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January 19, 2021

Bike shops: Sponsoring events or athletes can be risky business

Scott Chapin

Many bike shops sponsor various kinds of events and some even sponsor athletes. While sponsorships can be effective for a bike retailer to promote and market itself, it can also present risks to the shop and the shop owner. Ensuring protection isn't necessarily difficult, but there are some things to be aware of.

Sponsoring Events
Most bicycle retailers sponsor bicycle events, and some actually run or "own" an event. These events range from local charity rides, bicycle tours, bike races or bike festivals. Some of these are fundraisers and others are done to simply promote awareness and market their own business. Regardless, there are some tremendous risks associated with these events that every bike shop owner should know.

First, many shops simply sponsor an existing event. They may be the title sponsor of a race or bike festival, for example. Since they are not running the event, they often believe there is little risk for them in the event of a claim/accident. This is the case, if and only if, the event owner/promoter has special event insurance coverage. Often, unfortunately, these events do not purchase coverage. When this is the case, the title sponsor has just put itself at risk. If someone gets hurt, the plaintiff's attorney will, very likely, sue the bicycle retailer (title sponsor) as well as the event owner and promoter.

Clearly, we can see the problem if the event owner does not have the proper coverage. This coverage should be, at least a $1 million per-occurrence policy and should include participant liability coverage and spectator liability coverage. So, if you are a bicycle retailer planning to sponsor an event, ask for a Certificate of Insurance. If the insurance carrier will allow it, also ask to be listed as Additional Insured. If the event promoter/owner cannot provide a certificate of insurance do NOT sponsor the event. It is too risky. Lawsuits of this type are rarely successful, but they do occur frequently. Remember, the cost of defending against a lawsuit you will ultimately win is covered by your insurance policy and can save you thousands.

One of my clients was sued for an accident that occurred in their parking lot at a bike tour.  They were simply hosting a water station.  They assumed (incorrectly) that the event organizer had proper insurance coverage. Over $250,000 was paid by their insurance carrier.

Conversely, if your shop wants to "own" or run the event yourself, you should purchase the same type of policy. Virtually all business owners policies exclude races, tours and larger fundraisers. It is best to check with your current insurer.

Sponsoring Athletes
What about sponsoring athletes, like a Red Bull athlete or a professional cyclist? The key is to make sure that a proper contract is written that states that these athletes are independent contractors. It is very rare to have a manufacturer actually sponsor a paid athlete where the athlete is actually an employee.

If an athlete gets injured, his health insurance policy---or the hospital if he does not have insurance---will look for someone they can sue to recover their costs. These are called subrogation claims. If your agreement does not specify the relationship between you and the athlete and that the athlete is responsible for his own insurance, you could become liable if the majority of the athlete's income is provided by you or the incident occurred at your function. You don't want to wake up one day and find you have an employee in the hospital that you thought was a contractor the day before.

Even a bike shop that simply gives an athlete a bike is at risk without a contract stating that they are independent contractors. If that athlete, who received a bicycle from a retailer, gets hurt, the health insurance carrier may try to subrogate against the sponsor. Again, a well-written contract is important to protect the retailer.

As a general rule, the more control a sponsor has over an athlete, the more potential risk the sponsor faces, so it's important to always weigh the risk/reward carefully.

If you have specific questions about the types of coverage you need or an event you are considering sponsoring, reach out to me and I’ll help give you options to make sure you’re properly covered.