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Latest Tiger Wood Effect: Higher Insurance Premiums

I suppose it was inevitable.  After all, when companies are spending millions of dollars on athletes' endorsements and subjected multiple millions more to the risk of those same athletes doing something that would then tarnish the image of the companies, insurance would enter the picture.

Many companies take out death and disability insurance, insuring their companies against loss in the event an athlete endorser dies or becomes injured while under contract.  More recently, companies have been insuring against loos to their brand's reputation or the company's actual or potential loss sales due to an athlete endorser's, uh, shall we say less than salutary behavior while under contract.

?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.?

The loss of revenue to a company can, however, be significant and should not be dismissed as just a black eye.

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.

It may turn out to be that Tiger Woods lasting legacy to the world of sports business is to completely overhaul the relationship between athlete endorsers and the companies for whom they endorse, and not in the way he thought.  Contracts from here on out will contain significantly tougher morals clauses, permitting the company to terminate the contract for actions that bring the comapny brand into disrepute, rather than the conviction of a felony that has been the standard for so long.  As the cost of insurance goes up, that cost will be reflected in the value of the endorsement contract.  As the risk goes up, the value of the contract, as in the amount paid to the athlete, will come down. We just may have witnessed the glory days of athletes endorsements - Tiger Woods may have been the zenith.  It may be all downhill from here.

Full post as published by Sports Biz on February 01, 2010 (boomark / email).