Fantasy sports insurance: Is it an insurable risk?

Like a large number of my peers, I enjoy fantasy football. Each year I’ll participate in at least two or three leagues with the hopes of winning a championship. I have yet to do so, but alas I return year after year in search of glory. This year my hopes of a championship in one league depended on my first overall draft pick, Saquon Barkley, having a stellar year. Those hopes were dashed when he tore his ACL in week 2 of the season. Had I invested a significant amount of money into this league, I might be a bit more upset about the fact that my season is all but over at this point. Fortunately, this league is for bragging rights only, but it led me to the question: had I invested some money in this league and a key injury derailed my efforts, is there any safety net that would have protected my investment? Some searching brought me to the seemingly little-known world of fantasy sports insurance, and had me interested in how the risks in fantasy sports insurance align with the general traits of an insurable risk.

Let’s start with a brief history of the fantasy sports industry and fantasy sports insurance. As of 2018, fantasy sports was considered to be a $13.9 billion market worldwide, forecasted to grow to $33.2 billion by 2025.¹ In the United States, fantasy football alone is a $7 billion market. Participation in fantasy sports in the United States and Canada has seen substantial growth in recent history as shown in the chart in Figure 1.

Figure 1: Estimated Number of U.S. and Canadian Fantasy Sports Participants (in millions)

The Fantasy Sports & Gaming Association (FSGA) provides some insight as to who is actually participating in the industry. Of the participants in 2019, 81% were male, 19% female, and 50% were between the ages of 18 and 34.² The NFL attracts the most fantasy sports participants, with 78% playing fantasy football. About 70% of fantasy sports participants are competing in leagues that charge fees, with players spending an annual average of $653 on them. While that’s not a huge figure, it’s worth noting that there are leagues where the entry fees can be upwards of $100,000.

The increase in the popularity of fantasy sports, along with the potential for a lost season due to a key injury, led to the creation of fantasy sports insurance in 2009. The first products were offered by Intermarket Insurance Agency with the backing of underwriters from Lloyd’s of London.³ Statistics don’t appear to be available as to the recent market size, but it pales in comparison to other insurance markets. The latest information available showed that over $15,000 in losses was paid for the 2012 NFL season.⁴ Historically, only a very small number of companies have entered this niche, and only one, Rotosurance, appears to be active in the space.

Rotosurance offers policies for various professional sports, but for simplicity we’ll focus on fantasy football. Two different products are offered at Rotosurance: a season-long policy or a daily fantasy contest. The policies work similarly for both. A policyholder selects a player, or players, to insure for either a season or for a daily sports contest. The premium charged is a fraction of the entry fee that a policyholder pays to enter a league, and is based upon an algorithm that considers each player's career history, including injury record and performance. If the insured player is injured, the policy will reimburse the policyholder for entry fees. For a season-long policy, the player must miss nine or more games, and for a daily sports contest the player must miss the entire second half of the game due to injury. Neither policy would cover suspensions, ejections, benched players, or prior injuries.

There is no information as to the underwriter for the program on the Rotosurance website, so it’s unclear whether Rotosurance policies technically qualify as insurance. It’s also unclear whether such a policy would meet the legal requirements of insurable interest, which is a topic I will leave to those more qualified on legal issues. In any case, it’s an interesting exercise to compare and contrast this product with the characteristics of an insurable risk. Not all insurance products meet all of the characteristics of insurable risk. Nonetheless, let’s consider each of the insurable risk characteristics as they pertain to the fantasy sports insurance product.

