Financial risk management is becoming an increasingly important aspect of sports clubs' operations. Sports performance directly affects revenues - from prizes in international competitions, to TV rights revenue, to sponsorship bonuses. Success on the field can inflate budgets (e.g., promotion to the UEFA Champions League guarantees rewards in the tens of millions of euros), while failure (e.g. relegation from the league or failure to advance to European cups) can mean a significant loss of revenue. Traditionally, clubs have coped with this uncertainty by creating conservative budgets and setting aside reserves. However, with increasing competitive pressures aimed at the bottom line, more sophisticated methods of risk transfer are also emerging today - from insurance policies to hedge finances in the event of sports failure, to hedging strategies using innovative financial instruments. There is also a growing discussion of the potential of predictive markets as a future mechanism for risk management in sports. Let's take a closer look at these solutions, from high-profile historical examples (such as Atlético Madrid's relegation policy or LASK Linz's recent revenue swap) to a discussion of whether legally regulated predictive markets could one day act as financial "insurance" for clubs. In looking at these issues, it is impossible to ignore the key challenges to the integrity of the game and the lessons from the match-fixing scandals (Hoyzer, Totonero, Dan Tan). In the end, we'll most likely be left with the questions facing decision-makers in sports, finance and regulation, but this is ultimately an article about the "wisdom of the crowd" anyway. So let's get on into it!
Loss of business insurance is the popular name for a policy against loss of revenue. In the event of failure to meet a key sporting objective (e.g., relegation from the league or failure to qualify for important competitions) under it, the entity (club) that has taken out such a policy will receive a certain amount from the insurer. The purpose of such a policy is to compensate for lost revenue (the cost of relegation from the Premier League is estimated at around £85-100 million) and to protect the club from financial collapse due to weaker sports performance. A historic example of this solution is Atlético Madrid, which as early as the 1990s hedged against relegation from Spain's Primera División. In 1996, fresh off a league and cup triumph (a double), Atlético took out a policy guaranteeing a payout of 3 billion pesetas (about €18 million) should the club ever be relegated from La Liga. The amount corresponded to lost TV rights revenue - the contract with operator Audiovisual Sport at the time indicated that in the event of relegation, the value of Atlético's TV rights would drop from 3 billion to just 150 million pesetas . The insurance policy was supposed to cover the difference. According to the club's general manager at the time, Miguel Ángel Gil Marín, the premium was 200 million pesetas per year, and foreign insurers (in a consortium including Lloyd's) assessed Atlético's relegation risk as very low, hence the policy's relatively affordable price. Interestingly, the insurance covered not only the "black scenario" (relegation), but also... too much of a success. The club also secured itself financially in case it had to pay out large bonuses for its greatest achievements - the policy guaranteed funds for bonuses to players for winning the national championship or vice-championship, as well as triumphs in the King's Cup and European cups . As it turned out, the 1999/2000 season brought Atlético both extremes - the team not only recorded relegation from the league, but at the same time reached the final of the national cup (Copa del Rey). As a result, the club benefited from a policy, which helped it survive financially through the difficult period.
Atlético's example shows that the insurance mechanism can act as a financial safety cushion in sports. Although the payout from the policy will not compensate for the sporting decline in prestige, it helps to mitigate its economic impact. In subsequent decades, similar policies (though still rare) were taken out by, among others, some Italian or German clubs, protecting themselves from the consequences of relegation from the league. Overall, however, the market for such insurance remains niche - insurers are cautious about risks that depend on unpredictable sports results, and premiums can be high. For this reason, clubs are also looking for other ways to secure their finances in case of sports failures.
The next step in the evolution of risk management at soccer clubs is derivatives and hedging contracts, which hedge the club's future revenues. An interesting solution was presented by the club LASK Linz (Austria) at the European Club Association (ECA) conference in November 2024. LASK, mindful of the volatility of revenues from UEFA competitions, implemented a strategy to swap potential bonuses from UEFA for guaranteed revenue. The club entered into a so-called revenue swap - a financial agreement in which the potential reward for advancing to the group stage of European cups was "swapped" for a certain payment from a financial partner regardless of whether the team actually advances. In practice, LASK thus hedged against the risk of failing to advance: if the team failed to meet its sporting goal, the club would still receive the agreed amount from the partner; in return, if LASK advanced and received the full prize pool from UEFA, it would transfer that amount to the partner (the financial firm GreenShield&Co). In other words, the club has "sold" the risk of sports failure - it has guaranteed itself a stable cash inflow regardless of the sports result. GreenShield, which specializes in such operations, made the deal in cooperation with a consortium of insurers who cover the risk (the model resembles the structure of an insurance policy, but is carried out in the form of a private swap agreement). For LASK, this means greater budget predictability - the club can plan spending without worrying that failure to advance to European cups will suddenly leave it with a financial hole.
