What can you insure? Celebrities insure body parts against injury, for instance, models might insure legs, singers insure vocal chords or surgeons insure their hands. As a former tennis player I know that the pressure on professional athletes to be healthy is huge and one injury can result in not only being unable to play or paying extra hospital costs, but also in the loss of future earnings, loss of contract completion or loss of endorsements.
In the US, there is pressure on college football players to play as many games as possible to increase their chance to be drafted into the NFL. This increases their risk of injury. Today, college football players can be insured by the NCAA career protection policy which essentially covers an athlete for loss of earnings. One of many examples is Marqise Lee, a promising wide receiver at USC who suffered a knee injury, and because he missed multiple college games, his prospects declined in the NFL draft. Ultimately, he ended up being selected in the second round by Jacksonville Jaguars for a lower amount than his insurance covered. This led him to sue Lloyd’s of London for the difference of $4.5m. Professional teams like NHL or NBA have insurance plans that cover clubs in case a player suffers a long-term injury. In that case, the club might be able to reimburse 80% of the player’s salary if a player misses 30 consecutive games due to the injury.
Some athletes have team injury insurance from their own sports clubs and/or national federation even though they compete in individual sports. However, athletes often buy their own individual insurance as well. They can purchase policies such as temporary total disability or permanent total disability protection. Temporary total disability can be purchased by athletes to prevent their future earnings being damaged as a result of injury. The period of cover varies and can range from 60 days to 5 years. On the other hand, permanent total disability policy can be purchased by athletes against permanent injuries or illnesses which prevent them from continuing in the sport. For instance, golfers and tennis players can use this because their income is directly linked to the number of tournaments and how well they do in them. However, I found that golf players, tennis players, or biathlonists have neither insurance in place.
Endorsements are a big part of athletes’ income. For instance, in 2016 Tiger Woods made $300k in winnings and $45m in endorsements while Roger Federer made $8m in winnings and $60m in endorsements. However, endorsements do not only play a big role in an athlete’s income but also for the company paying them. To mitigate the companies’ risk against an athlete/endorser’s scandal, they insure themselves against the potential loss of sales. This can be difficult to value and usually the assumptions are made based on the athlete’s revenue after the athlete becomes a company endorser. As a result, companies have started inserting clauses to cancel agreements with the endorsers if there is a scandal/doping affair.
Sports insurance is a highly specialised market and many insurance policies can be designed for athletes, clubs and sponsors. The question is whether athletes know about the insurance available and whether they can afford to pay the premiums. Not every professional athlete makes a nine-figure salary.
Another insurance issue is the quantification of an athlete’s loss of earnings. Follow my next blog post “Part 2” in which I will look at how we quantify an athlete’s loss of earnings from a forensics perspective.