Tag Archives: endorsements

High Limit Disability Insurance

“The highest paid player on an NFL team is the quarterback and the second highest paid player is the left tackle because the left tackle’s job is to protect the quarterback from what he can’t see coming”
The is the opening monologue from the film “The Blind Side”.

A study by the University of Colorado performed in 2007 said that the career of a pro football player is about 3.5 years. Baseball players are slightly better at 5.6 years. An athlete may have to quit, when, for example, in the case of Joe Theismann, a 250 pound line backer falls on his leg.  Did he have High Limit Disability Insurance?

What does a player do when he cannot play in games anymore but he has acquired a life of luxury due to his high income? Unfortunately many athletes listen to bad advice and make bad investments. A report in Sports Illustrated stated that 70% of all professional athletes are either broke or have hit hard times within 5 years of ending their playing days.

Professional athletes often need High Disability insurance for:

  • Personal Disability
  • Contract Guarantee
  • Team Indemnification
  • Loss of Endorsement

Here are some examples:

Auto Racing:

“A client is rated based on the type of motor sport, class and medical history” says Adam Bates, vice president of Insurance Services of America, which offers niche insurance including health coverage for amateur and professional racers. “I usually recommend an Accidental Death and Dismemberment Policy, as most life policies exclude racing”.

Laura Hauenstein, president of WSIB Motorsports Insurance, which insures racers, says some of the agents familiar with motor sports will use the Internet to research the driver. If they find they have a history of crashing, rates can be higher.

WSIB offer worldwide 24 hour coverage on and off the track with varying deductibles and multi-year policy terms;

Benefits are paid on a per race missed basis and/or weekly or monthly basis for a driver who due to illness or bodily injury is unable to drive in a race.

Temporary Disability benefits for periods up to 60 months.  Permanent Disability benefits are paid in a lump sum to compensate for future loss of income.

Professional Baseball:

This is an intense contact sport requiring optimum physical health. A player’s ability to perform could be jeopardised due to either overuse or trauma, such as: muscle strain and meniscus tears; hand and wrist injuries; tendinitis, especially of the elbow; rotator cuff tears; “dead arm” and ulnar collateral ligament tears.  In these scenarios, the athletes need High Limit Disability Insurance.

A Disability Insurance Plan for Professional Baseball Players can provide monthly benefits from $1,000 to $100,000 or higher and offer lump sum benefits of $50,000,000 or more.

Injuries in other sports: offering similar benefits for disability:

Basketball:

  • ankle sprains, ligament tears and breaks;
  • knee and foot injuries;
  • muscular tears, sprains and breaks;
  • jammed fingers;
  • stress fractures;
  • deep thigh bruising.

Football:

  • knee injuries including ACL damage
  • concussion and other head injuries;
  • sprains, tears, broken bones, especially to the legs

Hockey:

  • concussion;
  • shoulder and elbow injuries;
  • wrist fractures;
  • lower back injuries;
  • injuries to the hip

Soccer:

  • ankle sprains;
  • achilles tendonitis;
  • concussions;
  • iliotibial band syndrome;
  • muscle cramps;
  • delayed-onset muscle soreness;
  • patellofemoral pain syndrome
  • plantar fasciitis
  • shin splints
  • calf, hamstring and groin muscle pulls and strains.

These plans are used in a number of ways to insure the professional athlete personally or to insure the team of which the athlete is a member as to the financial losses that result from a disabling accidental bodily injury or sickness. Career length varies by the sport in which the athlete performs. Exceptionally high earnings are generated in a short time span making the adequate insuring of the earning potential a primary financial planning process.

Here are some of the uses of those plans:

1. Loss of Future Earnings

A professional athlete can anticipate income levels and probable playing time. A disability can affect the level of income to be earned in the future and a disability can shorten the career period. As an example, an athlete has no income assurance beyond the term period of the present contract. This plan can insure an income should disability shorten the expected career period.

2. Contract Completion

The loss of an athlete by disability puts the team in double jeopardy. Revenue may slip and the team must continue to pay the non-performing athlete. These plans can insure the contracted compensation to the athlete, thus relieving the team of the financial burden.

3. Loss of Endorsements

Endorsement income and fees continue to flow as long as the public remain fans of the athlete. A political statement, a drug involvement, a drunk arrest, a public relations blemish, and the advertiser/endorsers pull back from sponsorship. This loss is also insurable.

4. Cost of Agents/Managers

During periods of disability it is in the athlete’s best interest to continue the use of agents and managers to keep the athlete’s value as an athlete and as a product spokesperson keenly in the minds of those who contract for their services. These costs can be insured.

Disgrace Insurance

Lance Armstrong’s doping scandal which culminated in his admission of guilt, has reminded companies of the potential importance of disgrace insurance as a risk management tool. He lost eight sponsors within a day.  Some sponsors took immediate action and some chose to let current deals expire.  Nike which had been an Armstrong supporter since 1996 was the first to announce it would be ending its sponsorship.  According to CNBC, one of the smallest sponsors to cut ties with Armstrong was Honey Stinger, a Colorado-based maker of honey-based nutrition food.  Other companies who cut ties with Armstrong was bicycle-maker Trek, Easton-Bell Sports, 24 Hour Fitness, operator of a national chain of health clubs, Anheuser-Busch, RadioShack and Oakley.

