Protecting the Investment : Promotions: Firms ensure clients won’t be giving away the business when they try something new to attract it.

Steve Shaad, general manager for minor league baseball’s Wichita Wranglers, occasionally wonders what happened to poor Mike Grady.

Shaad was working for the Major Indoor Soccer League’s Wichita Wings in 1984-85 when Grady, who had opened a new car dealership in town, approached him about an event promotion. Soon hatched was the Plains Ford Trucks Kickoff, in which a new Bronco would be given to a fan who could kick a soccer ball through the driver’s side window from 70 feet away.

One contestant’s name was drawn during each of the team’s 24 home games, and the promotion would be held before the season finale. Shaad explained to Grady how he could insure the prize through a company by paying a relatively small premium, thus reducing his liability if, despite long odds, someone won the vehicle.

Grady kept putting it off. Two weeks before the promotion, he finally made a few calls, only to discover that no insurance company would issue a policy on such short notice.

“We pull the truck out the night of the promotion, and the first kicker didn’t even come close,” Shaad said. “Then the No. 2 guy, boom , he pops it right into the window. The crowd was going crazy, I looked over at Mike Grady, and he was literally green. His face just dropped.

“Turns out this guy who was selected early in the season had cut a hole in his garage door the same size and height of a Bronco’s window, measured 70 feet in his driveway and practiced the shot every night for five months.

“The worst part of the story is that $17,000 vehicle came out of Mike’s pocket and wiped out his advertising budget for the year. I called the next year, and the poor guy had gone out of business. He said when he cut advertising, sales went flat. It was definitely a case of a promotion gone sour because he didn’t buy insurance.”

Had Grady tried a similar promotion today, he would have a slew of coverage options that could have saved his advertising budget and, perhaps, his dealership.

There has been a proliferation in the past five to eight years of companies specializing in contingency prize policies--many who offer same-day service--and their presence has contributed to a growing number of big-ticket promotions at American sporting venues:

* A 23-year-old Illinois salesman won $1 million for sinking a 76-foot shot between the third and fourth quarters of the Chicago Bulls-Miami Heat game April 14.

* A 19-year-old golfer from Alabama made a $1 million hole-in-one during a benefit tournament last November.

* A young mother won a $25,000 car last season when the Class-A Lynchburg (Va.) Red Sox turned a triple play.

* The double-A El Paso Diablos have occasional $1 million grand slam contests, and the Angels this season will have two $50,000 grand slam contests. In both promotions, a selected fan would win the cash if a grand slam is hit during a designated inning.

* If a Class-A Palm Springs Angel player hits a grand slam during a designated game in August, one lucky fan will win a $150,000 house. Last season, the Class-A Prince William (Va.) Cannons would have awarded a $250,000 house if a grand slam was hit during the fifth inning of any Wednesday home game.

Most teams or sponsors couldn’t afford such pricey prizes, so to minimize financial risk, they purchase “insurance” policies for prize amounts from companies that set premiums based on the odds of particular events happening.

The client, be it a team or a sponsor, benefits because he can offer a major prize at a fraction of the cost while achieving some public relations objective. Companies offering such coverage benefit because they rarely pay out on the major policies.

“We add a little sizzle to promotions,” said Bill Hubbard, senior vice president of enterprise for the Woburn, Mass.-based American Specialty Underwriters, which has been in the prize indemnity field about four years.

“Anyone can do a Win-a-Trip-to-the-Super-Bowl contest. Say you win a trip to the Super Bowl, and if it ends in a shutout, we’ll give you an extra $1 million. Now that gets your attention.”

Companies such as American Specialty Underwriters, SCA Promotions in Dallas and American Hole ‘n One in Oakwood, Ga., will offer contingency coverage on virtually any kind of activity, from the basic to the bizarre.

There are holes-in-one, half-court basketball shots, grand slams, no-hitters, baseball tosses, Frisbee tosses, hockey shots and score prediction contests.

And then there is the watermelon seed-spitting contest in Luling, Tex. American Specialty Underwriters once insured a $25,000 prize for someone who could break the Guinness world record of 68 feet 10 inches. Festival attendance increased by 25%, and folks came from as far as Louisiana to compete.

In seven years, SCA Promotions has been contracted to fund prizes for the Calavares County Frog Jumping contest, a New Guinea fishing contest and a soccer player who broke the Guinness record for ball juggling.

SCA once backed a prize for a contest to grow a 1,000-pound pumpkin by Halloween. One radio station asked SCA to fund an Elvis-Is-Alive contest.

“Sorry to say, we had to collect the premium,” said Bob Hamman, SCA Promotions president. “It was kind of low risk.”

Hamman thought a 1989 contingency contract involving Texas Rangers pitcher Nolan Ryan was in a similar low-risk bracket. Best Western Hotels and American Express agreed to pay $1 million to Little League Baseball if Ryan threw a no-hitter that season and paid SCA a $40,000 premium to incur the $1 million risk.

“With seven career no-hitters (five at the time) the impression was I’d have to be nuts to give 15-1 odds for a season-long promotion,” Hamman said. “It was my thinking that Ryan was 42, it was his first year with the Rangers and the summer heat would melt him down. And no one over 40 had pitched a no-hitter.

“I thought I was in tall clover, and my risk takers thought I was a blooming idiot. In fact, I had made a serious mistake but was very lucky. Twice, he went into the ninth inning with no-hitters (that were broken up), and he has pitched two no-hitters since.”

