How UConn saved nearly $3 million on postseason bonuses for Dan Hurley, Geno Auriemma and staffs (Mike Anthony)

[Scrutineer]

Assisted access <<

Brilliant.
Being in the "insurance capital" results in some creative thinking.

 

[Tenspro2002]

Depending on when they did it, the insurance company could have put bets on those various bonus-triggering outcomes and probably made money.

Hell, I suppose we could have done that ourselves.

 

[HailUConn]

How the heck did AD not think of this earlier, specifically in 2013-2014? that will soften the blow a little that came after...

 

[The Yakk]

Lol tons of crazy speculation going on in this discussion. I won't reply directly to some of the nuttier ideas, because I think some of you are just joking around.

1. No reputable institution--not UConn and not any insurance company--is hedging any risk with a sports book. It's a nice idea in theory--because the prices at the sports books are much lower--but they simply do not have big enough balance sheets to be creditworthy partners given the size of these deals. If an insurer wants to lay this risk off then they will buy reinsurance; someone did mention that.

2. This is a fairly well-established business, and there are several insurance companies involved. UConn's "win" this year is a normal outcome in the course of that business; it is not some kind of shocking catastrophe that will change an insurer's strategy. UConn can continue to buy this coverage as long as they want it. Maybe the price goes up a little because our coaching staff's proficiency gets more weight in the analysis.

3. No matter how these deals are structured--hedging all the bonuses as UConn did this year; or some kind of stop loss structure where UConn hedges only the excess amounts (easily doable in the insurance market)--the fact is, the profit component for the insurer is huge and there is no getting around it. It is simply not a good financial decision in the long run. The insurers will not let you structure them into a better-priced deal.

The whole point of these bonuses is they are funded out of the massive financial returns that accrue to teams that win championships. UConn's financial situation improves when we win a title, and the bonuses allow us to reward the coaches with a small part of that windfall. It should not be necessary to insure those bonuses; they are self-funding. The fact that DB played a hunch this year and it paid off is nice, but we should not be doing this as a matter of routine. Unless enriching the insurance market is part of UConn's mission.

 

[aburks41]

Lol but nah, we could buy this policy again if we wanted it.

I don't know the details of UConn's deal, but I have been involved in this business on the insurance side and can add a little more color.

1. The company mentioned in the article--"Game Point Capital"--is not the actual risk-taker. They are a specialist agent who arranges the coverage, but there is a real insurance company with a big balance sheet behind them who takes the risk. Someone like AIG or Berkshire Hathaway, or maybe a Lloyds syndicate. Game Point Capital will continue to try to sell this policy to UConn; if the actual insurer gets gun shy because UConn is too good, then Game Point will find someone else.

2. The insurer who wrote this policy did not insure UConn alone. They are in the sports/promotions business, and likely have dozens of similar deals with other teams. Most of those will be loss-free. It is a niche insurance business, but incredibly profitable. More on this below.

3. You might ask, how is an insurance company allowed to get involved in sports futures betting? Technically they cannot; the key is there is an insurable interest that the insurer is protecting. In UConn's case, it's the coaches' bonuses; more commonly, it's some kind of marketing promotion. Like, Filene's in Boston gives everyone their money back for their TV if the Sox win the World Series. So technically they are insuring something, but their pricing analysis is exactly the same as if they were booking a futures bet.

4. Since the deal is mathematically identical to placing a futures bet (or a series of futures bets in UConn's case), you might ask--why did UConn not just go to a sports book and get a better price? Two reasons: 1) the size of the bet; sports books are not in the habit of taking one-off exposures in the $millions; and 2) credit exposure to the counterparty. Insurance companies pay claims in the $millions all the time; sports books are a bigger credit risk.

5. Because of this advantage, the insurer can price these deals with a much bigger profit component. Essentially, the "vig" for the insurance company is massive. It's very profitable business in general.

One would hope that UConn is not buying coverage like this as a matter of routine. It's nice that we were able to exploit the insurance this year--and that DB is able to brag about the results--but he is bragging about a pretty dumb financial decision. The way these deals are priced, it is a losing proposition for UConn.