A corporate response to Armstrong’s scandal is hardly unprecedented.  Companies must be zealous about protecting their public image, and in some cases that objective leads companies to part ways with a disgraced athlete or celebrity spokesperson.  But, the decision to cut ties with a spokesperson can come with significant financial consequences.  In some cases, a company will have paid millions of dollars for an endorsement from the disgraced spokesperson, and the company might already have sunk significant sums into shooting commercials or print advertisements that will never see the light of day.  And, although sponsors may seek to recoup these losses through lawsuits against the disgraced spokesperson, such litigation is costly and may have the undesired effect of further highlighting the sponsor’s relationship with the spokesperson.

Oscar Pistorius, one of the world’s most in-demand sports personalities for marketers who couldn’t get enough of his inspirational back-story, athletic success and boyish good looks was estimated to receive endorsements worth more than $2 million a year.

Since news broke of the shooting of Reeva Steenkamp, Oakley has cancelled its contract and Nike has “no further plans” to use him in advertisements.  His endorsements stretched well beyond the footwear giant, taking in British Telecom firm BT and French designed Thierry Mugler.  The Icelandic company Ossur, that manufactured Oscar’s running blades has cut all ties with the first double amputee to run at the Olympics.

Whether an actor, athlete or other type of celebrity, anyone of lofty status can fall on hard times after taking a major PR hit.  Think Tiger Woods, Alex Rodriquez, Paula Deen and Oscar Pistorius one day they are riding the crest of fame and the next day they come crashing back to earth.

The important question here isn’t so much who or why but what is the collateral damage when a celebrity suddenly implodes?  For hundreds of companies across the world, that damage comes in the form of unwanted baggage now adorning their footwear, starring them in ads and smiling from their cereal boxes in every supermarket.

Disgrace coverage includes protection from unlawful acts and offensive statements by a contracted spokesperson whose image has been licensed on consumer items, and insurance for a commercial campaign that fails due to a disgraceful act.  This insurance entitles companies to reimbursement for money paid to secure the disgraced celebrity’s endorsement, hire a substitute spokesperson, reshoot or reproduce the advertising material, and remove the spokesperson’s image from product packaging.

When considering a disgrace insurance policy, there are a few important items to keep in mind.  First, if your spokesperson has a history of “issues” it does not necessarily mean you will pay more.  A disgrace policy usually does not include coverage for an insured person acting within their public persona, so personalities who are known to live on the edge are usually acceptable risks.

It is the clear and wholesome images that actually pose more risk.  For example, if Justin Bieber is caught doing or saying something crazy, no one is surprised.  When “clean, wholesome family man” Tiger Woods’ social life was revealed, however, that was a sudden shock to the community at large.

The policy’s definition of “disgrace” should also cover a wide swath – in practice it falls into a shadowy world where things are not always clear

Policyholders should make sure they clearly define terms broadly enough to indicate any misconduct that would adversely affect the company’s reputation.  A policy should have flexibility to match the morals clause in the advertising contract.  Policyholders also need to be conscious of time limitations.  Disgrace policies only cover the period of time related to an actual contract between the policyholder and the insured person.  Celebrity images on products can have a very long shelf-life, so if a company invests in a person, they should be comfortable with that figure’s persona.

This is especially true as television ads featuring now-disgraced celebrities live on forever, thanks to YouTube.  Hertz executives no doubt wish they had a time machine to take out some disgrace insurance on O. J. Simpson.  He was paid a reported $550,000 per year for the endorsement.  British supermodel Kate Moss was photographed snorting what appeared to be cocaine.  Chanel decided not to renew its expiring contract with Moss.  H & M halted its 2005 fall catalogue deal with the model, worth as much as $6.5 million a year.

It is one thing to have to end an endorsement deal prematurely, but its quite another when things get so bad you actually have to pay to get out of the deal,  Such was the case for the Houston Astros in 2002 when Enron, a major sponsor (the home stadium was previously named Enron Field), became embroiled in the worst financial scandal of all time.  In 2000, the Astros entered a 30 year, $100 million agreement with energy giant Enron to name its park after the company.  When Enron collapsed in 2001, the major league club had to pay Enron’s creditors $2.1 million to get out from under the bankrupt firm’s shadow.  The ballpark was temporarily named “Astros Field” before Coca-Cola came on as a sponsor later in 2002.

Disgrace insurance can be purchased either as stand-alone coverage or as part of a broader policy covering other advertising-related risks, such as the risk that the insured spokesperson will die or become disabled during the advertising campaign.  Purchasing disgrace coverage generally costs about 1% of the policy’s limits, so companies typically pay around $10, 000 for every million dollars of insurance purchased.  For a person known to live on the edge, an insurer may require extra premium, or that the insured person sign a warranty relating to his or her lifestyle, consumption of alcohol, or drug use.

The multi-million dollar investments that corporations make to put a celebrity’s face on a billboard, television spot or set of cookware needs protection such as that provided by Disgrace Insurance. Source: Exceptional Risk Advisors