Insurance Strikes Out: Major League Players Offer Big Returns… and even bigger risks for insurance

Insurance policies to cover the multi-year, multi-million dollar salaries of professional baseball players may soon be as hard to locate as a split-fingered fastball from a southpaw relief pitcher.

The hardening insurance market coupled with skyrocketing salaries of premier players has created a double play combination that may threaten the financial future of more than two-thirds of the 30 Major League teams, according to team officials.

The potential front-office crisis can occur when a prolonged injury to a high-priced player under contract evolves from the training room, to the disabled list and eventually into a total disability claim. The situation creates a proposition that can be costly for both the insurance carrier and the baseball team.

For example, when a degenerative left hip forced Albert Belle into retirement before the start of the 2001 season, the Baltimore Orioles filed a $27 million claim to cover the final two years of the guaranteed $65 million contract the former All-Star had signed three years earlier.

“Getting insurance has never been more difficult than it is right now,” Baltimore Orioles spokesman Bill Stecka said. “Players do not care where the money comes from as long as they get paid. But, if the team is ultimately responsible for paying millions of dollars to a player who is unable to help your team this year, it makes it virtually impossible to pay the players on the current roster.

“That not only hurts the team this year. But for several seasons into the future.”

Last year ESPN baseball commentator Peter Gammons reported that the first and last years of Kevin Brown’s seven-year, $105 million salary with the Los Angeles Dodgers were not protected by insurance. Gammons’ report inspired a denial and a laugh from John Scotti, owner of the Team Scotti insurance brokerage in Pittsburgh.

Scotti, who claims to have written insurance for 29 of the 30 Major League teams, said that besides increasing rates, insurance companies have put a limit of five years on policies covering most professional athletes. In Brown’s case, Scotti said the insurance company simply issued a standard policy for 60 months, with a normal renewal clause contingent on the player’s heath history.

Brown, 37, is currently entering the fourth year of his contract. He spent time on the disabled list three times last year because of injuries to his pitching arm. His 2001 season ended on Sept. 28 when he underwent surgery to repair a torn muscle in his pitching elbow.

“Just by the nature of what they do, pitchers are a much bigger risk,” John Olguin, the director of public relations for the Dodgers, said. “Pitching is not natural. So if an insurance company is being asked to insure a pitcher, there may be some stringent clauses built into the policy.”

The Dodgers committed to Brown, in part, because he had no prior history of arm trouble before signing his contract.

“In our eyes, surgery adds five years to the age of a pitcher. A 27-year-old is suddenly looked on as if had the same wear-and-tear as a 32-year-old, only without the same experience.”

Juan Gonzalez, 33, attracted very little attention on the free agent market this off-season despite an MVP-caliber .325 bating average, 35 home runs and 140 RBI playing out his one-year contract with Cleveland. The Indians declined to exercise the option year, presumably because of restrictions on the team budget.

Gonzalez’ agent Jeff Moorad kick-started interest in his client when he let it be known that he had taken out an insurance policy covering Gonzalez’ injury-prone back. The policy stimulated a bidding war between the New York Mets, Baltimore and the Texas Rangers.

Moorad and Gonzalez agreed to terms with Texas during the first week of January, but the contract was not finalized for more than a month while the outfielder underwent a series of physical examinations.

John Blake of the Rangers said team owner Tom Hicks agreed to take out a policy covering the five-year, $65 million deal signed with starting pitcher Chan Ho Park, but elected to not even apply for insurance on Gonzalez.

Blake emphasized that Gonzalez is only signed for only two years, “with no options.”

According to one team official, the reported insurance policy on Gonzalez’ back “was not quite as advertised.” The actual policy apparently excluded Gonzalez back from coverage unless the club signing him wanted to buy out that exclusion for an additional hefty premium.

And even then, in the words of the team official, “rather than insure the entire contract if Gonzalez went down with a back problem, the maximum his team could collect was $5 million.”

Insurance or the game?
Insurance can even take priority over baseball. Red Sox slugger Manny Ramirez tempted fate when he reported two days late to Spring Training this year. His excuse was a mandatory physical required by an insurance company.

“Insurance is available, it just costs a lot more these days,” Scotti said. “The result is that many of these new, smaller companies that got into insuring professional athletes because of the glamour of the industry. Many of those companies may not be around (next year) when spring training begins again in February.

“Baseball teams are owned by successful business owners who do not want to do business with newcomers. We are talking about powerful individuals like (Ted) Turner (owner of the Atlanta Braves), (Tom) Hicks (of the Texas Rangers) and Rupert Murdock (of Fox, which owns the Dodgers). There is no room in this league for rookies.”

Scotti said the premium to guarantee the $252 million, 10-year contract Alex Rodriguez signed with the Rangers would be at least tripled in today’s market compared to the rate the Rangers received in December of 2000.

He should know. Scotti was asked to piece together a creative insurance package—including last-minute help from billionaire Warren Buffet—to protect Hicks’ quarter-billion dollar investment in his new shortstop.

Before the Pittsburgh Pirates made catcher Jason Kendall the highest paid player in franchise history with a six-year, $60 million contract extension in November of 2000, Scotti was called into the closed-door negotiations to guarantee the transaction. The negotiations were overshadowed by the memory of the career-threatening compound fracture and dislocated ankle Kendall suffered in 1999.

A Pittsburgh team official said the club agreed to the long-term deal with Kendall because the Pirates could not afford to lose its most popular player the same year it opened PNC Park, or risk losing him to free agency after the season.

With his new contract in hand; Kendall began the 2001 season by injuring the ligament in his right thumb in a game on April 9. He finished the season batting 42 points below his career average and underwent arthroscopic surgery over the winter. He was held out of the first few days of Spring Training in February with back spasms.

The vast majority of teams declined to comment on the record regarding insurance issues, citing the privacy of the relationship between the owners and the players. Teams owned by major corporations (for example, the Anaheim Angels are owned by the Disney Corporation) responded flatly “disclosure of such information is against company policy.”

“The size of the contracts has been a concern, but it has not been a barrier,” Thomas R. Peterson of Peterson International Underwriters, a Valencia, Calif.-based correspondent for Lloyd’s of London said. “The jumbo capacity needed for sports has dwindled as markets have hardened worldwide. It is not available at all in the London market.”

The majority of companies still willing to issue policies on professional athletes are doing their best to stay away from long-term contracts, according to Peterson. He said most companies have attempted to cap their own risk at 36 months.

Peterson said Massachusetts-based ASU has become the largest provider in the baseball market, surpassing even Lloyd’s in recent years. Two companies provide the lion’s share of actual coverage for Major League players: Sigma and The Hartford.

“Who else has the reserves to write this kind of coverage?” Scotti asked rhetorically. “Nobody else would have the guts.”

Teams have attempted to reduce the cost of insurance by increasing the qualifying deductible from 90 days to 162 games, the length of a full season.

The Dodgers’ Olguin said risk can also be based on the position of a player. He explained that pitchers, especially left-handed pitchers with control, are a rare breed. But there are always plenty of outfielders in the minor league system eager to step up if a Major League player is sidelined by injury.

Dan Aznoff covers the Seattle Mariners and baseball in the Pacific Northwest for The Baseball Journal. Aznoff is a freelance writer who makes his home in Bellevue, WA. He can be reached at DAjurnalist@msn.com.