At Today's Salaries, It's Tough to Risk It

By DAVID WHARTON and LISA DILLMAN

April 5, 1999 12 AM PT

TIMES STAFF WRITERS

Houston Astro left fielder Moises Alou stumbles on a treadmill at his Dominican Republic home and tears a ligament in his knee.

Atlanta first baseman Andres Galarraga silences the Braves’ clubhouse when it is announced he has a cancerous tumor in his lower back.

Chicago pitcher and star-in-waiting Kerry Wood tears an elbow ligament and has beleaguered fans once again using the words Cubs and cursed in the same breath.

These three incidents--occurring within the span of a month--have cost three teams dearly in their hopes for a championship. But the price extends beyond potential wins and losses.

The bottom line is just that, dollars and cents. In an era of guaranteed contracts, teams must pay a player’s salary even if he can’t play another minute of the season. Even if he never plays again.

That’s a chilling prospect for the Dodgers, who just signed 34-year-old pitcher Kevin Brown to a record seven-year, $105-million deal. And for the Lakers, who have Shaquille O’Neal under contract for $120 million.

So professional sports franchises are turning more and more often to an esoteric form of insurance. In the four major sports, they are spending an estimated $50 million a year for the security of knowing they can recoup some of the salaries they pay to injured players. Broker John Scotti, who has worked with baseball teams for 20 years, estimates franchises will spend $13 million to $14 million this season on premiums.

“Who’s going to predict that Andres Galarraga gets cancer?” said Mark Mitchell, an Atlanta broker who provides policies to clubs in several leagues.

“Teams are becoming very risk averse,” Mitchell said. “The more progressive clubs look at the athlete as an asset, like a $50-million building.”

This is an odd niche of the insurance industry where actuaries armed with calculators and statistical tables, step into the realm of blind-side sacks and bone-jarring hip checks. The policies have been available for about 25 years but have grown more popular as contracts have grown in length and value.

In the NFL, where contracts are not guaranteed, owners can choose whether to cover their big-bonus players. The same goes for major league baseball.

Some like the idea, some don’t.

With Galarraga--who will earn $8.25 million this season in the midst of a three-year deal--the Braves will be able to recover a portion of his salary through disability insurance.

In the other two of high-profile spring training cases--Alou and Wood--the teams weren’t covered.

But NBA clubs must, by league policy, insure their top six contracts. If a player is injured for more than 41 games--the standard deductible--insurance kicks in, reimbursing the team for 80% of his salary.

The NHL mandates that teams insure their top five contracts with a 30-game deductible. Some organizations go beyond that, securing policies on additional players or extra insurance on a marquee player. Calgary General Manager Al Coates said his team did that with star forward Theoren Fleury, who was traded to Colorado in February.

Brokers are typically protective of their clients’ privacy--they won’t talk about who has what kind of insurance and how much it costs. Teams are almost as tight-lipped.

A Cub official declined to talk about Wood. Nor would the Miami Dolphins talk about Dan Marino’s broken right ankle in 1996. But industry experts said insurers generate more than 50 million a year by charging premiums of 3% to 4% of the player’s annual salary.

The Dodgers, for example, have chosen to cover 75% of Brown’s contract, paying a premium of anywhere from $1 million to $3 million, according to sources.

“A pitcher’s rate is much higher than an outfielder’s rate,” said Marc Blumencranz, a New York broker. “A football player’s rate is much higher than a basketball player’s rate.”

Teams hope all the money they pay out will come back to them in claims. That was how it worked when Bill Duffy was a Miami Dolphin executive.

“After four years of buying in Miami, it was plus or minus $50,000,” said Duffy, now chief financial officer for the San Francisco 49ers. “I like the concept.”

Owners also like to cover themselves against the loss of a player who has the indescribable magic that sells tickets.

“That typically means the loss of a marquee quarterback,” said Andy Wasynczuk, vice president of business operations for the New England Patriots. “For us, that’s Drew Bledsoe . . . somebody who could affect you at the box office, someone who is difficult to replace.”

But the decision--to insure or not to insure--is complicated by the highly specialized field of sports medicine. Coverages and premiums vary greatly depending on a player’s history of injury.

The key word is exclusion. If a player has suffered a recent injury, underwriters may refuse to cover that particular joint or limb until the player proves over several or more games that he has healed.

“The underwriters have gotten very finite,” said James Edgeworth, a Houston broker. “Several years back, let’s say you tore a medial collateral ligament, they’d exclude your whole knee. Now, they’ll exclude just the medial collateral ligament.”

If there is any haggling in this business, it arises during negotiations over exclusions. In 1997, the Boston Bruins filed a civil lawsuit against three insurance companies and remain in litigation over whether former center Cam Neely’s sore hips were excluded.

