Contractual bonus insurance allows football clubs, national associations, and sponsors to insure against financial liabilities from team and player bonuses resulting from successful performance on the pitch. Bonuses for winning tournaments or reaching certain stages can total millions of dollars. This insurance protects budgets by setting a limit on bonus payments rather than carrying large potential liabilities. It has become more important for European clubs under UEFA's Financial Fair Play rules aimed at sustainable finances and curbing debt.

1. Insuring against the cost of success: an introduction to Contractual Bonus
Insurance in international and club football
by Saul Paine, Business Development Manager, Hedgehog Risk Solutions -11th April 2014
More than 3.2 billion people (46.4% of the world’s population) tuned in to watch some form of live coverage
during the 2010 World Cup in South Africa, making it one of the most widely watched spectacles in the
world.
Four years on, and all eyes are fixed on Brazil and what promises to be one of the most competitive
tournaments in recent years, with the incentives for success at their peak.
FIFA have already confirmed that the overall prize money for this summer’s tournament is approximately
$358m, the highest in the events history, surpassing the $348m paid out in 2010, when the winners were
awarded $30m.
The champions of this year’s tournament are expected to receive $35m, with $25m going to the runners up,
$22m to third place, and $20m to fourth. The beaten quarter-finalists will scoop $14m, and those exiting at
the round of 16 will take home $9m. Even the 16 teams eliminated at the group stage will collect $8m each.
On the international stage, team bonuses can be linked to winning the World Cup or reaching a certain
stage of the tournament. In 2010, it was confirmed that the U.S. Soccer Federation (USSF) had the richest
bonus scheme in World Cup history, with a bonus pool of $20.6m, based on the progress of the national
team in the competition, with a potential maximum of $895,131 per player (including appearance fees).
This year, the German Football Association (DFB) will pay each of their players €300,000 should Germany
win the World Cup. Smaller pay-outs in the DFB’s bonus schedule will be activated should Germany reach
the quarterfinals.
Each player will receive €50,000 euros if Germany reaches the last eight, increasing to €100,000 for a
semi-final place, and €150,000 for being the runners-up.
It is not just the players that can expect to profit for successful performance - manager’s bonuses can
create significant liabilities too. Audited financial statements from the USSF show that head coach, Jürgen
Klinsmann, could earn between $500,000 and $10m from bonuses alone linked to the performance of the
national team in the World Cup.
In domestic club football, contract bonuses are typically linked to winning league competition, qualifying for
European competition, gaining promotion, or avoiding relegation, while individual bonuses can be attached
to a specific performance element such as scoring a certain amount of goals. For instance, in the 2012/13
Premier League season Liverpool striker Luis Suárez became the first player to benefit from Liverpool’s
shift towards performance based pay when he achieved a goal scoring bonus, taking his £80,000 per week
salary to £100,000 under the terms of his contract.

2. Contractual bonus insurance can be purchased in relation to an individual or a team, and enables a
sponsor, national association, or football club to protect its exposure to successful performance on the
pitch, by setting the budget for bonuses from the outset, rather than carrying a significant liability on the
balance sheet.
In European club football, UEFA’s Financial Fair Play (FFP) regulations have brought risk management to
the fore with an emphasis on sustainable club finances aimed at curbing debt and spending in the sport. A
key objective of the FFP rules is to decrease the pressure on wages and encourage clubs to compete
within their means to ensure they settle their liabilities on a timely basis.
Clubs will therefore have to ‘pay smarter’ and become more progressive in their remuneration structures in
order to lower the percentage of turnover being eaten up by wages. The trend towards performance related
pay is an obvious option (an approach Barcelona, Liverpool and Manchester City are believed to have
already adopted) that makes contractual bonus insurance an attractive option to clubs.
This is something the FA have already recognised through the Bonus Insurance Scheme (BIS) introduced
in August 2012, which emphasises that clubs may wish to insure against their bonus liabilities, providing it
is with an FCA regulated insurer.
Under BIS rules, clubs can only insure bonuses that are based on positive outcomes, and that all policies
must be finalised and approved by the FA no later than 10 days after the August transfer deadline. This
differs for clubs outside England not governed by the FA, who can purchase cover to protect against loss of
revenue due to negative results at any point in the season (e.g. relegation, or non-qualification for
European competition).
In such a niche area, pricing methodology poses a particular challenge to underwriters in the sports
performance market. Devam Sukhija, Chief Underwriter, Hedgehog Risk Solutions, explains:
“Underwriters will have their own proprietary models and access to statistics and media reports, but
essentially, it is the sports club that will likely have the best information. As a result, underwriters
look to the clubs to make full disclosure of all the relevant information, which allows them to assess
the correct premium.”
Material change clauses in contractual bonus policies are often used by insurers to limit a club’s increase in
it’s wage bill (usually 25%), or net transfer spend during the policy period, to effectively stop clubs from
‘buying the league’ through excessive spending or loan acquisitions after having taken out a policy.
Even with the best information, predicting the outcome of sporting events is not a simple task and the
possibility of the unexpected is what makes contractual bonus insurance a specialist area.
Money and success often go hand in hand in football, with successful performance bringing about
significant financial gains. Whether it is in international or club competition, sponsorship endorsements and
broadcast revenue provide lucrative revenue streams for both professional clubs and national associations.
In such a money rich sport it is no surprise that performance bonuses can create significant exposures that
can run into the millions, with sponsors, national associations and professional clubs continuously seeking
better results. Consequently, this enables teams and players/staff to reap the benefits of enhanced
payment terms. With growing revenues and increased media exposure the financial risks have never been
so great.