Opinion: Opportunity RISQ

As managing performance risk becomes increasingly important to the sports industry, London-based risk advisory Sportsrisq Capital is experiencing rapid growth.

Earlier this year, Sportsrisq announced an agreement with golfer Gareth Maybin that included a potential record US$50 million in bonuses

Sportsrisq Capital, an innovative 2009 start-up described by the Financial Times as “an ingenious young company,” is run by managing director John Nagle and business development director Tom Mitchell. With analytical and trading experience across both financial and sports markets, the management team are well placed to assess risk and opportunity in sport.

 With increasing pressure on companies to demonstrate stability and sustainability, they need to better manage profit volatility related to on-field results. Sportsrisq addresses that need, as Nagle explains: “We price and place risk linked to a sports team or athlete’s performance. Clients want to know the financial value of a team or athlete’s future performance so they can manage budgets and maximise return on investment. We mostly deal with sponsors, clubs and agencies but the products are relevant to any business with revenues or costs linked to sports.”

 “Our main focus is on football, golf, tennis and motorsport,” he says. “But we can efficiently price the performance of almost any team or athlete when required.”

"Clients want to know the financial value of a team or athlete’s future performance so they can manage budgets and maximise ROI."

Sportsrisq uses proprietary modeling software and an impressive network of partners in the insurance, banking and betting sectors to provide clients with the most appropriate structure and pricing according to their requirements. Nagle explains: “We offer the full range of risk transfer solutions because each client’s needs differ, sometimes on a deal by deal basis.”

He continues: “We pride ourselves on our creativity and being able to provide inventive solutions. Most of the complexity is in the background though, we aim to give the client straightforward, self-explanatory contracts.”

Client confidentiality is also paramount. Sportsrisq signs non-disclosure agreements and does not publicise deals unless the client wants to talk about it. That policy is one of the reasons why some of the leading brands in sport choose to use Sportsrisq. “We utilize our network for the client on an anonymous basis,” says Nagle. “Clients generally don’t want others knowing their financial affairs or strategy. We protect their privacy, while offering them full access to the market.”

Nagle identifies a need to educate potential clients in the risk management products offered by Sportsrisq. “The larger sponsors, like Adidas and Nike, are very aware of performance risk and actively manage their exposures, but the corporate sponsorship market is less familiar with what we can do for them.”

Nagle believes that the business focus will evolve. “The majority of our revenues are currently derived from transferring risk that already exists on a company’s balance sheet, such as player bonus payments,” he says. “That will continue to be an important area but we’re moving beyond that to provide clients with more bespoke analysis that helps them write creative and cost effective sponsorship contracts. We’re now being engaged by the client before or during contract negotiations and giving them the ammunition to design more cost-effective and profitable deals.”

Earlier this year, to highlight the potential of the product, Sportsrisq announced a record-breaking sponsorship agreement with professional golfer Gareth Maybin that included US$50 million in performance bonuses – potentially the largest golf sponsorship deal ever signed. The deal neatly showcased the company’s ability to leverage a sponsorship budget using performance metrics for maximum effect.

As Nagle says: “Some sponsors have standardised bonus schedules for every contract, regardless of the player involved. With the Maybin contract we wanted to show how the bonus schedule can be leveraged and become the focus of the deal. For example, the chance of Rory McIlroy winning a Major is very different to that of a golfer outside the top 100, so the value of their bonus schedules should reflect that. Our products help sponsors to quantify and manage bonuses efficiently.”

“We’re giving clients the ammunition to design more cost-effective and profitable deals.”

Nagle believes the Sportsrisq offering is exactly what the soccer industry needs in an era of spiralling wages and Uefa Financial Fair Play rules. “A large part of any team’s revenues are determined by on-field results, so it makes sense that their costs should be similarly correlated. There’s an industry wide shift towards performance-related pay occurring and our expertise is highly relevant to the clubs and sponsors. We can help them stretch wage budgets as well as marketing budgets.”

 Sportsrisq also operates a sports finance division, providing funding to companies with revenues linked to sports performance. The company’s pricing expertise and substantial capital base mean it is well placed to prosper in a niche area. The company recently agreed a deal worth up to €1.2million (US$1.7million) with Russian tennis player Vitalia Diatchenko to provide “development funding” in return for a share of her prize money and other revenues.

The bulk of Sportsrisq deals have been done with European-based clients but Nagle is aware of the potential across the Atlantic. “70 per cent of the world’s sports revenues are generated in the US so we’re establishing a presence there too. Team sports in the US are run differently to Europe but there’s no doubt about the huge potential for our products in the US market.”

The future looks bright for the company with global ambitions based in the heart of London. Nagle concludes: “On-field performance risk is probably the area that needs to be addressed more than any other in the business of sport. We are doing that better than anyone else right now.”

Originally Published back by SportsPro by Michael Long in 2011

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