1. Premiums must be economically feasible.
   Given that premiums are a fraction of the cost of an entry fee into a league or a daily sports contest, there is little doubt that fantasy sports insurance has this characteristic.
2. Losses should be accidental.
   The event leading to a claim should be outside of the control of the beneficiary of the policy. In this case, it’s apparent that an injury to an athlete on a policyholder’s fantasy team is outside of the control of the policyholder.
3. Losses should be definite.
   This means that losses should happen at a known time and place from a known cause. Should a player be injured in a game, it is almost certainly televised, so this characteristic is surely met. There is a possibility that a player in a season-long competition is injured outside the game, and Rotosurance’s policy states that the player must be injured during team-coordinated activities for coverage to apply. That said, NFL injury reports would generally indicate whether a player was injured inside or outside of team activities. While the exact time, place, or cause may not be specified in this instance, it seems easy to argue that this characteristic of an insurable risk is still met.
4. The loss must be calculable.
   While it is certainly an exercise in probability and statistics, losses for these types of policies should be considered calculable as they would be based on a probability of injury, and the policyholder's league entry fees. There is a world of data and information available about professional football players that could be used in calculating a probability of injury: past injury history, number of hits per game, injury history for players in similar positions, etc. Given the abundance of information available, it is likely the case that this type of policy is actually more calculable than many other new insurance products that are developed.
5. The loss must be large enough to be meaningful to the perspective of the insured.
   This is debatable in the instance of fantasy sports insurance. Sure, for a policyholder paying $100,000 to enter a contest the loss is likely meaningful. Can the same be said about a player entering a contest for $20? Ultimately, it’s up to the perspective of the insured. If someone is willing to purchase the policy on a $20 entry fee, then it seems as though the loss would be large enough to be meaningful to that insured.
6. There must be a large number of similar exposure units.
   The reason for this is due to pooling. Insurance typically operates by diversifying the possibility of loss across a large number of exposures. This allows for insurers to utilize the law of large numbers to predict losses that are generally close to actual losses. Compared to other lines of business, the number of exposures is an interesting consideration in fantasy sports insurance. In a line of business like auto insurance, each policyholder is insuring a loss to that person's car. It’s not the case that a number of different policyholders are insuring against an event happening to only one single car. In fantasy sports insurance, while the policyholders are insuring a loss to their entry fees, they’re doing so by insuring against an injury to a single player, and several policyholders are likely insuring that same player. The question then becomes, is the exposure unit the professional football player or the policyholder insuring against an injury to that player? If we consider the football player the exposure, then this characteristic almost certainly doesn’t exist as there are a very limited number of players to insure and there would be a concentration of risk exposure around only a small number of players. If we consider the policyholder the exposure, then the characteristic could be considered met because the pool of participants could be substantial in size.
7. Catastrophic loss should be limited.
   Ideally, losses are independent and also non-catastrophic. There’s an argument that in fantasy sports insurance, a loss could be catastrophic as an injury to one player could impact a large number of policyholders. If the mix of athletes insured against is heavily skewed toward one or two players, the results would almost certainly be catastrophic because the insurer would need to pay a majority of its policyholders for the loss. However, if there is diversification among the insured athletes, and injuries only affect a small number or only the insured athletes, then it’s unlikely that losses would be considered catastrophic to the insurer. Without a doubt, there is a possibility of catastrophic loss to an insurer in this business, but it does appear that the chances of it occurring are limited.

From a pure insurance perspective, it appears as though one could argue fantasy sports insurance has most, if not all, of the characteristics of an insurable risk. This isn’t to say that fantasy sports insurance will be profitable or successful, only that it’s feasible to think that the product could be viable from a risk characteristics perspective. The history of few entrants into the market, with only one current participant, may be more indicative of the potential success of the product. That said, there is undeniably some appeal to the product from the perspective of a fantasy sports participant. If purchasing a policy were as simple as the click of a button when filling out a daily fantasy sports lineup or during the draft for a season-long competition, perhaps we’d see growth in the fantasy sports insurance industry similar to that of the fantasy sports industry in general.

¹Ausick, P. (August 15, 2019). How much the $7 billion fantasy football business costs other employers. 24/7 Wall St. Retrieved September 29, 2020, from https://247wallst.com/economy/2019/08/15/how-much-the-7-billion-fantasy-football-business-costs-other-employers/.

²FSGA. Industry Demographics. Retrieved September 29, 2020, from https://thefsga.org/industry-demographics/.

³Huggins, T. Protest Your Fantasy Investment With Fantasy Football Insurance. NetQuote. Retrieved September 29, 2020, from https://www.netquote.com/home-insurance/fantasy-football-insurance.

⁴Hunley, L. (July 28, 2014). Real Insurance for Fantasy Football. Risk & Insurance. Retrieved September 29, 2020, from https://riskandinsurance.com/real-insurance-fantasy-football/.