Dealing with geopolitical risk in the sports industry

Dealing with geopolitical risk in the sports industry | Insurance Business America

As the industry moves towards new and emerging markets, what should firms and their risk managers be aware of?

Dealing with geopolitical risk in the sports industry

Risk Management News

Kenneth Araullo

As the global sports industry is undergoing a significant transformation, WTW has revealed some insights on the effects of the recent geopolitical risks on the sector and what these could mean for firms and teams operating across the world.

The global broker noted that the industry is moving away from traditional centres to new and emerging markets, which has led to increased exposure to the geopolitical climate, bringing both opportunities and challenges for those in the sector.

The situation in Ukraine further exemplifies the profound impact geopolitical tensions can have on sports, raising concerns about the security and reputational risks for organisations, especially as they explore new opportunities, such as in the Middle East.

The invasion of Ukraine by Russia marked a pivotal moment for the sports sector, exposing its vulnerability to geopolitical shifts. The International Olympic Committee (IOC), FIFA, and UEFA promptly imposed sanctions on Russian athletes and teams, reflecting the gravity of the situation. This collective stance of the sporting world indicated a significant shift in attitude towards geopolitical events.

The financial implications of the conflict were far-reaching. UEFA’s cancellation of its sponsorship deal with Gazprom and the relocation of the 2022 Champions League final were among the immediate responses. Clubs like Manchester United ended contracts with Russian sponsors, and Chelsea FC underwent ownership changes due to UK government sanctions. FIFA’s emergency transfer window was another response to the economic instability, particularly affecting Russian clubs struggling to pay wages due to sanctions and the devaluation of the rouble.

While financial impacts were substantial globally, the human cost in Ukraine was more direct and severe. The conflict led to the loss of athletes’ lives and the destruction of sports facilities. Ukrainian Sports Minister Vadym Huttsait’s stance against the participation of Russian athletes in international events underscored the difficulty in balancing sports diplomacy amid shifting geopolitical landscapes.

Sports as a strategic tool

The hosting of major sporting events has long been a strategic tool for nations. Recently, Middle Eastern countries have become active in attracting global events, reflecting their financial capabilities and ambitions. However, this shift introduces new security threats, with regions like the Middle East, Asia, and Africa historically facing challenges like conflict, terrorism, and domestic unrest, in contrast to the relative stability of Western Europe, North America, and Latin America.

The Russian invasion highlighted the indirect ways geopolitical events can affect sports. The sector has also faced direct threats from non-state actors, such as terrorists exploiting the visibility and crowds associated with major events. The attack on the Sri Lankan cricket team in Pakistan in 2009 is a stark reminder of these risks, leading to a decade-long international cricket hiatus in the country and loss of hosting rights for the 2011 Cricket World Cup.

As the sporting industry continues to globalise, it faces an array of risks, including geopolitical conflicts, terrorism, and ESG issues like human rights and climate change. Stakeholders must therefore ensure comprehensive insurance coverage, tailored to the varied risks associated with operating in different geographies, with diverse sponsors and fan bases, and across various sports. Effective risk management and appropriate insurance coverage are crucial for navigating the complex landscape of the global sports industry.

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