Top Sports Broker Says Risk Management Is the Answer to Football’s Insurance Problem

ESPN ran an in-depth report recently about insurers being unwilling to cover the National Football League (NFL) for general liability and workers’ compensation due to concerns over player concussions and traumatic brain injuries.

According to the ESPN report, Pop Warner and other youth football leagues are also having trouble finding insurance.

What scares insurers is the potential for traumatic brain injury claims to be like asbestos in potentially costing billions over decades.

“Basically, the world has left the marketplace,” the man behind the story, Alex Fairly, CEO of the Fairly Group, told ESPN’S Outside the Lines. “If you’re football, hockey or soccer, the insurance business doesn’t want you.”

Fairly should know. In addition to the NFL, his Amarillo, Texas-based risk management firm’s roster of clients includes Major League Baseball, Major League Soccer, the National Hockey League, U.S. National Men’s and Women’s Soccer, various U.S. Olympic Committee governing bodies and more than 1,000 collegiate athletic departments.

The Fairly Group has other connections to the big leagues, too. Its construction division has been risk consultant and broker on the development of as many as nine new professional sports stadiums—including the Mercedes-Benz Stadium in Atlanta, home of the Atlanta Falcons and site of this year’s Super Bowl. Others include new stadiums for the Los Angeles Raiders, Texas Rangers, Atlanta Braves, Minnesota Vikings, Miami Dolphins, San Francisco 49ers, Minnesota Twins and Minnesota United FC of Major League Soccer. (See Q&A later in article with Tod Swanson on the firm’s construction division’s work on major league stadiums and the unique challenges they pose.)

The agency had to earn its way into the big leagues.

“We began in the ‘minor leagues’ 20 years ago and essentially focused on managing the cost of risk (risk consulting) vs. insurance placement since most of our clients have substantial retentions. Over the years, we attracted larger and larger clients and leagues because of the results of our risk consulting work. Our ability to manage risk facilitated an ability to be better brokers,” Fairly told Insurance Journal in an email interview.

He said his firm has been able to successfully apply its approach and strategies beyond sports into other risk types including mining, distribution, trucking, entertainment, animal processing, and others. “In short, wherever there is difficult and substantial exposures, we like to work,” Fairly added.

Fairly, who declined to speak about any details of his work with the NFL or his other clients, did tell ESPN that Berkley Entertainment & Sports is the only carrier that has stuck with the NFL and it has done so because it has been able to impose very high deductibles per claim and aggregate amount.

Fairly’s firm brokers insurance; in fact the firm, in which Willis Towers Watson has a minority equity stake, offers every line of insurance, as well as employee benefits.

But for Fairly, the real story – and challenge – is not about insurance markets; rather it is about risk management.

“[W]e are much more focused on managing risk alongside our clients. Placing coverages is critical, but we see it as only one of many strategies for managing/financing risk vs. the primary strategy,” he stressed.

In terms of the NFL, the concern of insurers is the “general unknown” associated with head trauma-related exposure. “It is difficult to predict, measure and, as such, price,” he said.

His approach has worked to an extent.

“It is not possible to overstate the narrowness and challenge of this marketplace, but we have found excellent partners who have made substantial and lengthy commitments to our clients,” he told Insurance Journal.

Fairly is concerned that the situation will spread to other contact sports leagues with head trauma injury exposure, even down to Pop Warner, high school and other youth leagues.

He is consistent in what he offers as the answer:

“The challenge is not a lack of carriers. The challenge is risk related, so the ‘answer’ is managing it. This is where we spend 90 percent of our engagement time. We are engaged with our clients on a daily, claim-by-claim basis.

“And we are also looking far out into the future to try to foresee and develop strategies to address coming challenges. We often say that the solutions are very often not about ‘insurance’. Again, the focus isn’t ‘insurance’ – it is managing risk alongside our clients.”

Fairly would not speak about or take credit for any risk management situations his firm may or may not be involved with teams or players, on or off the field.

