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Senior Vice President, Leader of the Global Sports Practice
Willis
Amarillo, Texas

Tackling the NFL's Claims Rush

It's a fact that the National Football League and its member teams have seen a dramatic, and unexpected, uptick of California Cumulative Trauma (CA-CT) claims within the past two years. And, given the trend, the teams' losses could run well into 10-digit territory.

Liberal statutes in California allow players from bygone eras to file claims even if they never played a game in the state, only practiced there.

To Amarillo, Texas-based Alex Fairly, senior vice president for the Willis Group, that scenario represents a golden opportunity for an innovative, practical set of solutions to address this emerging issue. Most of all, Fairly's approach requires innovative risk management strategies and day-to-day risk management actions.

The problem emerged around 2008, when the NFL saw a serious rise in CA-CT claims being filed against the teams from players who played as far back as the 1960s. Since then, more than 1,500 CA-CT claims have been filed with an estimated cost approaching $400 million; and new claims are coming in at a rate of more than 500 annually. Factors in the rise are driven by two main developments: an ex-NFL player who has since become a California applicant attorney and is aggressively pursuing applicant clients through the NFL ex-players association, and California's liberal statutes. On average, the value or cost to teams is in the neighborhood of $180,000 per claim.

It's a perfect storm which the teams were ill-prepared to handle, and the problem is threatening the National Hockey League, the National Basketball Association, Major League Baseball and Major League Soccer.

To help the NFL manage its growing costs, Fairly created a Willis CA-CT "Swat Team" and began to study the problem, looking for ways to help NFL teams organize and begin to manage the cost of risk, and to begin to implement creative risk management solutions so they can mitigate risk.

Fairly first delivered help in simple identification of past policies (up to 50 years ago), their terms and conditions (deductible sizes, aggregates/maximums, carriers, claim administrators, etc.). Finding past carriers and policies and terms was the critical first step. Carriers could not be put on notice, much less directed because many teams didn't know who their past carriers were.

Next, Fairly's team developed and created a liability map for each team, with the purpose of identifying the liabilities by policy year so the decisions could be made as to strategy, responsibility, etc. for all facets of future activity. Next, with the map as a guide, Fairly's team began to explore ways to mitigate the risk--first by carrier, then by claim, and came up with several successful strategies using a step-by-step approach.

Finally, Fairly and his Willis team implemented a comprehensive set of best practices aimed at helping NFL teams mitigate this activity and prepare defenses and proactively handle future claims.

So far, the results are impressive. The average claim settlement values are down by about $40,000 per claim. Legal fees associated with settlements have been reduced. There is a measurable increase in viable defenses being raised with success, and finally, there is now a unified cross-league effort to pursue a "big picture" solution.

"Alex is an innovator, no doubt about it," said Rob Geoffroy, controller and director of finance for the Atlanta Falcons. "His plan will help minimize future risk and find other day-to-day ways to mange expenses.

"Alex and his team are really an extension of my staff in many ways," he said. "He brings great ideas and resources to problem solving. The best part is his plan is also helping the players get the best medical care."

Sashi Brown, who serves as assistant general counsel for another NFL team, said that Fairly is clearly a born problem solver.

"He is always solutions oriented," Brown said. "But what distinguishes him most is he has the energy, but he also can harness it so it doesn't get lost in the process. He provides exacting expertise, but his intelligence about larger strategic objectives also is clear. That's a pretty rare ability, and the mark of an innovator."

--Tom Starner

Vice President, Risk Management
Anaheim Arena Management LLC
Corona del Mar, Calif.

Risk Managing the Ducks

Unfortunately, most sports teams and large public arenas do not have an enterprise risk management strategy or a governance, risk and compliance committee in place. But both are quickly becoming high-demand strategies.

A good example of how either can work for a public sports and entertainment company is what's occurred at Anaheim Arena Management LLC. The company manages the Honda Center in Anaheim, which is home to the NHL's Mighty Ducks and has housed concerts by the likes of Elton John and U2.

In his role as vice president, risk management, Paul Vogelgesang recognized that a risk management gap existed in the center's management. So he set up the company's first steering committee meeting--with the focus on the Honda Center property.

At that inaugural meeting, finance, human resource, legal, information technology, investments, risk management and the CEO each identified--by way of a risk sheet Vogelgesang developed--the range of risks (from catastrophic to minor) for each department. Using those risk sheet results, the committee members quickly saw the various department risks and how some, but not all, overlapped.

Of all the concerns, the lack of earthquake coverage at the center emerged as a central risk. That sparked the next step--procure a custom governance, risk and compliance (GRC) software application to track all of the corporate responses and expand this effort to the other businesses housed under the parent company H&S Venture's corporate umbrella.

Over the next six months, Vogelgesang screened the software, worked with the information-technology department to interview vendors for applicability, budgeted for the procurement, and gained senior management approval.

In April, the company chose a vendor and began creating its GRC program. Along the way, Vogelgesang led several brainstorming sessions with managers, directors and vice presidents of the various companies, to complete risk forms and extract information to input into the software. With just 10 percent of the data collected, earthquake insurance surfaced as No. 1 among highlighted concerns, and due to this response, Vogelgesang began meeting with carriers for reinsurance coverage for earthquakes in H&S Ventures' newly formed Vermont captive.

By November, Vogelgesang plans on having earthquake coverage adequately addressed, and that would have not been possible without the steering committee as first identified by Vogelgesang. Vogelgesang's innovative efforts had a second front, as it turns out. The next risk management effort emerged around the H1N1 flu outbreak.

The Honda Center seats 17,500 people for Anaheim Ducks home games, major concerts and other events. As part of an annual audit of safety, security, crisis management, emergency evacuation procedures and staff training, the potential for an H1N1 flu outbreak at the Honda Center surfaced as a new risk factor.

Vogelgesang contacted a sports and entertainment broker, Robert Murphy in Marsh's Philadelphia office, and together they identified those select concerts, acts and sporting events which would require event cancellation insurance coverage and also cover a flu outbreak.

It just so happened that the Honda Center co-promotes certain concerts and events each year, and a major one was coming right in the middle of flu season. With very short notice, Vogelgesang procured the event cancellation policy with flu coverage, and the event went off smoothly.

At the same time, other NHL and some NFL teams were struggling with a flu outbreak that infected locker rooms.

"On the ERM and GRC front, Paul has done an outstanding job getting senior leadership involved," said Kris Davis, who as managing director in Marsh's Los Angeles office, works closely with Vogelgesang.

"Paul is always focused on insurance and financing, and is constantly thinking about risks within the enterprise and how to manage them.

"But most impressively, Paul's innovative approach to risk management puts his company among the leaders of the pack in the sports and entertainment industry," Davis said.

"Senior management was not really thinking about ERM or GRC, and Paul just took it upon himself to use his expertise to raise the bar by making a strong business case."

--Tom Starner