National associations and clubs

Including substantial success bonuses in contracts can help national associations and clubs motivate players and managers, and is often more cost effective than increasing basic pay. It also lessens the potential of payments for failure.

However, the benefits of success, such as tournament prize money, additional broadcast fees and increased merchandise revenue, will not always be sufficient to cover the cost of bonuses, and may lead to situations where on-field success leads to off-field financial loss.

Hedging bonuses ensures financial certainty whatever the results. For example:

• A national football association agrees to pay its players and staff significant bonuses for qualifying for and progress through the finals of the 2010 FIFA World Cup.
• FIFA prize money covers part of these obligations, but for winning the tournament the bonuses exceed revenue by €5m.
• SportingWins, a division of Winterflood Securities, evaluates the chance of the national team winning the 2010 World Cup at 6%.
• An agreement with SportingWins pays the association €5 million if the team wins, for a fixed consideration of €300,000 (6% of €5 million).

Instead of suffering a cost of €5 million if the team wins, the association’s bonus obligation will cost €300,000 in all circumstances, saving up to €4.7m.

SportingWins can hedge bonuses dependent on qualification for, reaching stages of and winning competitions including:

• FIFA World Cup 2010 and UEFA Euro 2012
• UEFA Champions League and UEFA Cup
• Domestic football leagues and cups
• IRB Rugby World Cup, Six Nations and Tri-Nations
• Domestic and international club rugby competitions
• Cricket World Cup, tests and one-day internationals.