However, the NFL itself has been touting a number of safety initiatives. The league’s 2018 Player Health & Safety Report highlights initiatives in engineering for protective equipment design; an updated concussion protocol; a helmet safety rating system for players; support for medical research; and beefed up on-field medical teams at every game among others.

The Fairly Group has been on a good run – so good that it recently returned money to its hometown of Amarillo that it was given to help expand.

“We were engaged in an economic development agreement with the city of Amarillo which rewarded us for adding employees. About a year into the 7-year agreement we simply did not need the help – we were exceeding the employee-count metrics without the agreement’s financial incentives – so we cancelled the agreement and returned the money so it could be used elsewhere,” Fairly said.

Big League Broking, Risk Management for Super Stadiums

Insurance Journal asked the Fairly Group about its work on the Mercedes-Benz Stadium, site of the 2019 Super Bowl, and other major league stadiums. How do sports stadiums compare to other projects; what are some unique challenges? What are trends in stadium design, features, methods and materials?

Below is a Q&A with Tod Swanson, executive vice president, Broking, for the Fairly Group of Amarillo, Texas.

How involved with the construction of the Mercedes Benz Stadium was your firm? Risk management? Insurance?

Our team was engaged early-on in the development process by the Atlanta Falcons Stadium Company as the owner’s insurance consultant and broker. During pre-construction, we worked closely with the owner, owner’s representative, design team, and construction manager to identify the risks involved with design and construction of this world class stadium. We also assisted the owner’s legal counsel on the risk and insurance provisions in over 30 different agreements. At the same time we evaluated and advised the owner on the various project insurance options, including both owner-controlled and contractor-controlled programs. We then oversaw the placement and administration of the selected project insurance program. During construction we were active in assisting the owner and owner’s rep with claims and program administration. As construction approached completion, our focus turned to close-out of the construction programs and the transition to stadium operations. Prior to opening, our risk control experts walked every part of the stadium with operational staff to identify potential hazards and address each appropriately in advance of any public exposure. We were soon asked to stay-on in our risk and brokerage role by the Atlanta Falcons Stadium Company and provide services to them as stadium managers. Today, we remain intimately involved with risk management and insurance at MBS.

What other sports stadiums have you consulted on and/or still do?

Our team members have (or had) consulting/brokerage responsibilities on the following stadium projects:

• Las Vegas Stadium (Las Vegas Raiders – currently under construction)
• Globe Life Field (Texas Rangers – currently under construction)
• SunTrust Park (Atlanta Braves)
• Mercedes Benz Stadium (Atlanta Falcons and Atlanta United)
• US Bank Stadium (Minnesota Vikings)
• Hard Rock Stadium (Miami Dolphins – $500M stadium renovation)
• Levi’s Stadium (SF49ers)
• Allianz Field (MN United)
• Target Field (Minnesota Twins)

Following construction, we were asked to continue to provide operational risk services at Mercedes Benz Stadium, Levi’s Stadium, Hard Rock Stadium, and Target Field. We also continue to provide services to the Braves organization related to on-going construction of The Battery Atlanta, a mixed-used development project adjacent to SunTrust Park.

From a risk management standpoint, what are the unique challenges of stadium construction?

Many of the risk-related challenges with stadium construction are similar to other large commercial construction projects, but a large number of other challenges are specific to stadiums.

Examples of risks that are similar to other commercial construction projects include:

• Potential soil contamination requiring remediation;
• Geotechnical challenges that need to be managed, often through foundation design;
• The potential for natural hazards in catastrophe prone areas causing damage to the project while under construction;
  Defects in curtain wall design, materials, or construction; and
• The risk of a severe worker injury due to construction hazards.

Other challenges with stadiums that similarly exist in other commercial projects include phased occupancy, as well as insuring tenant improvements (i.e. suites, restaurants, stores, etc.) and FF&E.

Examples of risks that are unique to stadium construction include:

Ownership objectives and philosophies.

