protect against sporting outcomes.

Nagle, whose parents own Barronstown Stud and bred the four-time Ascot Gold Cup-winner Yeats, has had first-hand experience of both the insurance and bookmaking worlds, and now he’s tried to bring the two together. His company offers “customised financial contracts” based on the results of sporting events. It’s a bespoke service and the cost of coverage depends on the type and amount of cover required and the likelihood of various outcomes occurring.

Suppose you are a team in the Championship – the division below the Premier League – desperate to break into the top tier. You need to attract talented players to progress but, without a multimillionaire owner, your wage bill may be unsustainable. Sportsrisq recommends a performance-related pay structure that binds the players’ remuneration to the team’s fortunes. A club offers players a 50 per cent bonus if they reach the end of season playoffs and a 100 per cent bonus if they win promotion automatically. Sportsrisq then sells the club a “forward contract” against the risk that the bonuses may be activated. Its risk assessors price and place a bet against the risk occurring on the exchanges or with a specialist financial bookmaker. The club’s premiums will be much smaller than the amount it would have to find if the bonuses were triggered and, unlike insurance, there’s no underwriting process and no lengthy claim process involving a burden of proof. A team either wins promotion or it doesn’t. A player scores 16 goals in a season or doesn’t. The results are indisputable.

Similar contracts can be issued to, say, a replica kit retailer or a travel company that has booked rooms abroad in the hope that England will do well in the World Cup. Then, when the Three Lions crash out at the first knockout stage, as they did in South Africa, the client will have some protection.

Punters are admittedly not renowned for taking a worst-case view of their position. Six months ago I backed England to win this winter’s Ashes at 7-2 and I still believe they will “play up and play the game” successfully in Australia. But, after reflecting on the fate of my World Cup bet that Fabio Capello’s team would reach the semifinals, I’m tempted to invest in some insurance by also backing the Aussies to draw the series at 5-1 with Ladbrokes.