Betting on the Lockout

Profits be damned, some NBA teams may arrange insurance coverage just to avoid staff layoffs in the event of a season-ending lockout.

By DAN REYNOLDS, senior editor of Risk & Insurance®

With most insurance deals, it might not make sense to plop down a 30 percent premium for a one-off policy. But at least one NBA team is considering it to keep the lights on during the lockout, as a basketball league lockout is now a reality.

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Andrew Pyle, president of Cypress Creek Intermediaries, based in Lake Mary, Fla., near Orlando, said he has been in talks with an NBA team that is considering buying catastrophic business interruption coverage to help it avoid staff layoffs and to cover basic business costs in the event that the entire NBA season is lost due to a lockout.

"They approached us and said, 'Could you arrange something for us?,' " Pyle recalls.

Since that initial conversation, Pyle said, he has talked to other teams, including the Miami Heat and the Dallas Mavericks, about arranging coverage. Pyle reported that top executives at some of the teams think the coverage is too pricey.

The basketball league owners have locked out the players over a revenue-sharing dispute. The impasse follows the lockout by National Football League owners of their players in March. In the NFL dispute, both sides are at odds of salaries and the length of the playing season.

Word is that the NBA lockout could be much longer term than the NFL's, which is expected to be resolved before football season.

One reason the NBA lockout could drag on is that NBA players are paid much more than NFL players and are better equipped to hold out in the event of an extended lockout.

DETAILS OF THE DEAL

The insurance coverage that Pyle is arranging would involve a payout from an A-rated carrier that would be triggered should the entire NBA season be lost. This means no NBA-sponsored events of any kind that would involve the covered team.

There are several reasons that the catastrophic business interruption coverage has been difficult to arrange and is going to be pricey. One is that there have been three previous NBA lockouts, the most recent one occurring in 1998-1999. That lockout forced a shortened season of 50 games for the NBA.

The other, according to Shaun Crosner, a Los Angeles-based attorney with Dickstein Shapiro, could be that professional sports teams and their insurers have had a tough time with catastrophic business interruption coverage products such as event cancellation insurance.

In 1981, Crosner said, carriers that insured Major League Baseball teams got stung to the tune of $50 million when a players' strike triggered event cancellation coverage payouts. Since then, teams have not been able to arrange that sort of coverage.

"So since then, it has become almost impossible," Crosner said. "It is cost prohibitive for the teams in the league to purchase this kind of coverage, especially in a year when a collective bargaining agreement is about to end," he said.

The team Pyle is talking to has a deadline of August 1 to make a decision whether to buy catastrophic business interruption coverage.

Even at 30 percent--say, plunking down $3 million in premium for a $10 million limit--the coverage makes sense if the entire season is to be lost.

"Even that is not an awful deal," said Crosner.

"I think it would depend on a team's financial makeup and how much they are leveraged and what they are thinking of from that standpoint," he said.

July 12, 2011

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