SBJ/June 22 - 28, 1998/No Topic Name
FIFA may cover Cup with bonds
Published June 22, 1998
The International Federation of Football Associations (FIFA) may issue $1 billion of catastrophe bonds secured by future World Cup revenue to help defray the costs of insuring the event in the future.
The World Cups in 2002 and 2006 are expected to need a minimum of $3 billion of insurance coverage for cancellation, advertising losses, television rights and spectator injury. If the catastrophe bonds are issued, FIFA would need to pay only for $2 billion of insurance coverage. FIFA, soccer's worldwide governing body, is talking with global investment banks in Switzerland and the United States about underwriting the bonds.
A spokesman for the World Cup's primary insurer, Albingia, said nothing had been decided but that FIFA was eager to defray the enormous insurance costs the two World Cups will require.
No one with FIFA was available for comment.
"Clearly [the Cup coverage] will be a large deal," said Derek Rome, a spokesman for Guardian Royal Exchange, a United Kingdom insurer that owns Albingia, a German company. "That is why Albingia is working with FIFA on how they can get [coverage]. FIFA must get cash from revenue generated by the Cup and use that to pay the interest on the bonds."
Catastrophe bonds pay large dividends to investors, but if the insurance is needed, the dividends may be withheld. A decision on the financing is not far away, Rome said.
The current World Cup in France is insured for 575 million Swiss francs, or $391 million, Rome said. Four years ago in the United States, the Cup was insured for $291 million. Coverage would be used if an event is canceled or if advertisements are obscured or destroyed. Disturbances outside the venues such as the riots in Marseilles last week are not covered.
The World Cup in 2002 will be co-hosted by Korea and Japan. The costs are expected to be so much higher close to $1.5 billion of coverage because of the region's political instability and the greater chance of a natural disaster, such as an earthquake.
The popularity of the World Cup and the increasing revenue it brings are other factors in the surging insurance costs.
"The insurance needs from cancellation of the events are greater as more income from tickets and sponsorships come in," said Jonathan Ticehurst, a managing director with Windsor Insurance, which insures the English and Irish soccer associations, as well as NASCAR races in the United States.
Also, virtual signage is expected to be used for the next World Cup, in part so that the broadcasts will not offend the sensibilities of some countries. For example, alcohol cannot be advertised in certain Muslim nations, so virtual signage would allow broadcasters to eliminate those ads where necessary. Virtual signage, however, will cause costs to rise, Rome said