The insurers might even have a say in what kind of treatment a player receives once he is injured.

“One kind of procedure might be a permanent fix, one might be a temporary fix,” said a Chicago underwriter, Brian D. Burns. “We’ve had a superstar quarterback blow an Achilles’ tendon, then not have an exclusion because the surgery was so successful.”

Every aspect of risk is considered. The industry has a theory called the “Cy Young syndrome,” which holds that pitchers coming off a Cy Young Award winning season are more likely to be injured because, in part, they have spent their off-season on the banquet circuit rather than training.

And some players--the ones with a legacy of injuries--are almost impossible to cover.

“We had a quarterback a ways back, we used to call his exclusions, ‘Skin and contents,’ ” Edgeworth said. “This guy hurt everything. There were so many exclusions, he said, ‘They’re only covering my eyebrows.’ ”

Not all the injuries occur on the field. Teams are leery of incidents like the 1993 boating accident that claimed the lives of Cleveland Indians Tim Crews and Steve Olin. Teammate Bobby Ojeda was injured. Or the 1992 bus accident in which Angel manager Buck Rodgers was seriously injured, and 12 other players and staff members were hurt.

Kirby Puckett, now an executive with the Minnesota Twins, had two years remaining on a five-year, $31-million contract when his career ended in 1996 because of glaucoma. The Twins were able to recoup a portion of his remaining salary.

The Atlanta Braves found themselves in a predicament a month after they signed Nick Esasky in 1990. The first baseman, who once hit a home run into the second deck at Dodger Stadium, developed vertigo and played only nine major league games over the next three years, yet still collected on his $5.6-million contract.

The risk begins as soon as the ink dries.

“If you sign a player to a big new contract, it’s bound at that moment,” Blumencranz said. “If the player crossing the street after the signing is hit by a car, he still gets paid.”

So most insurance brokers give teams their home numbers. They talk of being awakened by midnight phone calls, of arranging for policies the minute negotiations come to a close.

Despite all the risks, insurance companies consider professional athletes a good bet when it comes to disease, accidental death and dismemberment.

“Obviously, we’ve all read about athletes getting injured in car wrecks,” Blumencranz said. “But a 22-year-old basketball player has no greater mortality than a 22-year-old executive.”

If anything, professional athletes have trainers to attend to their every ailment. They often travel in airplanes, which are statistically safer than driving in cars. They are likely to be in excellent physical condition.

“Even if a person in this age bracket contracts a disease, odds are his contract will run out before death occurs,” a broker said.

For this and other reasons, some teams take the risk rather than pay hefty premiums.

When Duffy switched from Miami to San Francisco, his new employers did not like insurance. In Baltimore, it was Scotti who persuaded the Orioles not to insure Cal Ripken Jr. during his record-setting 1995 season, while he pursued Lou Gehrig’s consecutive game streak of 2,130.

“In this business, you can overinsure,” Scotti said. “Short of being in a full-body cast, there was nothing that was going to keep him from breaking the streak.

“The money for insurance on Cal Ripken did not seem like the place to spend [owner] Mr. [Peter] Angelos’ money.”

The Astros discontinued the practice of maintaining a blanket policy for their players, said General Manager Gerry Hunsicker.

“The premiums became cost prohibitive,” said Hunsicker, who has been in Houston since 1995. “They decided not to insure any of them.”

The Astros are hoping Alou returns by August. If not, the team could be facing an unassisted payout of $5 million this season to Alou, who had knee surgery. For the small-market Astros, the additional expense of insurance premiums does not make sense, Hunsicker said.

“We talk about it every now and then, and with Alou going down, the topic was brought up just recently,’ he said.

Still, the freakish mishap did not change the team’s philosophy. Nor did Shaq’s immense contract make the Lakers big fans of insurance.

“You try to cover as much as you can [but] no single contract would bury us,” General Manager Mitch Kupchak said. “We would live to fight another day.”

Across town, Clipper Executive Vice President Andy Roeser is similarly lukewarm about insurance. But on a team that has felt the sting of injury--remember Danny Manning’s torn anterior cruciate ligament in 1989?--it doesn’t take much to sway his opinion.

“I remember adding it up one year and saying, “This is the worst thing in the world,’ ” Roeser said. “Then the next year, I was glad we had it.”

* MR. BROWN’S ACTUARY

Insurance experts say a club with a $105-million pitcher should insure itself for about $70 million for the first season. Page 8

* WHAT CAN GO WRONG

The N.Y. Islanders not only lost Brett Lindros, they lost their case when an insurance company rescinded the policy. Page 8

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Costly Casualties

A look at key players who are out for the season because of injury, including 1999 season salaries.

Moises Alou

Houston (knee)

$6 million

Andres Galarraga