Draft Day Insurance: How and why they work for College Athletes

 

Just 12 years and 363 days apart, two Fiesta Bowls were played in different stadiums, but for two star college athletes; they ended with similar results. Miami halfback Willis McGahee tore ligaments in his knee as the Hurricanes lost to the Ohio State Buckeyes on Jan. 3, 2003. Almost 13 years later, Notre Dame linebacker Jaylon Smith left the game after tearing ligaments in one knee as the Irish lost to the Buckeyes.

The good news for both is that each had insurance policies, but the difference in how they were insured exemplifies how much has changed in time. Four years ago, Smith’s coverage may not have protected him the way it does now. Just hours before the 2003 Fiesta Bowl, McGahee purchased a $2.5 million insurance policy protecting himself in the case that he suffered an injury that kept him from playing professional football. On the other hand, Smith’s policy has the same clause as McGahee but will pay a reported $5 million if the linebacker drops out of the first round of the NFL draft.

Keith Lerner, who wrote McGahee’s policy, said that the industry has drastically changed in the past three years with more and more players opting for loss-of-value insurance claims and more schools willing to cover the premiums. Lerner and his son David run Total Planning Sports Services in Gainesville, Fla. Because players now have more options than ever before, both frequently leave to visit schools to discuss insurance options entering a draft-eligible year.

Although Lerner did not write Smith’s policy, he did write policies for the past three Heisman Trophy winners Jameis Winston, Marcus Mariota, and Derrick Henry. Lerner also wrote the policy for Oregon Ducks cornerback Ifo Ekpre-Olomu, who became the first football player to collect on a loss-of-value policy in October after he dropped in the draft after suffering an injury. Before the 2015 Rose Bowl, Ekpre-Olomu was considered one of the best cornerbacks in college football. When he dislocated his knee and tore his ACL, he fell to the seventh-round of the 2015 NFL draft. After months of examining the claim to determine if the injury caused the drop, the underwriter of the claim, Lloyd’s of London, paid Ekpre-Olomu $3 million and will pay an additional $2 million if he never plays another down, all tax exempt.

If Ekpre-Olomu had been selected with the final pick of the first-round, he would have received close to $6.1 million in guaranteed money that Texas defensive tackle Malcom Brown received for being the actual 32nd pick of the 2015 NFL draft. Instead, Ekpre-Olomu received a signing bonus barely reaching mid-five figures. Still, the loss-of-value policy didn’t make up for everything Ekpre-Olomu lost, including salary and endorsements

Currently, there is a $10 million limit on total disability policies for draft-bound football players. The limit on loss-of-value policies is about $7.5 million. Nonetheless, these policies are grouped together, so an insured player that collected on an upper-limit policy due to a career ending injury would receive a total of $10 million.

A few years ago, Ekpre-Olomu’s policy might only have protected him against a career-ending injury but not against a drop in the draft. When visited for a story in 2009, Lerner stated most players opted against paying extra for the loss-of-value insurance that would protect them if they dropped in the draft. Not only was it expensive, but also because of all the moving parts there was no guarantee a claim would be paid. Today, nearly every projected first and second rounder has it.

There are two reasons for its new found popularity. The first proponent is medical advances. With more known today than ever about career-ending injuries, a player is far more likely to be ruled out for a career than he would be in the past. The second is financial. Prior to 2014, players could only borrow against future earnings in order to pay for disability insurance. Then, the NCAA created a waiver allowing players to borrow against their future earnings to pay loss-of-value insurance premiums. Before that, to pay the premiums, some schools began dipping into their NCAA approved Student Assistance Funds. In fact, Texas A&M paid the premium for offensive tackle Cedric Ogbuehi in 2014 after athletic director Justin Moore and assistant compliance director Brad Barnes checked NCAA policies to confirm they were allowed to use the Student Assistance Funds. After his junior season, Ogbuehi was a projected first-rounder. However, after seeing that his stock could project him to a higher pay grade in the first-round, he opted to stay and raise his value while still in college. The insurance policy sealed Ogbuehi’s decision to return his Aggie teammates. In an interview with Fox Sports, “Ced didn’t want to leave. He liked school. He didn’t want to go,” athletic director Moore stated. “This was the way to make his family feel at ease. Here’s this policy, and now we can make you feel more comfortable.” When in Texas A&M’s bowl game Ogbuehi tore his ACL, luckily he was still selected 21st overall by the Cincinnati Bengals in the 2015 NFL draft.

Additionally in 2014, Oregon paid portions of the premiums for Mariota, Ekpre-Olomu and center Hroniss Grasu. It’s becoming more and more popular to split these costs between the school and the players and their families. More schools have followed suit since, but schools with multiple potential first-rounders may not wage the full amount for each player. Typically Student Assistance Funds money is designated to only cover unplanned expenses, such as flying because of a family member death, for example. Moore went on to say that Texas A&M has placed a cap on how much Student Assistance Funds money the football program is allotted so that there’s enough for other athletic programs.

So how much does one of these policies cost? According to Lerner a total disability premium costs roughly $10,000 per million of insurance purchased. Additional loss-of-value insurance costs $4,000 per million. So a policy such as Ekpre-Olomu’s would cost about $62,000, $5 million in total disability and $3 million in loss-of-value. If a school won’t cover it, the player could take out a five-year bank loan against his future professional earnings to cover the premiums high costs. Coming with a six percent interest rate and requiring no down payment, a loan for one like Olomu’s would cost $1,200 a month. That’s a big chunk of change for most college students; still a prospective first-rounder would be capable of paying off the loan not long after declaring for the draft simply by calling his agent for an advance or by signing an endorsement deal.

Furthermore, players also must disclose their entire injury history for policies. In 2014, former USC receiver Marqise Lee sued Lloyd’s of London when his loss-of-value claim was denied. Lloyd’s attorneys claimed that Lee did not provide all pertinent information about his injury. Lloyd’s then refunded Lee’s $94,600 premium and declared the policy was never applied. This is why the loss-of-value policy remains a risk to players because the player will only receive their money in clear-cut situations. Even then, it may take a while. That’s why coaches get calls every few weeks asking about the medical status of insured players.

Keith Lerner brought his son, David Lerner, into the business to help discuss the policies with the athletes. David was a walk-on punter at Florida and a member of the Gators’ 2008 national title team where he played alongside a multitude of future draft picks. David emphasizes to players that they need to secure their policies prior to the beginning of spring practices. That’s because some of the hardest hitting takes place in spring as teammates try to secure starting jobs in March. At every school the Lerners visit they try to make clear that insurance companies will not sell an unnecessary policy to a player. To do so would be a terrible business decision on their part. Parents convinced their son is a first-rounder have to be told to lower their expectations. Lloyd’s of London will not underwrite a huge policy for a player who isn’t a future first-rounder. Plus, the Lerners especially don’t want to falsely raise athletes’ expectations or sell them something they can’t afford.

For those who are genuine first- and second-round prospects, the stacked policy has become the norm. That includes total disability and loss-of-value coverage. Most injuries are likely cause a player to drop in the draft than ending a player’s career. Ekpre-Olomu collected on his policy in 2015. Notre Dame’s Jaylon Smith now must wait to find out whether the skill and promise he showed during his college career overshadow concerns about his knee injury. No matter what though, he’s covered.

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