By Thomas Kurtz
For many years, successful athletes have understood that they are valuable as brands with the millions of dollars they are capable of generating throughout the course of their career. But it has only been recently when they have started to understand themselves as quantifiable assets. With the advent of Fantex and IPOs for athletes like Vernon Davis, the values are clear, and the need to protect those assets is necessary.
Jameis Winston and Teddy Bridgewater recognized this value. Recently, Winston purchased a disability and “loss of value” policy valued between $8 million and $10 million in coverage. With premiums estimated at $55,000 and $60,000 per year, the idea is that coverage would be paid out in the event an illness or injury leads Winston to not being drafted in the Top 10 selections of the 2015 NFL Draft. Bridgewater obtained a similar policy in July of 2013, prior to his final season that led him to a first round selection in the 2014 NFL Draft. These policies are significantly different from traditional total disability insurance, which pays out in the event of a career ending injury.
This insurance is not commonplace due to the small pool of collegiate athletes who would serve as good candidates to have a policy written. It only makes sense for those entering a season with an overwhelming chance of being drafted and receiving a sizeable professional contract. Sources have said that there is no history of these policies being underwritten prior to Matt Leinart in 2005.
Juanita Sheely, Director of Travel and Insurance for NCAA, commented that these policies are not boilerplate, and it is very possible that some terms and conditions can be left up to interpretation. “When looking at these policies, I always caution parents and students who are purchasing them to really look at the details and exclusions to understand what they are buying,” Sheely said.
In August of 2013, USC Wide Receiver Marqise Lee took out a $5 million policy in the event an injury diminished his performance and took him out of the first round of the 2014 NFL Draft. His final season with the Trojans was riddled with injuries that led him to missing three of USC’s 14 games played in 2013. His statistics diminished from his Biletnikoff winning campaign of 2012, as did his draft value when he went in the second round to the Jacksonville Jaguars. As a result, his Lloyd’s of London policy will pay out $5 million.
While it does not appear there will be a declination of coverage in this scenario, there are some aspects of a case like this that could be subjective if extenuating circumstances existed. Here are some examples of scenarios that could lead to issues for a collegiate athlete filing a loss of value insurance claim:
Coaches and trainers decisions now become an aggravating factor. An on-field decision could be made for a player to play and it further leads to diminished draft value later on. For example, if a star quarterback injures his shoulder, but his head coach and the training staff clear him to play because his presence on the field for game-planning purposes is more valuable than a quarterback playing at under 100% and as a result his draft value diminishes, who is liable?
An injury on the field takes place coincidentally with another aggravating factor, such as locker room issues or concerning off-the-field demeanor that have been known to lower draft values. Who makes the correlation between an injury on the field and how it affects a player’s draft value? The courts may be needed to step in and make these decisions.
As time goes on, it appears these policies will be here to not only stay, but become more expansive. There is nothing stopping loss of value insurance to begin covering forecasted earnings passed what a player would make in his first professional contract. Furthermore, measurements can come out to take into account how much sponsorship revenue would be lost for a gifted athlete that does not have the opportunity to prosper in the professional landscape. Also, with the recent O’Bannon decision, perhaps you start seeing these policies taken out at a younger level to protect the trust funds of revenue that are supposed to await select Division 1 athletes upon completion of their collegiate careers. There is still much to be interpreted and many unanswered questions, and there is a very good chance it could be left up to the courts to define the conditions of these new types of policies.
References
Carroll, Will. (May 13, 2014). Marqise Lee Injuries Drop Him in NFL Draft but Will Lead to Insurance Payout. Bleacher Report. Retrieved from http://bleacherreport.com/articles/2052089-marquis-lee-injuries-drop-him-in-nfl-draft-but-lead-to-insurance-payout#articles/2052089-marquis-lee-injuries-drop-him-in-nfl-draft-but-lead-to-insurance-payout.
Getlin, Rand. (June 20, 2014). Source: FSU QB Jameis Winston Purchased $8M-$10M Insurance Policy. Yahoo! Sports. Retrieved from http://sports.yahoo.com/news/source–fsu-qb-jameis-winston-purchased–8m–10m-insurance-coverage-014958801.html.
Moura, Pedro. (April 26, 2014). Marqise Lee’s Insurance Policy Offers No Guarantees. Orange County Register. Retrieved from http://www.ocregister.com/usc/insurance-611524-value-loss.html?page=1.
Sheely, Juanita (personal communication, August 13, 2013)
Thomas Kurtz is a Teaching Assistant in Sports Law & Ethics in the Columbia University Sports Management Program. He also works as an Associate at Willis, the global risk management and employee benefits brokerage firm.
