Matt Scott: The £6bn black hole that could bring financial fire for football

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“The fire of God fell from heaven and burned up the sheep and the servants, and consumed them.” Job 1:16, King James Bible

It is very unlikely that, 4,000-odd years ago when Job is said to have walked this earth, there was any such a thing as insurance. Even if there was, and even if the old boy had kept up with his premiums, his sheep and his servants might still not have been covered anyway. After all, many policies specifically exclude Acts of God. All that fire falling from heaven would almost certainly have had the loss adjusters looking for the red flag. To put up with it all you would need the patience of, well, Job.

Fortunately these days things are a bit more sophisticated. If you have livestock and chattels now, then you can be protected from potential losses by transferring your exposure to commercial risk-takers in the insurance industry. This is what FIFA says it has done with its Club Protection Programme, which is in force at a tournament for the first time during this World Cup.

In June 2012 its general secretary, Jérôme Valcke, announced: “Under this programme, clubs will be indemnified, to a certain extent, if their players are injured while on duty with senior men’s representative ‘A’ teams for matches listed in the international match calendar for the period between 1 September 2012 and 31 December 2014.”

It is just as well there is insurance in place because, as research by Lloyd’s of London demonstrated last week, there is more than just a World Cup at stake in Brazil right now. The graphic below shows what Lloyds estimates to be the total insurable value of each of the 32 World Cup squads.

Source: Lloyd’s of London

So according to Lloyd’s, the total combined value of all the players on show in Brazil this month and next is £6.211 billion, or US$10.577 billion. That, by any measure, is a staggering sum of money: even a sport as rich as football can ill afford this kind of exposure. Going by 2012-13 season rates, it is equivalent to more than 8.5 years’ worth of UEFA Champions League prize money delivered to participant clubs.

And it is of course not FIFA but the clubs to whom these players belong. Some 76.5% of them to clubs in Europe according to analysis by the European Clubs Association. Still, with the FIFA insurance in place, surely the clubs have nothing to worry about? Think again. In actual fact, Valcke’s phrase “to a certain extent” carries far more weight than the one that preceded it: “clubs will be indemnified”. Because, really, they aren’t: they are barely covered at all.

First of all, there are the per-player limits involved. According to the terms and conditions of the Club Protection Programme, “the programme compensates football clubs for up to a maximum of €7.5 million per player per accident.” Even this sum has its limits. “The maximum daily compensation is limited to €20,548 per accident.”

Let’s imagine for a second that Lionel Messi had suffered an injury during Argentina’s final group game against Nigeria, putting him out for 12 months. We are led to believe after his recent Spanish tax case (which has now been set aside without charge) Messi earns around €16 million a year from his club, or €43,835 on a daily basis. This year-long injury would lead to Barcelona paying him €16 million, when they could recoup only €7.5 million. The club would therefore be €8.5 million out of pocket.

At the same time, the injury to Messi would wipe out €7.5 million from the total sum insured by FIFA. This “aggregate limit” spread across all injured players is itself capped at €70 million, according to the original Ts & Cs (although it has according to media reports since been raised to €100 million), meaning only between €62.5 million and €92.5 million. Given that the limit relates to a global figure running for a 12-month, December-to-December period, and given that injuries such as the broken leg suffered by Italy’s Milan captain Riccardo Montolivo in their World Cup warm-up match against the Republic of Ireland have already counted towards it, there is a risk of the total amount being quickly depleted. For the avoidance of doubt, the Club Protection Programme explicitly states: “Compensation stops when the maximum compensation per accident per football player and/or the maximum capacity (‘aggregate limit’ of the programme is exhausted.”

Now there is yet another catch. If Messi’s injury were, for instance, a grade-3 hamstring tear – a complete rupture of the tendon – it would put him out for perhaps six months; the result of an aggravated recurrence of an injury he has already suffered this season. Over this period Barcelona would be paying him at least €8 million. But they still might not receive anything at all in compensation for the injury due to the “exclusions” in place in the FIFA policy. (What my speculative Messi example cannot know is whether the national-team doctor and Barcelona doctor have submitted the necessary MRI and CT scans and reports to sign him off as completely recovered from his pre-existing injury. If they have not, though, Barcelona would perhaps receive nothing.)

And in a final triumph of the insurer over the insured, “there will not be any compensation for sickness, which includes heart attacks.” The Ts & Cs to the Club Protection Programme even ask the following, helpful question as well: “Will death and permanent total disablement [injuries resulting in player retirement] be covered?” The answer provided to this question is, bluntly: “No.”

So if between now and the end of the World Cup Messi or Cristiano Ronaldo or any other player with a substantial market value were to suffer an injury instantly putting them out of the game for good, any payment made would come not from FIFA’s insurers but from the club’s own insurances or maybe a national association programme.

Which returns me to the point Lloyd’s makes. Despite the insurable value of €6.211 billion, there is nothing in the (“to-a-certain-extent”) wage-covering FIFA policy reflecting the true value of the footballers insured. FIFA makes much of the fact that every one of the players on show at a World Cup has an asset, or transfer-market value that is frequently enhanced by their appearance at the tournament. Yet this estimated €6.211 billion value is completely ignored.

What if the Arsenal forward Mesut Ozil were to suffer a broken leg like the one that cut in half his forebear Eduardo da Silva’s transfer value? FIFA’s insurers might pay some of his wages during his recovery, but the impact on his transfer value and on team performance in his absence would go completely ignored.

Let’s say Ozil cost Arsenal £42.5 million and for the sake of argument he is paid £5 million a year. A serious injury for Germany renders him unavailable to Arsenal to drive their forward play for the best part of the 2014-15 season, for nine months, say. The club is forced to buy or at least loan another player to cover his position. Upon his return it is evident that Ozil’s injury has rendered him a shadow of his former self and he is transferred a year later for a few million to continue his career at a lower-league club. For this, FIFA’s insurers would pay £3.75 million to Arsenal. This is analogous to a friend borrowing your priceless Bugatti to drive around Brazil for a month, telling you not to worry because they have full insurance… if the radio is stolen.

This perhaps mattered less in past World Cups but the economics of the modern football business, as demonstrated by Lloyds, have changed irrevocably. Financial reform is afoot in the running of the game as evidenced in Financial Fair Play, and the need to manage assets like other businesses is clear. Yet this World Cup highlights that football still allows billions of dollars of assets to be exposed to severe damage without protection.

In fairness to FIFA, the Club Protection Programme is in many respects no different to the insurance policies that have until now been offered to leading clubs. However this is set to change. As this column has previously explained, some of the world’s leading insurers and reinsurers are now prepared to cover the asset value of players – whether they are playing for their clubs or away on international duty.

Surely clubs would prefer to have policies in place that ensure they receive meaningful compensation for the catastrophic revenue-and-asset losses that are incurred with major injuries to key players, policies that carry no exclusions for prior injuries and which pay out on career-ending damage and for tragic events like on-the-pitch heart attacks.

Until these policies are more broadly adopted, football players are little better covered than Job’s sheep were four millennia ago. Because without asset-based, full-coverage protection of their players’ transfer values, clubs are pretty much just relying on the grace of God.

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Journalist and broadcaster Matt Scott wrote the Digger column for The Guardian newspaper for five years and is now a columnist for Insideworldfootball. Contact him at moc.l1719266289labto1719266289ofdlr1719266289owedi1719266289sni@t1719266289tocs.1719266289ttam1719266289.