The LASK Linz example doesn't end with revenue swaps. The club also analyzed its cost structure related to sports achievements. It was identified that a significant item burdening the budget in case of great success were bonuses paid to players - especially team bonuses, awarded to the entire team for winning trophies (e.g., a championship or a cup). A high sporting win therefore paradoxically generated a large additional cost (splitting the prize among all players). LASK therefore decided to modify the remuneration system: large team bonuses were abandoned in favor of more varied individual bonuses, depending on the contract and performance of each player individually. Significantly, bonuses for merely achieving promotion have been eliminated - bonuses are eligible only from the group stage of European competition. Such changes have two effects: first, they protect the club from uncontrolled cost increases in the event of success (because players' rewards are more linked to their individual contribution and degree of advancement in the competition, rather than being paid equally to all); second, they provide greater cost flexibility - if the team does not advance to the cups, bonus expenses are automatically much lower. In addition, LASK has introduced clauses in contracts that make certain elements of salary contingent on the club's participation in European cups. If the team does not advance, the level of bonuses is reduced accordingly, or the next contract renewal occurs on slightly different financial terms. These internal hedging mechanisms in the salary structure also reduce risk - personnel costs adjust more flexibly to actual sports performance.
LASK Linz's strategy is part of a broader plan to decouple the club's business model from the most volatile and uncertain sources of income, such as irregular UEFA revenue and player sales revenue. The club's management clearly communicates the goal: to diversify revenues and build financial stability based on fixed sources (sponsorship, matchday, academy, brand commercialization), so that the budget does not collapse in years without a "transfer hit" or without playing in Europe. The implementation of a swap policy with GreenShield and changes in bonus policy show that even a mid-sized club can benefit from tools straight out of corporate risk management - and that financial prudence does not have to mean giving up on sports ambitions. On the contrary, proper risk management makes it possible to invest for the long term (e.g., in infrastructure, training) without worrying that one weaker season will drag the club to the financial bottom.
However, it is worth noting that even the most sophisticated financial instruments are no substitute for effective sports management. Financial risk management will not win the game on the field. The example of LASK is telling here: the club hedged its budget against failure, but the 2024/25 season turned out to be sportingly disappointing - LASK failed to advance to the championship group of the Austrian league and ended up in the relegation round (although it eventually won the group, avoiding the threat of relegation). This means that despite the financial hedging, the club still needs to focus on improving its sports performance. Financial hedging can save the budget in a difficult year, but it is no substitute for hard work to build a strong team. In other words, risk management instruments are an important complement to sports management - not a substitute for it.
Predictive markets in the context of sports is the idea of using stock market mechanisms, in essence remarkably similar to bookmaker betting, to predict the results of matches and sporting events, and potentially to hedge against their financial consequences. In practice, the best-known manifestation of such markets is simply bookmaker betting - the odds at bookmakers reflect the probabilities of various outcomes, as estimated by the so-called "wisdom of the crowd" (the money of thousands of bettors). The question arises whether such mechanisms could become more than just gambling for fans - namely, a risk management instrument for clubs?
Theoretically, one can imagine a situation in which a soccer club tries to hedge against the financial consequences of failure, exactly as farmers have historically hedged through futures contracts against the risk of price changes in their products like wheat, cotton. In our case, the club would take the opposite position in the prediction market. For example, imagine that a club could make a financial bet that it would not advance in a particular league or that it would lose the final. If the team actually suffered a sporting defeat and suffered financial losses, the winnings of such a bet could partially compensate/insure those losses. At present, however, such action is legally and ethically unacceptable. Individuals associated with a club (activists, players, coaches) are not allowed to participate in bets on their own matches, and even less are clubs allowed to officially place bets against each other - this would create an obvious conflict of interest and risk of corruption. Sports authorities (FIFA, UEFA, national associations) strictly forbid this and punish any violation of this ban.
Experts, however, wonder whether in the future it will be possible to create regulated prediction platforms designed strictly for hedging purposes in sports - with only authorized players, operating transparently and with the approval of league bodies. Such a market could resemble a futures exchange for sports events - e.g., a financial contract dependent on whether Club X advances to the European competition. Transactions would take place in an open, regulated market, with multiple investors, rather than in the form of a private contract with a single company. This would increase liquidity and the availability of hedging for interested clubs. But... there is a big "question" - about fairness, sometimes translated as the integrity (integrity) of the sport. If clubs could financially mitigate the consequences of their own failure, wouldn't moral hazard arise? Even with the best of intentions, and after all, the non-zero price of such a transaction, wouldn't the opportunity to make money on a failure create additional risks - such as the subtle pressure to "let go" of a match when the budget will be essentially secured anyway? For this reason, soccer institutions see more risks than benefits for now.
