In the wake of the Tiger Woods scandal, insurers are being inundated with inquiries from corporations seeking to protect their investments, their brands and even their sales when their celebrity endorsers suffer public embarrassment.
Many companies take out death and disability insurance to cover themselves in the event that an athlete or celebrity endorser dies or is injured while under contract. In a new wrinkle, more companies are trying to insure against the potential loss of sales when an athlete product endorser is involved in a scandal.
“Companies are saying if it could happen to Tiger Woods, it could happen to anyone,” said Brian Socolow, a lawyer who runs the sports practice at Loeb & Loeb, which represents athletes and companies in sponsorship deals.
“For some companies, it's a tremendous investment, and when it goes bad, it is not only the loss of investment, it's a black eye for the company.”
Dan Trueman, who runs the enterprise risk department at R J Kiln & Company, the managing agent for Lloyd’s, said his firm had seen an eightfold increase in inquiries into this type of insurance between September and December, the bulk from pharmaceutical and financial service companies. “It's more than just the flavour of the week,” he said.
Calculating the amount to insure against is not easy. Insurers said they based their assumptions on how much revenue grew after an athlete or celebrity became a company endorser. In some cases, the cause and effect is direct — for example, in the case of signature Tiger Woods golf shirts sold by Nike. But companies that employ athletes or celebrities for more generic brand building are now also looking for financial protection.
Famous endorsers, according to Lori Shaw, the director of the sports and leisure practice at Aon, a leading sports insurance broker, “can have a significant impact on a corporation’s balance sheet, depending on how much revenue is tied to a specific celebrity.”
Indeed, the stock prices of the seven publicly held companies that have or had sponsorship deals with Woods lost $12 billion in market value in the month after Woods's statement in December that he was taking a leave from golf, according to a study by Chris Knittel, a professor of economics at the University of California at Davis.
An increasingly common strategy for companies to better protect themselves is to change the language in their morals clauses to cover more contingencies.
Athletes usually prefer that a morals clause gives the company the right to terminate their agreement only when the player is convicted of a felony involving “moral turpitude” or worse, because a conviction could take years.
Companies, by contrast, want the broadest rights possible to cover “any occurrence” that involves “moral turpitude, or makes any statement or commits any act disparaging of, or reflecting unfavorably upon, the company's reputation or the company's products and services,” according to one type of morals clause.