A $2.5 million safety net

One-game insurance policy pays off big for McGahee

Picture this scenario. After sitting out a season with a bum knee, Miami running back Willis McGahee -- $2.5 million stashed away in his bank account -- triumphantly returns to New York after the 2004 season to pick up the Heisman Trophy.

The Downtown Athletic Club hands off to its wealthiest amateur recipient ever, as NCAA sleuths shrug their collective shoulders.

Crazy, you say? Not really.

McGahee, it turns out, made a shrewd business deal on the eve of the Fiesta Bowl, purchasing a Lloyds of London insurance policy that pays him $2.5 million (tax-free) if he suffers an injury that prevents him from playing in the NFL.

The way the policy reads, McGahee collects next Jan. 3 -- the anniversary of tearing the anterior cruciate and medial collateral ligaments in his left knee against Ohio State -- should doctors say he isn’t sufficiently recovered to play pro ball. Nothing says he can’t play college football. And so McGahee, a redshirt sophomore as we speak, could invest the money, continue his rehab and play a senior season at Miami before trying the pros.

The catch is that if McGahee, after collecting on the policy, later signed with a NFL team and played in a minimum of four games, he would have to kick back the $2.5 million to Lloyds. But, hey, you figure that by then he’d at least have made a few bucks off the interest alone.

Then again, Lloyds doesn’t cut him any slack if the injury ends up hurting his draft stock. The cash difference in a potential top-10 pick signing bonus isn’t made up if McGahee falls into the fifth round a year or two down the road.

By all accounts, McGahee is likely to make a full recovery, though a timetable on his return is fuzzy. But the story around his insurance deal reeks of good fortune, anyway.

Keith Lerner, a Gainesville, Fla., insurance agent who wrote the policy, rarely hears from football players in December. Most of the projected top draft picks call before practice starts in August. But two weeks before what figured to be his last college game, along comes McGahee, suddenly a projected top-10 pick and perhaps the most coveted running back in the draft.

“The way this has played out is unbelievable," Lerner says. “The kid takes no insurance out. Basically, he gets it for one game. I get him the biggest policy any sophomore [football player] has ever gotten in history. And in the fourth quarter, in the final minutes literally of his college career, he tears his knee up.

“Obviously, at beginning of the season, to spend $20,000 [on the premium] and get this piece of paper didn’t make sense. He didn’t project then as high draft pick. It’s unique because all these other high draft picks we’re insuring in July ... as soon as they hit the field in August they are covered, even for the practices."

Last season, Lerner wrote policies for seven of the first 33 players taken in the NFL draft -- guys like Jeremy Shockey and Bryant McKinnie of Miami, William Green of Boston College and Jabar Gaffney of Florida. He's done nearly as many this year, though he won’t identify any players besides McGahee.

Lerner estimates that 50 to 75 percent of projected first-round picks purchased insurance before playing their last college season. But very few sophomores take out policies, and Lloyds isn't particulary eager to insure them. Rarely do the policies exceed $1 million.

Because he projected as a top-10 pick in the upcoming NFL draft, McGahee was able to get Lloyds' initial offer of $1.5 million in coverage increased to $2.5 million. The policy covers him 24 hours a day and extends to Aug. 1, 2003 -- by which time a healthy McGahee presumably would have signed a pro contract.

“We derived that figure by looking at where he projected [in the draft]," Lerner says. “If you look at it, that is $4.5 million of taxable income. So what is a signing bonus to the No. 10 player in last year’s draft? Well, it might have been $5, $6, $7 million. We are always going to hedge on the lower side. We’re not interested in giving somebody too much insurance. So if you look at a signing bonus of $5 million, it’s about $3 million after tax."

The call on whether McGahee is sufficiently recovered to play pro football next January may come down to three orthopedic specialists -- one chosen by McGahee, another by Lloyds and, if needed, an independent party recommended by the American Medical Association.

“They have to determine if his knee is sufficient to be able to play professional football," Lerner says. “It doesn’t mean that he couldn’t be a police officer. Or that he couldn’t be a counselor. It means play professional football."

McGahee's case is rare but not unprecedented. Ed Chester, a former star defensive tackle at Florida, suffered serious knee and nerve damage in an October 1998 game against LSU. A year later, his $8,000 premium paid and his pro career shot, Chester collected on a $1 million insurance policy.

Now that Lerner's name has been tied to McGahee's in the sports pages, more athletes who play on the edge are calling. A champion bull-rider, a professional polo player, even the parents of a high school basketball player.

The schoolboy hoopster who came calling isn’t phenom Lebron James. But, not surprisingly, Lerner says Lloyds would jump at the chance to cover him if he isn’t already insured.

Mike Fish is a senior writer for CNNSI.com.

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