This guy insurances’s

 

[Scottzer]

Yep, but insured experience impacts premiums. This year we paid 2.8M to get a payout of 6.2M. The question is should next year's premium be higher or lower given the personnel we are losing and the fact that no one has won three in a row since UCLA.

At least on the health side, the experience was blended (an individual within a large group might be capped at 50k - with the rest going into the reinsurance pool, which wouldn’t move as much). This is why I’m really curious where/if reinsurance kicked in on a policy like this.

 

[caw]

Yeah if I am an insurance co. and DB is calling it's going straight to VM

Nope I’m taking the call, hearing his pitch, hanging up politely. Then heading to Vegas to lay my mortgage on UConn.

 

[The Yakk]

At least on the health side, the experience was blended (an individual within a large group might be capped at 50k - with the rest going into the reinsurance pool, which wouldn’t move as much). This is why I’m really curious where/if reinsurance kicked in on a policy like this.

I'm about to make my third "insurance" post in this discussion; if I have not yet put everyone to sleep, I will now.

As it happens, as a specialty reinsurer I have been involved in both health insurance and sports/promotions markets. The businesses are very different.

• Profit margins are massive in the sports business, and incredibly low in health insurance. But health insurance market is 100x bigger.
• Reinsurance is a much bigger part of health insurance, where the exposure to runaway medical costs leads to more risk sharing. Insurance companies rarely buy reinsurance for their sports business.
• Experience is given little weight in the pricing of sports futures; it's always about looking forward to the upcoming event and not who generated a loss on prior events.

 

[WillB4]

What else is insurance but a bookie, your betting your going to win and they are taking your bet. Nothing but odds.

 

[upstater]

Unfortunately for them they were getting terrible odds because of how dominant we were. Unless they had some futures at +1900 or whatever it was way back in November

People were straight up giving points. 12 straight games in 2 tourneys. 12 straight winners.

 

[HuskyHawk]

That's just a cautious move. Should have just put a couple of million on UConn to win at +2000. Would solve a lot of problems.

 

[ecasadoSBU]

Geno has been to 15 of the last 16 Final Fours. Dan has won it all in the last two. It is going to get harder and harder to find insurance companies that don't know Storrs is the Basketball Capital of the World.

They'll write it. You will just have to pay more for it making less profitable for UConn

 

[JMick]

That's just a cautious move. Should have just put a couple of million on UConn to win at +2000. Would solve a lot of problems.

The sad thing is even if we put $2mm down at +2000 it would be less than a years worth of media payout for a single SEC school

 

[CL82]

The sad thing is even if we put $2mm down at +2000 it would be less than a years worth of media payout for a single SEC school

Well that is a depressing thought.

 

[Scrutineer]

Lol but nah, we could buy this policy again if we wanted it.

I don't know the details of UConn's deal, but I have been involved in this business on the insurance side and can add a little more color.

1. The company mentioned in the article--"Game Point Capital"--is not the actual risk-taker. They are a specialist agent who arranges the coverage, but there is a real insurance company with a big balance sheet behind them who takes the risk. Someone like AIG or Berkshire Hathaway, or maybe a Lloyds syndicate. Game Point Capital will continue to try to sell this policy to UConn; if the actual insurer gets gun shy because UConn is too good, then Game Point will find someone else.

2. The insurer who wrote this policy did not insure UConn alone. They are in the sports/promotions business, and likely have dozens of similar deals with other teams. Most of those will be loss-free. It is a niche insurance business, but incredibly profitable. More on this below.

3. You might ask, how is an insurance company allowed to get involved in sports futures betting? Technically they cannot; the key is there is an insurable interest that the insurer is protecting. In UConn's case, it's the coaches' bonuses; more commonly, it's some kind of marketing promotion. Like, Filene's in Boston gives everyone their money back for their TV if the Sox win the World Series. So technically they are insuring something, but their pricing analysis is exactly the same as if they were booking a futures bet.