There is no standard formula for setting odds and premiums because there are so many variables. Rates depend on whether participants are selected randomly, whether they have previous experience in the activity, whether they have time to practice.

But certain statistics, such as in golf--the National Hole-In-One Assn. rates odds for an amateur scoring a hole in one at about 12,600-1--and those for home runs, grand slams and no-hitters, are available and helpful.

For instance, John Miller of Tournament Golf Assn., which sells hole-in-one insurance locally, said there has been an average of one payoff per 84 tournaments since the Lake Forest company went into business in 1989. Premiums are determined through a formula that includes the length of the hole, number of players in the tournament and value of the prize--typically, a new car.

“We seek outside experts for odds, go to knowledgeable sports individuals, check the record books, and we have a couple of mathematicians,” Hamman said. “We use a combination of history, some assumptions and guesswork. Our services are best when the probability of someone winning a prize is under 10%. If you get in the 30, 40, 50% range, it’s seldom economical for us.”

Most clients see the coverage as an economic necessity.

“All you’re buying is peace of mind,” said Ron Shirley, Angel treasurer and chief financial officer, who insured the team’s two $50,000 grand slam contests this season through American Specialty Underwriters. “We’re paying about 3.8% of the potential loss, and I’m sure the odds (of a grand slam in one inning) are way less than that. I wouldn’t mind insuring it, but the first time you lose, you know what the costs are.”

It seems too good a deal to be true. You entice fans with a $1 million contest and get a sponsor or two to pay the premium to cover the prize. Attendance increases, excitement surrounding your team or event picks up, and if a lucky fan hits the jackpot, you’re not on the hook to pay out the big bucks.

And you and your sponsors get national and, perhaps, world-wide attention, as the Chicago Bulls did when Don Calhoun hit his $1 million shot.

But if sounds too good to be true . . .

Sports marketing experts caution buyers to be careful, beware of the fine print, and know exactly what you’re getting and how your promotion will be handled before entering into any agreements with prize indemnity companies.

The Bulls learned this the hard way. Their contract with American Hole ‘n One contained an exclusion policy stating that the contestant who took the $1 million shot couldn’t have any college basketball-playing experience.

Calhoun signed a form saying he had read and understood the rules, “but for whatever reason--he probably didn’t think he’d win anyway--he didn’t feel playing for Triton Junior College (in Chicago) was that big a deal,” said Steve Schanwald, Bull vice president for marketing.

Then he makes the shot, the crowd in Chicago Stadium goes berserk, Calhoun is hugging the Bulls’ players, and the shot makes headlines and television sportscasts across the country. Two days later, the Bulls discovered Calhoun had played college ball.

And so did American Hole ‘n One, which refused to pay.

“The company was well within its right not to pay,” Schanwald said. “But we got volumes of publicity out of the deal, and this was the perfect kid to win it. He was a college dropout, working in a hardware store for $5 an hour to make money to go back to school. He sang in the church choir.

“We picked him just before the game, and it’s impossible to research the situation on such short notice. But we felt it was such a fairy tale story, it had to have a happy ending, so we, the Bulls, (and sponsors) Coca-Cola and Lettuce Entertain You Restaurants, stepped up and paid it.”

There has been no shortage of disputes between sports teams and prize indemnity companies. In 1991, three American Hockey League teams and one Continental Basketball Assn. team sought legal action against Cathedral City-based Sports Guarantees Unlimited, which denied claims because, in their judgment, certain conditions of the contracts were not valid.

Sports Guarantees Unlimited is no longer in business.

“You have people getting into this industry all the time,” said Hubbard of American Specialty Underwriters. “There’s a lot of volatility, and very few have much staying power. You want to take a few hits because it’s good publicity in the marketplace. But someone takes a hit too many and starts scrambling. You see it all the time.

“You’re also dealing with a lot of unsophisticated buyers, and the first thing they look at is cost. But few of these companies do it with real insurance, like us. There are plenty of good people in this business, but for a $1 million prize, you want real insurance.”

American Specialty Underwriters is one of the few prize indemnity companies that is backed by Lloyd’s of London and issues actual insurance policies. American Hole ‘n One, which is headed by former Atlanta Falcons kicker Mick Luckhurst, is an agent of the Great American Insurance Co. and issues contracts of insurance. SCA Promotions enters standard business contracts with clients and purchases performance bonds to cover payouts.

All three are considered reputable in the field, according to Alan Friedman, editor of Chicago-based Team Marketing Report.

“I don’t think there’s any question they’re legitimate operations,” Friedman said. “You don’t question the whole banking industry because there are some bad banks. But it’s like any insurance for renters or homeowners, there are always some fine lines.”

The Bulls and their two sponsors crossed those lines last spring and will pay Calhoun dearly for it--$50,000 a year for 20 years.

But that won’t count against the Bulls’ salary cap, and the benefits might have outweighed the costs.

“It gave people a thrill they’ll never forget,” Schanwald said. “The reaction was un believable. Everybody hugged him, and the rest of the game was secondary. For days, that’s all everyone talked about. The crowd was just abuzz. As a promoter, you dream of being in these kinds of things. We’d do it again tomorrow.”

What Are the Chances . . . ?

Sports promotions are often tied to unusual achievements, either by fans or the teams and players they watch. Some of the odds: Golf hole in one (175 yards): 12,999-1 No-hitter (Roger Clemens-level pitcher, per start): 840-1 Three-quarter court basketball shot: 369-1 NFL player scoring TD on opening kickoff: 356-1 Angel grand slam (per game): 54.7-1 Source: SCA Promotions Inc., Dallas