The Art Contest

The results were in. There was a clear winner. More people had entered the contest than had been expected. The contest had attracted attention outside the Springfield area, and the art world was abuzz with the discovery of a new talent. Excitement reigned.

         But inside the inner office of the owner of the Springfield Clarion, the local morning newspaper and sponsor of the contest, the mood was far from festive. It was downright somber. “This was the last thing that we expected,” said Jay Spencer, the paper’s owner. “Nobody saw this coming.”

         Seated randomly around the large conference table in Jay’s inner office were Frank Adams, the paper’s editor and publisher, Jerry Springer, the paper’s CFO, and Nathan Williams, the paper’s lawyer. Jay sat at his desk; the latest edition of the Clarion opened in front of him. It was a typical executive desk for the early 1960’s, with a large ink blotter covering most of the center of the desk, a telephone, a family picture, and an intercom used to communicate with the administrative assistant in the outer office.

         “I should have known better,” Frank said. “This contest was my idea from the very beginning. It’s all my fault.”

         “We all approved it,” Jay said. “In fact, we all thought it was a great idea. I don’t remember a single doubt being raised.”

         “Even I couldn’t find a problem with it,” Nathan said. “And I remember how carefully we worded the announcement. ‘This contest is open to all residents of the City of Springfield,’ we wrote. We wanted to make sure that anybody who wanted to enter could enter. The only people we excluded were professional artists. This was to be a contest to discover new talent. And it did.”

         “And we were equally careful on the prizes,” Nathan continued. “All prizes were to be cash prizes, with $500 for third place and $1,000 for second place. I thought we were particularly careful with the first-place prize. ‘Cash equal to four consecutive years tuition at a college or university of your choice to which you are admitted, up to $50,000.’”

         “I remember how clever we thought we were with that wording,” said Nathan. “Our modeling of the contest predicted that our subscriptions would increase by about 500 due to interest in the contest. At a net of $2 per month per subscription, over the course of a year, the net income increase from these subscriptions would be about $12,000. That matched our worst-case payout if the winner picked one of the most expensive schools in the country. Tuition is about $1,200 per semester at these schools. With tuition costs increasing at about 15% per year, the prize would be worth just under $12,000. And of course, our hope was that the winner would pick a different, less expensive school, resulting in a lower payout. Seems moot now, doesn’t it.”

         “And I remember how we pushed the limit all the way up to $50,000,” Jay said. “We thought that such a big prize would increase interest in the contest and the number of contest entries, thinking that we would never have to pay out such a large prize. Boy, were we wrong.”

         “I have been over and over the fine print on the contest entrance application, and there is nothing that can be interpreted as a time window for use of the prize,” Nathan said. “We thought the winner would obviously use the prize immediately. We never dreamed that the winner would be an eight-year-old girl who won’t even apply for college for another decade.”

         Silence enveloped the office. All eyes were looking at the floor. The CFO had done the math. Four years of tuition starting in ten years would cost the Clarion a little over $42,000.

         “Look,” Jay said. “Let’s consider the positives. This contest has created a buzz around the city the likes of which I haven’t seen in years. There was such a demand to see the entries as they came in that we had to open the convention center to display them. All the entries were shown without attribution to not influence the judges, of course. We even had art experts volunteering to judge the art. The final judging panel was made up of internationally known people. Springfield is now on the Art map.

Now that the contest is over, the winner’s paintings are on display in the lobby of the Convention Center with full attribution. And visitors keep pouring in. They can’t believe that an eight-year-old girl created such an inspiring work of art. It seems clear that a new and remarkable talent has been discovered. Right here in Springfield. Her painting is making headlines throughout the Art world.”

         “That’s all very nice,” Jerry said. “But we still have a $40,000 liability.”

         “We’re just going to have to pay it, whatever it is,” Jay said. “We’re not going to try to get out of it on some technicality. I know what it means in terms of our profitability, so we’ll all take a hit. Budgets will have to be cut, and bonuses reduced. That’s just the way it is.”

         At that moment, Jay’s intercom buzzed. Answering the buzz, Jay heard Phyllis, his administrative assistant, say that Tom Andrews, a junior accountant in Jerry’s department, wanted to talk to Jay.

         “What’s this about?” Jay asked Phyllis.

         “Something about insurance,” he heard Phyllis say.

         Jay looked over at Jerry. “You know anything about this? He should talk to you about insurance issues, shouldn’t he?”

         “His boy fell out of a tree a few days ago and broke his arm,” Jerry said. “He had to go to the hospital. I told Tom he was covered. I thought I had answered all his questions, but apparently not.”

         “Look, why don’t we take a break,” Jay said. “We’ve beat this problem to death for the last hour. In the meantime, I’ll see what I can do for Tom. I can use this opportunity to reinforce my ‘open door’ policy.”

         As Frank, Nathan, and Jerry walked out of Jay’s office, Tom Andrews was ushered in. Joining Tom at the conference table, Jay asked Tom how he could help.

         “I’ve been following the art contest since the beginning,” Tom said. “I thought it was a great idea and encouraged several of my friends to submit their art. A few actually did.”

         “That’s great,” Jay said, still distracted by the prize problem. “But I don’t see how I need to know that. I thought you needed some help with insurance. I understand your son fell out of a tree.”

         “You thought I wanted to talk about that?” Tom asked, surprised. “Oh, no. The Clarion has been more than generous in helping me out there. This is about another kind of insurance.”

         “Another kind of insurance?” Jay asked, puzzled. “I think I’m missing something here.” His mind was clearly still on the prize problem and wasn’t really listening to Tom.

         “I’m talking about Event Insurance,” Tom replied. “Let me give you an example. Say you are sponsoring a golf hole-in-one contest. You want to offer a big prize, say $10,000, to anyone who makes a hole-in-one, to get people to pay to take a shot. But you don’t want to pay $10,000 if someone does make a hole-in-one. So, you buy this kind of insurance. If there is a hole-in-one, the insurance company pays the prize. And, of course, if there isn’t a hole-in-one the insurance company keeps the premium.”

         “That’s all interesting,” Jay weakly smiles, “but what’s that got to do with me?”

         “I considered the art contest to be an event,” Tom said. “And when I saw that the first prize was up to $50,000, I realized that the last thing the Clarion would want to do would be to pay that much. Lloyds of London who will insure almost anything. I asked them how much it would cost to cover prize payouts above $15,000. They looked at the contest rules and offered a policy for $74. I bought it.”

         “You paid for it yourself?” Jay asked. “If it was for the company; why didn’t you go to Jerry for approval?”

         “It was such a bargain, I just jumped at it,” Tom replied. “I didn’t want the offer to go away.”

“Are you looking for the Clarion to reimburse you?” Jay asked.

         “No,” Tom replied. “But I want to assign the policy to the Clarion. The Clarion is the beneficiary. I own the policy now.”

         “I’m still confused,” Jay said. “I wish you had gone to Jerry….” Jay’s voice faded away and his eyes suddenly got big.

 “Run this by me again,” Jay said, his voice rising. “The Clarion is the beneficiary? What exactly does this policy cover?”

         “It’s an event policy for the Art Contest,” Tom reiterated. “If the prize exceeds $15,000, the insurance company will pay the balance.”

         “Oh my God,” Jay blurted out. “Tom, you’re a genius!”

Turning to his intercom, he shouted, “Phyllis, get Frank and Jerry and Nathan back into my office immediately. I’ve got some wonderful news!”