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Real Insurance for Fantasy Football
Fantasy football is big business. And where there’s business with money at risk, insurance is sure to follow.
Fantasy football participants might be surprised to know that there is now an opportunity to buy real insurance that provides coverage when players on their teams have season-ending injuries.
The Fantasy Sports Trade Association (FSTA) estimates that 41 million people play fantasy sports annually, with the overwhelming majority — 33 million — engaged in fantasy football.
Major corporations including ESPN, Yahoo!, and the National Football League have created online platforms for fantasy leagues. Writing at MSN Money, Jeff Cade cited estimates of the economic impact of fantasy sports “at more than $2 billion a year, including advertising, player fees and players’ related spending.”
The NFL has directed all teams to display fantasy statistics on scoreboards during games. ESPN also runs these stats on its news ticker.
And, at the most recent FSTA conference, representatives from the San Francisco 49ers and the Minnesota Vikings spoke about “how their new stadiums are being built with the fantasy sports player in mind.”
Playing in a fantasy league provides the opportunity to act like a combination general manager/head coach of your own NFL franchise — buying, selling, and managing the world’s top talent. (To avoid confusion, I will refer to the fantasy players as “owners” and to the NFL players on the fantasy team as “players.”)
Realism is a key part of the experience, and an owner’s skill in managing the draft, trades, and free agency is the key determinant of success. As with real football, injuries to top players can have a devastating impact on the season.
While participating in a fantasy league generally costs $100 to $200 per year or less, Cade reported that some leagues charge owners up to $10,000. A back-of-the-envelope estimate of market potential might look like this: If 10 percent of the 33 million players are willing to pay a $20 annual premium to insure a single player, that’s a $66 million insurance product each season.
While this figure currently would still be a fraction of premium levels for other niche property and casualty products, if priced right, and if growth in fantasy sports continues, the size of the market would be difficult to ignore. This market potential should likely entice more insurers to enter into the business.
Who Provides the Insurance?
Fantasy sports insurance is an online product. While publicly there is mention of a few players in this market, as of the time of this article only one product offering for the upcoming 2014 season appears to be available: FantasyPlayerProtect (FPP).
This product is offered through MiniCo Insurance Agency of Phoenix, and is underwritten through Hudson Insurance Group, an insurance carrier rated “A” by A.M. Best, and a member of Odyssey Re Holdings Corp. Hudson offers a wide range of property and casualty insurance products.
FPP is designed to recover costs for owners whose players experience season-ruining injuries. FPP’s policies define this condition in terms of the number of games missed. The coverage is triggered when a player misses eight or more games of a 14- or 15-week season, and nine or more games of a 16- or 17-week schedule.
The coverage is intended to replace the league entry fee, plus research expenses such as magazine or online subscriptions. FPP’s coverage maximum is $1,000, including up to $250 for ancillary research expenses.
Owners can insure as many as five players per fantasy team and 10 players per season with FPP, and FPP provides a list of approximately 100 players for whom coverage is available. The premium per player insured ranges from 9 percent — for a historically healthy player — to 13 percent for an injury-prone player — of the coverage amount, plus taxes and fees.
FPP promises to “settle valid claims within 30 days of the end of the regular sports season.”
Underwriting and Product Pricing
When you look at the existing FPP insurance product, the cost differential of insuring the highest-risk versus the lowest-risk players is relatively small. For example, consider an owner who pays an entry fee of $100 plus $50 on subscriptions and decides to insure his or her star player for $150. If the star is a low-risk player, the 9 percent premium comes to $13.50 compared to a premium of $19.50 at the injury-prone 13 percent rate.
Do those rates accurately reflect the risk exposure? Fox News reported that another provider paid out more than $15,000 in claims for the 2012 NFL season. But the story doesn’t say whether or not the total collected premiums made this a profitable line of business.
Technology is making more data available all the time, and this is easily accessible to insurers and fantasy owners alike. From an actuarial perspective, the player risk assessment needs to begin with historical injury data on the player’s position: How often do tight ends touch the ball? What is a quarterback’s exposure to injury on a game-by-game basis or a season-by-season basis?
Next, you’d address the player’s specific condition: How old is he? How long has he been in the league? Are there indications that his body is wearing down? If he’s a quarterback, you’d look at how often he gets sacked. If he runs with the ball, does he know how to slide or run out of bounds to safety? Or does he take the big hits — to show everyone how tough he is?
Finally, you’d move to a consideration of rule changes and trends in the league affecting how injured players are treated. Clearly, the overall NFL environment is now more cognizant of injuries, specifically head injuries, and rules are in place to make sure that there’s sign-off from the team doctor before players are permitted to come back in the game. Presumably, that rule would cut down on season-ending injuries.
But, at the same time, teams with more proactive approaches to protecting players might keep them out of more games, which could end up triggering more claims for the insurer to pay (note that FPP provides an email to policyholders containing a certificate of insurance, which provides details on how a claim will be triggered).
Legal Considerations
While winning money playing fantasy football is legal, there is some concern over whether fantasy sports insurance is legal.
“It is undeniable that a fantasy football owner’s sole monetary interest in their players is based on the bet they made when paying the league entry fee,” Joseph Balice, senior associate of Ezra Brutzkus Gubner LLP, said to Law 360. “The whole purpose of the insurable interest is to prevent using insurance policies as a form of gambling — fantasy football insurance is a wager on a wager. It would make little sense that this could be an insurable interest.”[1]
He also noted that insurers currently have no way of verifying whether or not an owner buying a policy actually has the insured player on his or her team. In this case, buying the policy could be interpreted as simply a bet on whether or not the player will sustain a season-ending injury.
Another problematic scenario is that of an owner who drafted a player and purchased insurance before the season, but then dropped or traded him before the required eight or nine games were missed. Clearly, systems for verifying valid “ownership” before paying claims certainly need to be developed.
Fantasy football is now becoming institutionalized as a legitimate part of the sport. In this context, it seems likely that these insurance products will also grow in popularity.