Signs from financial market regulators so far are also skeptical. In the U.S., for example, the Commodity Futures Trading Commission (CFTC), which oversees futures exchanges, has blocked attempts to introduce futures contracts based on sports scores, deeming them to be camouflaged gambling against the public interest (lacking sufficient hedging justification). In 2021, the CFTC rejected an application by the ErisX exchange to allow futures contracts on NFL games, arguing, among other things, that they would be de facto the same as betting contracts offered to the public and would mainly serve bookmakers to hedge their own bets, while excluding investors. The CFTC has indicated that it cannot allow legitimate bookmakers to trade contracts hedging their risks on the exchange if, at the same time, ordinary sports fans would not be free to buy such contracts - this would be contrary to the principle of equal access and the public interest. In the regulator's view, the contracts proposed by ErisX lacked sufficient hedging value and were essentially the equivalent of sports betting in an attempt to tap into the regulated financial market. Although one CFTC commissioner suggested that if, in the future, an applicant could be found who could demonstrate a genuine economic purpose (e.g., protecting the revenue of clubs or bookmakers) and provide universal access to such contracts, it might not be against the public interest, for the time being no such approvals have been granted.
As a result, as of today there are no legal "score exchanges" available to clubs - predictive markets remain the domain of fans and gambling entertainment, rather than a tool of financial security for sports entities. In recent years, however, platforms have emerged that are trying to approach the idea in other fields. For example, the US platform Kalshi is the first fully regulated event contracts exchange - it allows trading binary contracts on various events (political, economic, weather, cultural). Although it has shunned sports until recently, in 2023 Kalshi attempted to introduce contracts based on the results of MLB (baseball) games, claiming to be operating legally within the federally regulated market. This was met with a harsh response from the sports community, with the NBA and MLB formally applying to the CFTC, warning that such platforms could threaten the integrity of the games and demanding strict oversight or a ban on such practices. Kalshi's operations are also being watched by state authorities - several states have deemed such contracts as circumventing sports betting laws and issued cease-and-desist orders, leading to litigation (Kalshi has managed to obtain preliminary injunctions blocking regulators' actions in New Jersey and Nevada, among others). The Kalshi operator itself argues that its platform is different from betting shops - it operates like an exchange, where users trade "YES/NO" contracts among themselves, rather than betting against a "bank," and thus should be subject to different regulations.
In addition to Kalshi, decentralized platforms based on crypto-technology, such as Polymarket and Augur, are also developing. Their goal is to create global predictive markets available online - allowing users to create and place bets on any question (from politics and cryptocurrency rates to sports events). They are tempted by the idea that the "wisdom of the crowd" will translate into accurate valuations of event probabilities, and at the same time everyone will be able to "hedge" financially against a certain outcome (e.g., a farmer against a crop failure, a company against a pandemic, or maybe one day a football club against relegation?). However, these platforms face serious restrictions. Polymarket was fined by the CFTC for offering illegal contracts without registration (it had to pay $1.4 million and shut down some markets). Augur, on the other hand, struggles with low liquidity and lack of oversight - most users treat these exchanges as a curiosity, not a serious financial tool. Neither of these platforms is designed with sports clubs in mind - rather, they are prototypes of global peer-to-peer betting, currently remaining in a gray area between the financial market and gambling.
Perhaps in the future we'll see more formalized solutions - for example, if the sports leagues themselves created something like a central insurance fund or an internal hedging platform available to clubs under the supervision of regulators. One could imagine a model in which clubs pay premiums into a common pool, and the fund (supplemented by capital from the financial market) pays out benefits to those who go down with sports, with the much simpler, and similar in effect, practice of so-called "parachute payments" (parachute payments) for league relegates already known. But going back to the idea of a central fund or hedging platform, the risk of failure would be socialized or transferred to external investors, so to speak, while no club would have the unilateral benefit of its own loss (payouts would be from a central pool under clearly defined rules). For the time being, however, these are purely theoretical concepts and require changes in football market regulations.