4. Since the deal is mathematically identical to placing a futures bet (or a series of futures bets in UConn's case), you might ask--why did UConn not just go to a sports book and get a better price? Two reasons: 1) the size of the bet; sports books are not in the habit of taking one-off exposures in the $millions; and 2) credit exposure to the counterparty. Insurance companies pay claims in the $millions all the time; sports books are a bigger credit risk.

5. Because of this advantage, the insurer can price these deals with a much bigger profit component. Essentially, the "vig" for the insurance company is massive. It's very profitable business in general.

One would hope that UConn is not buying coverage like this as a matter of routine. It's nice that we were able to exploit the insurance this year--and that DB is able to brag about the results--but he is bragging about a pretty dumb financial decision. The way these deals are priced, it is a losing proposition for UConn.

But if I understand what you're saying at the end it was a good proposition for UConn as a one-off. So DB was either lucky or very calculating in that he had a pair of coaches he believed could deliver.

 

[Scrutineer]

The sad thing is even if we put $2mm down at +2000 it would be less than a years worth of media payout for a single SEC school

Last year was the time to put down a bet. Weren't the odds for 2023 at something like 1,000 to 1?
Dan Hurley's Sweet Sixteen bonus ($100,000) at 1,000 to 1 would pay $100M wouldn't it?

 

[Ewekon]

Like Jontay Porter, UConn bet on itself

and Mattress Mac

 

[The Yakk]

But if I understand what you're saying at the end it was a good proposition for UConn as a one-off. So DB was either lucky or very calculating in that he had a pair of coaches he believed could deliver.

DB played a hunch and got lucky, but he should not be doing that routinely.

Although one could argue that DB did this with some inside knowledge on how good UConn would be this year, and it was a smart bet. I'm willing to give him credit for that.

There is a huge global business in crop insurance. Covers farmers for stuff like hail damage, but also for lower-than-expected yields due to stuff like drought or excessive heat or moisture.

The yield coverage is a loser for the insurers in most countries. The reason is that farmers are so good at predicting the growing conditions, they can game the insurers by only buying the coverage in years when they are likely to have a claim. The only places the insurers make a profit are countries where the government subsidizes the insurance premiums--like US or Canada.

With the subsidy, most farmers buy the coverage every year and the insurers can analyze the business properly. Without the subsidy, the product is basically a nice source of opportunistic profit for the farmers.

Hopefully DB is just a smart farmer, and doesn't waste UConn's money on this every year.

 

[JungleLobo]

Yep, but insured experience impacts premiums. This year we paid 2.8M to get a payout of 6.2M. The question is should next year's premium be higher or lower given the personnel we are losing and the fact that no one has won three in a row since

Yep, but insured experience impacts premiums. This year we paid 2.8M to get a payout of 6.2M. The question is should next year's premium be higher or lower given the personnel we are losing and the fact that no one has won three in a row since UCLA.

The $2.8m tells you how much of a brilliant idea it was. The insurers and ultimate holders of the insurance (you know they reinsured and parceled it out) we’re looking good with all the women’s injuries and an inability to beat any of the top tier teams during the regular season. The Big East was priced in.

Risking 3 to cover 6 tells you the stats from the actuaries is what happened (Final 4 for both teams). The underwriter can’t ask 5 or 6 to cover 6 to get a sale.

Nice headline but the figures tell you this was not ‘genius’. If the AD paid $250k to insure then heck yes.

 

[The Yakk]

The $2.8m tells you how much of a brilliant idea it was. The insurers and ultimate holders of the insurance (you know they reinsured and parceled it out) we’re looking good with all the women’s injuries and an inability to beat any of the top tier teams during the regular season. The Big East was priced in.

Risking 3 to cover 6 tells you the stats from the actuaries is what happened (Final 4 for both teams). The underwriter can’t ask 5 or 6 to cover 6 to get a sale.

Nice headline but the figures tell you this was not ‘genius’. If the AD paid $250k to insure then heck yes.

This is all true, good analysis.

