Tiger Woods and why companies take out 'disgrace' insurance Print
Written by Lloyds of London   
Friday, 12 March 2010 15:10
Insurance market, Lloyds of London, look at the Tiger Woods saga and the impact it has had on his sponsors.





Tiger Woods and disgraced sports personalities like him can prove a costly burden for their backers.

Since the story broke of indiscretions in his personal life in December, it is estimated that shareholders of Tiger Woods endorsed stocks have lost $5bn to $12bn.

Allegations surrounding the private lives of footballers John Terry and Ashley Cole have also tarnished reputations.

Disgrace insurance


With such huge figures at stake, it is clear why the sponsors of high profile sports stars opt to take out death, disability and disgrace insurance.

Traditionally, such insurance has been used primarily to cover the cost of advertising campaigns, in particular TV commercials. But the cautionary tale supplied by Woods has spurred a rise in the number of enquiries from brands seeking to protect themselves from loss of revenue – a more complex risk to insure.

While some sponsors promptly dropped Woods from fronting their brands – including Accenture, Tag Heuer, Gillette, AT&T and most recently Gatorade – sacrificing multi-million dollar advertising campaigns along the way, others are taking a reputational punt in keeping their products associated with the golfing legend.

“All these brands that link themselves with personalities – and sport personalities are linked with more brands than anyone else – have the potential to lose millions of dollars as soon as they commit to that advertising campaign,” says Robert Barron, a member of the accident, health and sports contingency team at Lockton.

“The Tiger Woods story is one of the big scandals of recent years. If you’ve got a major brand leaving you behind, it is a loss to Tiger’s income as far as he’s concerned, but the major brand as the sponsor has now got to go out and rebrand their whole product range. They’ve effectively got to start their campaign from scratch, incurring unforeseen additional costs in the process.”

The Tiger Woods brand


With his role-model reputation and huge global brand, Woods arguably had much further to fall than other sporting stars. Footballers’ behaviour off the pitch is more frequent tabloid fodder. While the recent stories involving Cole and Terry have caused some damage (Terry lost his England captaincy and could lose up to £4m in sponsorship deals), the shock of Woods’ fall from grace is more profound.

Woods televised apology on 19 February, where he spoke of his “selfish and foolish” behaviour after admitting to a string of affairs, may go some way to repairing his image. But many feel such damage limitation came too late and felt too staged.

The higher the pedestal, the further there is to fall, explains Chris Rackliffe, contingency underwriter at Beazley. “If someone is quite a hell raiser they have to go quite some way to do something that is not in their normal persona.

“Someone who is so squeaky clean and almost beyond reproach – any minor transgression could be deemed a disgrace by the brand they represent.”

Evolving cover


Woods story has sparked an increase in the number of enquiries about death and disgrace insurance. Advertising companies have traditionally taken out cover on behalf of their clients – it protects their investment in a campaign should their endorsed celebrity die, become disabled or find themselves disgraced.

Since the Woods story went public, Lloyd’s has seen new types of risk coming into the market, Rackliffe explains. “Up until now it’s been mainly commercials that have the disgrace element to it, but now there are all sorts of different risks coming in, including TV productions and films,” he explains. “This cover has been around for 15 years, because of what has happened, people are taking another look at it.”

Concerned about the overall financial impact of being associated with a disgraced star, customers are now asking to cover more than just the investment in a commercial. But loss of revenue is a grey area and far more difficult to quantify than the cost of reshooting a series of adverts.

For instance, it is almost impossible to establish whether the $5bn-$12bn drop in value of Tiger Woods endorsed stocks is a direct result of his stained image, or whether other factors – such as recession – were behind the loss. These new requests will prove a challenge for underwriters, Rackliffe explains. “It’s not to say it can’t be done, but it needs a lot more input at the underwriting stage.”
Last Updated ( Friday, 12 March 2010 15:15 )
 
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