Player bonuses are a critical ingredient of successful contemporary sporting organisations. A significant number of football clubs now utilise financial bonuses to incentivise their players or staff to greater levels of success. Ross Garvey, business development manager at Airton Risk Management discusses the importance of sound financial planning and why hedging player bonus payments may be a way of ensuring stability against the fluctuating fortunes of team performance.
What is Airton Risk Management?
Airton Risk Management is a division of Paddy Power Betfair, one of the leading bookmakers in the world. We offer sports teams and organisations involved with sport the opportunity to hedge against financial risk they would have associated with on-field performance. Our clients are generally football clubs, sponsors of football clubs or any organisation that has financial risk associated with the performance of a team or an athlete. Airton Risk has been in existence for just over a decade and we are one of the leading providers of these services in the sports contingency space.
How did this come about and why is there a need for protection against this type of financial risk?
It was identified, through a process of diversification in the business over 10 years ago, that the sports contingency market was something we could expand in to. Ultimately, it allows clubs and sponsors to budget with certainty. They then know at the start of the year they’ve paid x-amount in premiums and regardless of what happens, that’s all they’ll pay. We’re on the hook for any exposure if a club were to win the league for instance.
Is the sports contingency market large?
It is a growing market. 10 years ago, the size of the risk and the limits that were being written were much smaller than they are today. As the years have gone on, CFOs of football clubs and the companies associated with sport have become a lot shrewder and savvy in their financial planning because it allows them to budget with certainty. They’re putting down a number at the start of the year and there’s no fluctuation on that. So to a lot of financial planners involved in the game it’s a very attractive proposition for them.
Can a club and sponsor take out cover on the same thing? So for example – winning the league?
Yes. Take a club and their shirt sponsor for instance, they can both take out cover on the club winning the league. There’s no conflict of interest.
What are the benefits to a club taking out this type of cover?
It allows clients to employ financial prudence and mitigate the financial impact of paying out bonuses that are expected and unexpected. It enables them to budget with certainty and there are no surprises down the line. If the team wins they get the advantage of paying out only a fraction of the bonus. It’s about solid financial planning and budgeting and those are the key elements to the service we’re providing.
How can clubs/sponsors be assured Airton Risk will manage this correctly?
Paddy Power Betfair who own Airton Risk Management is a FTSE 100 company with a market cap of £5bn so we’re an incredibly liquid business that has the financial ability to pay the large claims and our clients have this security. Some of the big ones we’ve paid out in recent years have been up to £20m in bonus cover. We have a trading team here in Dublin and one in Australia and between the two offices we have around 200 traders who are experts in various sports. We have a very good record in the industry and are rated highly in what we do.
Is there a standard level of investment or cover or is it dependant on a number of variables?
We cover anyone from the Premier League teams to League Two teams and can cover something up to £20m or as little as a £25,000 payout. There’s nothing too big or too small we won’t consider. We’ve got teams in League Two on our books where the exposure is very small to us, but for them, that is a large amount of money and they want to budget accordingly. So we take on a big range and type of risk.
So something like this would be beneficial to a lower league club to protect themselves against unexpected financial commitments?
Yes, and we can offer revenue protection in the event of a team under-performing. In the event of under-performance they can lose out on revenue through sponsorship, ticket sales, or TV money, so we can also cover that.
Are bonus payments an integral part of the game?
They are a massive part of the game. In nearly all sponsorship deals, around 65 to 70% of that will be the base fee but the remaining amount will be the contingent bonus which will be based on performance. By offering increased contingent bonuses the base sponsorship can be reduced. This increases what the players can potentially earn through successful on-field performance and that is becoming an integral part of sport, not just football. Our premiums were up over 30% in 2018 and in 2019 the early indicators are that we will exceed that by 12 to 15%, so it’s certainly a part of the football industry that is growing and we are very optimistic that is will continue to grow into 2020 and beyond.
Why is fiscal management important in football?
Because of the size of the players’ contracts and the bonuses they get, clubs need to hedge against any potential liability and it all comes back to budgeting with certainty. No shrewd CFO or financial planner is going to have something that can fluctuate on their balance sheet by millions of pounds; it’s just not sensible financial management.
How do you ensure client confidentiality?
We sign NDA (Non Disclosure Agreements) with all of our clients. Our business is based on integrity and we want to do business with people for years and years. We want reoccurring business; we’re here to build long term relationships that are mutually beneficial to both parties. Obviously the longer our relationship is with a client the better the rates we can provide them are.
What is fuelling this growth in sponsorship?
As more and more money comes into the sport, there’s a greater need for people to hedge their risks. All the factors that are bringing money into sport – from TV money to Middle Eastern and Chinese money – this is all fuelling this growth and in turn people need to hedge against the growing risk associated.
Is the exposure through social and digital media helping fuel this growth too?
For sure and particularly for shirt sponsors in Premier League and Championship which are attracting global audiences. The Premier League isn’t just for people in the UK and Ireland, it is a worldwide game. The audience sizes in Asia are incredible and they have put their sponsorship money into the game and that is another factor driving up the exposure clubs and sponsors face.
Ross Garvey: Business Development Manager
As the Business Development Manager at Airton Risk, Ross develops opportunities in new and existing sports related risk areas of client business. Having joined Paddy Power in 2013, he worked in Risk & Trading for a number of years prior to taking up his current role.
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