Pricing for this deal was generous for the insurers. Even considering the good outcome, DB should not be paying these kind of premiums routinely.

I had one big loss during my time in this business--my company paid out about 5 million Euros when Italy won the World Cup in 2006. Fiat was the client, and we covered the cost of all the refunds. Basically, we bought free Fiats for a bunch of Azzuri fans.

Even so, the premium was greater than $2m as Italy was one of the favorites. That premium was way above the price you could get in the gambling market, never mind the fair price for the risk.

But there was other value in it for Fiat. With this promotion, they sold a buttload of their crappy cars in the months leading up to the World Cup. That alone made the $2m premium almost worth it; the fact that Italy won was just gravy.

In fact, most of the deals in this business are for promotions like that one. It is rare for the team itself to be making this kind of bet. For good reason: the pricing is horrible, and the team does not get the ancillary financial benefit from sales they are promoting.

 

[UConnJim]

DB played a hunch and got lucky, but he should not be doing that routinely.

Hopefully DB is just a smart farmer, and doesn't waste UConn's money on this every year.

You buy insurance to cap your potential expenses. I think he should still take out insurance every year, but he can lower the limit to reduce the premium. So, instead of buying a $6.25 million limit like he did this year, he might buy a $4.5 million limit for next season.

 

[The Yakk]

You buy insurance to cap your potential expenses. I think he should still take out insurance every year, but he can lower the limit to reduce the premium. So, instead of buying a $6.25 million limit like he did this year, he might buy a $4.5 million limit for next season.

Lol no. A bad deal is still a bad deal, even if you only buy 70% of it.

Also, UConn should not be thinking of these bonuses as unexpected expenses. They only come in the years when we win championships--and gain unbudgeted financial windfalls--and we should be happy to pay them.

 

[husky8273]

I'm surprised this arrangement was discovered

 

[Stinger92860]

Bet the Women next year to go to the F4 AND win it all.

 

[UConnJim]

Lol no. A bad deal is still a bad deal, even if you only buy 70% of it.

Also, UConn should not be thinking of these bonuses as unexpected expenses. They only come in the years when we win championships--and gain unbudgeted financial windfalls--and we should be happy to pay them.

I guess you haven’t been watching the intense scrutiny on the AD P&L. Dave has to continue to show a declining deficit so understanding your potential expenses before the year starts is very important. There can be no more Ollie financial surprises.

 

[DCHuskyFan]

Not sure if mentioned, but the insurer could have hedged its UConn bet by insuring 10 other preseason contenders. Insurance salesman are going to sell, and the house always wins.

 

[Rich]

That’s the first time I’ve ever heard of something like this. That insurance company will probably never do business with us again lmao

Some poor nebbish actuary probably got canned for this.

 

[NEforceUConn]

“What happens in Storrs…..”

Oh wait, that doesn’t quite work.

 

[The Yakk]

I guess you haven’t been watching the intense scrutiny on the AD P&L. Dave has to continue to show a declining deficit so understanding your potential expenses before the year starts is very important. There can be no more Ollie financial surprises.

Fully aware of that scrutiny, and the financial stress on UConn.

That's exactly why these deals are a bad idea in the long run.

And to be clear, winning a championship and triggering these bonuses is a positive financial surprise for UConn. I guess you are not able to comprehend that.

 

[giddyup]

I get that it worked out, but $2.8 mil for a policy with a cap of $6.25 mil is insane. Figure a policy like this is typically a specialty thing like Lloyds of London. I’m really curious what the expected loss ratio was on this (health insurance is typically around 80-85 percent, certain life insurance policies are around 50-60 percent, etc - how much of the premium is expected to be paid out in claims).
This looks like it had a number of basic bonuses that would be paid fairly frequently - maybe $1.5 million or so - and then the roulette wheel strikes for the big stuff.

Now, policies like this are often underwritten with a stop loss. So the insurance carrier self-insures for a certain amount - say up to $2 million, and they buy reinsurance to cover the rest.

It’s about as close to gambling as you can get. Insurance is supposed to be about pooled risk, but somebody 2-1 odds.