Countries face major problems if SWC cancelled

2015-06-18 20:45
(File, Shutterstock)

London - Soccer World Cup insurers are likely to refuse to pay out on many cancellation contracts if Russia and Qatar lose the rights to hold the tournaments because of fraud, say industry experts.

Russia and Qatar could be stripped of their World Cup hosting rights if evidence emerges of bribery in the bidding process, the head of the audit and compliance committee of soccer's governing body FIFA has said.

Lawyers and insurance specialists say many contracts could be annulled or go into dispute if governments, organising bodies, or firms such as sponsors, broadcasters or hospitality providers have taken out cancellation insurance and are found to be linked to fraudulent action.

Others who took out such contracts and did not have knowledge of any wrongdoing could be paid out in full.

Rights to host

Russia and Qatar have denied wrongdoing in the conduct of their bids for the 2018 and 2022 tournaments, which were not the subject of recent charges announced by US prosecutors against FIFA officials.

They are however the target of a probe by Swiss prosecutors against unidentified people on suspicion of mismanagement and money laundering related to the awarding of rights to host the 2018 World Cup in Russia and the 2022 event in Qatar.

US prosecutors are also looking at how the rights were awarded to Russia and Qatar, according to a source.

In the event of a government being found guilty of fraud, any state-owned companies could face considerable difficulties in claiming compensation if insurers thought they were aware of the fraud and did not mention it, said Richard Leedham, insurance partner at law firm Mishcon de Reya.

Given the size and complexity of the tournaments, and the number of insurance transactions taking place, a great many policies could end up being disputed in court.

Enormous cost

"It won't go away quickly and quietly," lawyer Jeffrey Schulman said.

"There's too much money at stake."

Oxford Economics, a forecaster and consultancy, upgraded the likelihood of Qatar losing its hosting rights to medium risk on Thursday.

Sporting events like the 2014 World Cup in Brazil generate around $2bn in cancellation insurance, according to data produced last year by insurer Beazley, which has provided cancellation cover for previous World Cups but declined to comment on 2018 and 2022.

That $2bn reflects the enormous cost to governments and businesses involved in staging the tournaments.

Organisers, sponsors and others may not yet have taken out insurance, particularly for Qatar.

For those who haven't already taken out insurance it may be too late, or at the least very expensive because of the fraud allegations and the possibility of cancellation.

Hospitality deals

This could particularly hit hotels and other businesses who may normally take out insurance closer to the event.

Said Montgomery at Ark: "We would not want to insure a burning building."

The organising of a World Cup event is estimated to cost around $1bn for the local organising committee, with financial backing from FIFA, insurance underwriters say.

Sponsorship, TV and broadcasting rights, and hospitality deals will add at least several hundred million dollars more to the cost of the events.

Read more on:    fifa  |  swc 2018  |  soccer  |  fifa bribery scandal

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