Financial hedging instruments in sports cannot be discussed in isolation from the issue of competitive integrity. The history of soccer provides numerous cautions as to how disastrous it can be to combine sports results with external financial benefits for those who influence those results. Below are three high-profile cases in which the desire to profit from betting has led to scandals and sanctions - showing the fine line that the idea of "monetizing" failures rubs against:
The "Totonero" affair (Italy 1980) - one of the first major bookmaking scandals in modern soccer. Both players and activists of many Serie A and B clubs were implicated in illegal betting on matches and manipulating the results. The affair came to light in early 1980 and resulted in draconian penalties: two successful clubs - AC Milan and Lazio - were relegated to Serie B, and five other teams received point penalties. Some 20 soccer players were suspended (some for life), including the famous Paolo Rossi - whose punishment was eventually shortened so that he was able to lead the Italian national team to the 1982 World Cup. Totonero made it clear that the temptation to make a quick buck on rigged bets can tempt even top clubs and players, and the image damage to the sport is enormous.
The Robert Hoyzer refereeing scandal (Germany 2005), in turn, is an example of the fact that the dangers involve not only footballers and activists, but also referees. The young referee Robert Hoyzer in 2004-2005 took part in match-fixing in Germany's lower leagues and the German Cup, acting on behalf of a bookmaking syndicate from Croatia. For several bribes (a total of about 67,000 euros and a TV set) he helped "rig" matches - among other things, in a German Cup match between Paderborn and Hamburger SV, he whistled controversial penalty kicks and removed a favorite player from the field, allowing the weaker team to win. Hoyzer was caught and sentenced to two years in prison, and the German DFB federation still remembers the scandal as one of the darkest events undermining confidence in the game. The DFB president said at the time: "Imagine how the image of our games has suffered." - which underscored how even a single "sold" match by a referee can ruin the reputation of an entire league.
Asian boss Dan Tan (2000-2013) - Interpol called him "the brains behind the largest match-fixing mafia in the world." Singaporean Tan Seet Eng (a.k.a. Dan Tan) built a global network fixing soccer matches on every continent - from European leagues to matches in Africa and Latin America - profiting from betting on their outcomes. He remained elusive for years until he was apprehended in Singapore in 2013 as a result of cooperation between the services of several countries. His men were alleged to have manipulated hundreds of matches (in Europe alone, some 380 matches were suspected, on which the syndicate earned at least €8 million). Tan's case made soccer authorities aware of the scale of the transnational activities of match-fixers and spurred global action (involving Interpol and FIFA) against match-fixing.
These stories are a reminder that the match must be decided on the field, not in the stock market or behind-the-scenes financial arrangements. Any financial tool in sports must be designed so that it does not undermine the foundation, which is fair competition.
How does a private hedging contract (e.g., the LASK Linz contract with GreenShield) differ from an analogous contract in a regulated, public market? Does one form offer more certainty or transparency than the other, or perhaps the main difference is just oversight and availability to more than two parties?
Would it make sense to provide football clubs with predictive markets - and would all clubs have equal access to such instruments? Would such solutions help smaller teams in particular (those most vulnerable to revenue fluctuations), or would they be used mainly by the richest, exacerbating financial inequality?
Could the "wisdom of the crowd" - the mechanisms of a predictive market or betting exchange - price sports risks more effectively than traditional insurers' estimates or clubs' financial analyses? In other words, would a probability valuation by thousands of investors be more accurate than the expertise of a single insurance company?
Where do you draw the line between the prediction market and ordinary betting? Do financial contracts for match results differ in anything fundamental from sports betting (aside from the regulatory environment)? If clubs started using them, would it be a financial innovation or de facto legalized gambling?
What conclusions can be drawn from the positions of sports leagues (NBA, MLB), regulators (CFTC), court rulings and the experience of the platforms themselves? Current signals are cautious or negative - does this mean that the idea of a "sports risk exchange" is doomed to failure? Or is a compromise needed - for example, strict supervision combining the competencies of sports organizations and financial institutions, so as to reconcile the financial stability of clubs with fair play?
Won't massive financial hedging weaken the sports motivation of clubs? (The classic moral hazard problem: if a club knows it has a policy against relegation or guaranteed revenue regardless of performance, surely it will do absolutely everything to avoid that relegation?) Won't a "financial cushion" make failures stop hurting - or, on the contrary, will the assurance of stability encourage clubs to invest more boldly and fight for higher goals, knowing that a single worse season won't sink them?
Financial risk management in sports is an area that will grow rapidly. Increasingly, a soccer club is beginning to resemble an enterprise that must turn to sophisticated financial tools to survive in a world of rising budgets and performance pressures. Failure insurance and hedging instruments already provide clubs with a certain safety buffer. Perhaps in a few years, this arsenal will be joined by regulated predictive markets or other innovations that we cannot yet foresee now. The key, however, is not to lose the integrity of the sport along the way - it is the foundation on which this entire multi-billion dollar enterprise called modern soccer is built.
