German golf club hedges against rainy days

A German golf club has become the latest European end-user to buy weather risk protection. Spectron Group, the London-based energy broker, arranged the precipitation-linked deal - its first leisure-sector weather derivative - along with French bank Société Générale.

The deal provides weather risk protection from May 1 to September 30 for golf club Gut Apeldör, in Hennstedt, north of Hamburg. The club faces the risk that its revenues from green fees – pay-as-you-go golf – could be hit by excessive rainfall. The level of protection increases at weekends, when the potential loss of income is greatest.

Nick Ward, a weather derivatives broker at Spectron, said he expects to replicate the instrument for other golf clubs and could apply the principle to a variety of sporting venues.

Spectron also worked with FinanzTrainer.com, a Dusseldorf-based energy risk conslutancy, to design the weather hedge. Last year the pair arranged a tailored weather hedge for German electricity provider, Gruppen-Gas-und-Elektrizitätswerk Bergstraße(GGEW), based near Frankfurt. The deal covered the winter period for 2002 against temperatures below -5 degrees Celsius, and it became the first contract to pay out in Germany.

Hans Esser, FinanzTrainer managing director, said the golf club chairman, a former derivatives trader, contacted him after reading about the GGEW payout in a German newspaper. But Esser would not elaborate on details of the payout.

“This new deal shows that there is real potential for the weather risk market in Europe,” Esser added. “It’s not just energy companies who are looking to hedge their exposure now. In fact, we don’t have any energy clients looking into weather risk at the moment. They are all non-energy end-users who are starting to realise the benefits weather derivatives can provide. And precipitation contracts represent the future of the weather risk market, at least in Europe.”