When a degenerative hip condition ended Albert Belle's career last spring, the Baltimore Orioles were left to fill a major void. The franchise lost a .295 career hitter who'd averaged 37 home runs per season over the past decade, yet there was a silver lining: The team had purchased disability insurance on 70% of Belle's five-year, $65 million contract. With three years remaining, Belle was still owed $39 million when he retired. Today, Cigna, the team's carrier, is paying roughly $24 million of that amount. "There's a reason that [team owner] Peter Angelos is a successful businessman," says John Scotti, the Pittsburgh-based insurance broker who sold the Orioles their policy. "He knows how to spread risk."
As athletes' contracts grow at the rate of Jack's beanstalk, teams are seeking ways to protect their investments. Franchises in the four major sports leagues spend more than $100 million a year insuring the contracts of choice players. Some teams take what's known as a " Len Bias policy" and insure a draft pick as soon as he is signed.
The cost of premiums, however, has risen even faster than salaries. Since last December athlete-disability policies have doubled in price. The increase stems in part from recent losses insurers have incurred as a result of big sports claims such as Belle's and the one the New Jersey Nets filed after forward Jayson Williams had to retire because of a broken right tibia and kneecap. It also reflects losses that re-insurers like Lloyd's of London have suffered in other areas. "I'm going back to teams having to explain, 'I know we did this deal a year ago for half the price,' " says Marc Blumencranz, chief operating officer of BWD Group LLC, a Jericho, N.Y.-based firm with a large sports division. "But they're renewing anyway."
Insurance varies greatly among sports. NFL players get whopping signing bonuses, but their salaries are not guaranteed. Thus, few franchises buy disability insurance; the players do so individually. NHL and NBA teams are governed by league-wide insurance programs. In the NHL teams must insure their five highest-paid players, at a rate of 2.75% of their annual salaries. In the NBA the six top-paid players on each squad need to be insured, at 3.9%. Many NHL and NBA teams cover other players as well. "I insured every player with a guaranteed contract," says Ray Schaetzle, former vice president of finance for the Nets. "It's like any other business protecting its assets."
In baseball, which has no league-wide policy, some teams, such as the Cleveland Indians, are risk-averse and spend millions insuring players. Others, like the Seattle Mariners, have no player insurance. The rationale for Seattle? No Mariner has a huge guaranteed contract, and the team's balanced roster and the lure of Safeco Field guarantee that the turnstiles will click regardless of which players get injured.
Some teams with one highly paid star will insure only that player. For the last few years, for instance, the San Francisco Giants had a policy only on Barry Bonds. "It's gotten so expensive," says owner Peter Magowan. "We looked at insuring more guys, but it wasn't worth it." (The Giants didn't renew the policy this season because Bonds is in the final year of his contract, and the deductible exceeds the salary he is owed.)
Some clubs treat their minor league players as de facto insurance policies. Scotti points out, for instance, that with third base prospect Sean Burroughs in Triple A, the San Diego Padres did not take out insurance on incumbent Phil Nevin, whose contract pays him $2.5 million this year. If Nevin were injured and the Padres had to eat the remainder of his salary, Burroughs could step in as an inexpensive replacement.
While the price of an individual policy can be astronomical—particularly one for a pitcher, which can cost a team three times as much as a policy for a position player—most players are insurable. "I don't do exclusions, such as, 'I'll cover everything but his left elbow,' " says Scotti. "Advances in medicine and rehab are such that even a guy with Tommy John surgery is worth insuring for the right price." Other brokers point out that while paying off a claim such as Belle's can be devastating, athletes are good bets to stay healthy. They're young, fit and usually nonsmokers.
Most important, perhaps, in sports there is little risk that insured employees will fake or prolong injuries to avoid working. "Guys like [ Pittsburgh Pirates catcher] Jason Kendall and [ Texas Rangers outfielder] Rusty Greer are an insurer's dream," says Scotti. Last season Kendall played with a fractured cheek, and Greer bounced back repeatedly from several injuries. Says Scot-tie, "You see how miserable they are when they don't play."