Prize Insurance for Monday Night Football?
If you’ve ever participated in a million dollar bingo contest or tried to hit a hole in one to win a new car, then you’ve seen prize indemnity insurance at work. Because while you were focused on winning that million dollars or driving away in that new sports car, the event promoter was focused on how they would pay for the prize if you do succeed.
Prize indemnity insurance allows companies and event promoters to offer lavish contest prizes that may otherwise be outside their financial capacity. Instead of funding that million dollars themselves or buying that new car, promoters purchase this commercial insurance policy and the policy will cover the cost of the promotion should someone win the contest.
Types of Prize Insurance Coverage
Many of the contests that require this type of liability insurance fall into two categories, sweepstakes based on chance and contests that are talent based.
In the above example, the bingo contest would be an example of a chance based-scenario. The victor will be determined by numbers that are drawn randomly, but decisions regarding the contest will affect the business’ indemnity insurance rate. For example, if the contest only awards its cash prize if bingo is achieved in the first five numbers drawn, the promoter will likely pay a lower premium than if the prize is awarded to anyone achieving bingo within the first 15 numbers drawn. The rate will also likely be structured based on the number of people that are expected to attend the event. A million dollar bingo game with 1,000 participants has a better chance of seeing a winner than a million dollar bingo game with 100 participants.
Talent-based contests are usually sports related and include the hole-in-one example listed above. It is also common to see contests that include half-court shots in basketball or center ice shots in hockey. As with sweepstake contests, the number of participants involved in a contest will help determine the insurance rate, as will the skill of the players. For example, an amateur golfer has a 1 in 12,500 chance of hitting a hole in one, according to USA Today, and any insurance provider will take this into account. But if the contestants are professional golfers, the contest promoter will pay a higher rate for indemnity insurance because the chances of someone winning the promotion increase. Contest conditions, such as the length and difficulty of the hole will also be factored in.
Covering in Sporting Events and Contests
Promoters may use prize indemnity insurance to offer prizes to participants based on the outcome of sporting events. For example free food or furniture awarded to fans based on outcomes on the field. The 2005 Super Bowl included several of these promotions as prizes were set to be rewarded if the opening kick-off was returned for a touchdown, a safety took place in the game or there was a field goal of 50 yards or more in the fourth quarter. None of these events occurred.
Prize Indemnity Insurance - Denver Bronco vs. Oakland Raiders
As described above, anytime there is a contest of chance where the promoter could have to pay up in the event you win, certainly would warrant this coverage. A great use of this surrounds the rivalry between the Denver Broncos and the Oakland Raiders. For about 10 years, Colorado based Appliance Factory Outlet has offered a chance for free appliances to customers who purchase products from one of their 13 Colorado stores in the week before the Raiders game, if the Denver Broncos shut out their rival, the Oakland Raiders. This weeks Monday night game will come into play again for thousands of consumers looking to cash in on free appliances.
Appliance Factory Outlet pays between $20,000 and $40,000 for Prize Indemnity coverage in case the Denver Broncos succeed in shutting out their rivals. According to a recent ESPN article, the premiums are based on projected sales during the week leading up to the game and how well the teams are playing at that point in time. To date, the Broncos have never shut out the Raiders during one of these promotions.
Large sporting events aren’t the only avenues for prize indemnity insurance, these policies are also commonly taken out by television shows when they offer large cash prizes. The popular television game show The Price is Right took out such policies for its $1,000,000 Spectacular episodes that started in 2002 and alterations were made to the show’s contests after three millionaires had been crowned in six episodes, spawning criticism from the insurance provider that the contests were too easy. The show instituted changes including the elimination of one game deemed too easy, tougher win conditions and the bid to win both showcases had to be within $500 of the actual retail price of the showcase. It had previously been $1,000. The million dollar episodes ceased in 2008.
While prize indemnity insurance policies grab the most attention when they are taken out for big sporting events or television shows, the truth is such plans make valid small business insurance policies as well. These policies allow smaller companies to offer big rewards to their loyal customers without risking everything on the investment. Small companies have the opportunity to gain additional name recognition – a desired outcome for any business – by offering a prize that will draw attention and have people talking and interacting with the business itself.