The owners of a stadium are different than some commercial developers because the team or stadium authority will typically not be doing on-going development – and most often they are building a single stadium that they will be operating and using for 30 years or more. Based on this, stadium owners are always in it for the long-term and care deeply about the facility’s long term sustainability. This makes it all the more critical to properly manage and insure for defects that may emerge years after construction has been completed yet within the applicable statute of repose. Risk management decisions associated with design, construction, operations, and maintenance need to be made with a long time-horizon in mind.

Evolving design trends.

The design, construction, operation and maintenance risks of a stadium tend to be interrelated and so do the risks. We can’t really talk about the challenges with stadium construction without carefully considering the challenges of stadium operations.

Design trends with stadiums are focused on continuing to cater to the fans, enhance the fan experience and imbed the use of technology throughout the stadium, which have implications on the risks associated with design and construction. The needs of the various professional leagues are different and ever-evolving. For example, there is a recent trend toward smaller MLB ballparks that are even more “intimate” in design, as well as designing general gathering areas at the stadium catering to the budgets and interests of the millennial fans – tickets that may have no seat included. Also, “stadium intimacy” may mean fans are closer to danger, which seems to be a resulting design consideration.

As designs change to expand the size or make the stadium more intimate, the designer must also carefully consider the site lines for all areas, but particularly in high-end luxury areas such as suites and clubs. Other unique design challenges involve the sheer concentration of public exposure – meaning 70,000 people concentrated inside a single building. Safe and effective ingress and egress are critical considerations when designing these venues. Another design-related risk for owners of stadiums is ADA compliance – considerations here are different than other commercial venues.

Retractable or moveable features.

Most new stadiums involve features such as retractable (moving) roofs, walls, and playing fields. The new Las Vegas Stadium has a grass playing field that will move outside the building to get some sun and then back inside for NFL games. While most designers are choosing tried and true systems, if a moving feature doesn’t perform as planned, it could cause cost overruns to rectify, or possibly even worse, long-term operational challenges / costs. The playing field in general is an area that is unique to stadiums, including considerations related to turf specifications, irrigation and drainage systems, and in-ground heating systems for outdoor stadiums.

Construction means and methods.

The massive size of stadiums requires unique large-span structural systems for the roof, and the weight of the steel structure requires the use of highly specialized construction equipment to erect. Retractable roofs sometimes add additional challenges to the erection process. For example, the largest crawler crane ever built in the country was used at Mercedes Benz Stadium in Atlanta and has now been moved to Arlington, TX to support installing the retractable roof at Globe Life Field. The massive stadium roofs must also be designed and built to allow proper water drainage, prevent snow accumulation, and allow for maintenance when necessary.

The scope of a stadium project typically involves infrastructure work that may or may not be the responsibility of the stadium owner and its project team. These components sometimes involve streets, pedestrian bridges, public plazas, green spaces, and renewable components.

Many stadiums also involve overseas procurement of critical path materials, including specialized technology, structural steel, ETFE, etc. Time critical construction schedules are unique risks for stadiums because a two-to-three-month construction delay could result in the loss of an entire season in the new stadium. Interestingly, these enormous structures are often being built in only 30 months, so schedules are relatively tight. The availability of an alternative venue to play is an important consideration, but this only partially mitigates the potential financial loss.

Another example is design specifications involving the use of what can be seen as “new” and unproven design or materials to enhance aesthetics or fan experience. An example of a material that received much scrutiny from a risk perspective only a few years ago is ETFE, which is used for roofs and stadium “skins”. In just these last few years use of ETFE has gone from rare to common as we look at the recently construction stadiums. Similarly, stadium construction involves difficult risk management decisions related to fire protection, beyond compliance with fire codes, due to the wide variety of ceiling heights, open spaces, and public vs. non-public areas. As discussed previously while a long-term perspective is important, there must also be a reasonable cost/benefit surrounding these decisions, particularly since stadiums involve the use of public funds, bringing with it a unique need for stewardship.

Source: The Fairly Group