Here's What Happens When a Major Event Gets Canceled

Yes, there is coronavirus insurance for sports tournaments!

March Madness, or the NCAA Division I men's basketball tournament, would normally be taking place this very day. Instead of the annual bacchanal of college basketball, SportsCenter treated sports fandom to clips of the backyard game cornhole earlier this week.

Now don't get me wrong. The NCAA made the right choice in canceling March Madness and its other winter and spring championships to help stem the Covid-19 pandemic, as did the universities, college conferences and professional sports leagues that suspended play last week.

But cornhole, the game that some Americans simply call "bags," got me thinking: who is left holding the bag when a sports tournament gets canceled?

Unfortunately, it's nearly everyone involved, even though insurance for once in a lifetime events like the novel coronavirus outbreak exists.

While you would expect conferences, music festivals, trade shows, and yes, sporting events, to be covered by multi-million-dollar insurance policies, insurance companies are so far walking away scot-free. Insurance-industry publication PropertyCasualty360 notes U.S. insurers are unlikely to pay up to event organizers and "may emerge relatively unscathed once the pandemic subsides," despite the massive public events involved. This is because insurers, used to mega payouts for natural disasters like earthquakes or fires, typically charge incredible amounts — about 1% for the total value insured — to cover anything outside of the event organizers' control.

Indeed, South by Southwest learned this the hard way. The people behind the film, music and technology festival realized they lacked insurance coverage for disease-related cancellations only after they were forced by the city of Austin, Texas, to cancel their event. Worst still, the type of insurance they probably did buy, so-called general liability policies, typically don't cover the costs such as already-paid expenses, lost revenue or refunded tickets that result from an event cancelation. Having already spent the millions of dollars of sponsorships and advance tickets received, SXSW will now likely take on debt and offer jilted attendees and blue-chip brands credits instead of refunds.

But even with the right, expensive insurance policies, event organizers are often left wanting for more. While the NCAA has as much as $275 million in business-interruption insurance that could cover diseases or pandemics, they are on the hook for $600 million in scheduled distributions to Division I schools and conferences this spring, according to information first reported by USA TODAY. And like the hipsters, influencers and techies behind SXSW, they, too, must figure out what to do with refunds.

Ticket sales aside, the collegiate athletics governing body collects $1 billion in revenue every year, and a large chunk of the money comes from March Madness and the advertising contracts and licensing fees it brings — most of which are paid well in advance of the tournaments.

"There will be years of litigation as courts and other tribunals sort out the legal ramifications of pulling the plug on these events," Kent Schmidt, a partner at international law firm Dorsey & Whitney, who specializes in business litigation, said in a prepared statement. "The sports industry is facing thousands of disrupted business relationships and corresponding contracts, ranging from tickets with fans that will have to be refunded to multi-million-dollar licensing agreements now worth far less than before."

And sue I would. Wouldn't you want your money back if you paid millions of dollars only to find out your ads would appear between rounds of cornhole?