The NCAA often talks about its catastrophic insurance plan as one of the reasons that players should stay in school. For players like Johnny Manziel or Jameis Winston, forced by NCAA and NFL rules to stay at the amateur level, Loss of Value insurance is a must. Marqise Lee is certainly glad he had the Lloyd's of London policy now that a knee injury forced him down to the second round in last week's NFL draft.
Players like Jadeveon Clowney, Manziel and Lee are all at risk of injuries while in college and all three had coverage, though Clowney and Manziel are likely glad they didn't get to collect. Any injury could take them from a sure thing to a question mark, which could shift their place in the draft. Their financial prospects would take a major hit. By paying for this insurance, which does not come cheaply, a player is protected against that loss.
What most don't know, including the players, is how difficult it is to get this kind of insurance to pay off. In fact, Lee, the former USC wide receiver, is in line to become the one of the first players to have the policy pay. After falling out of the first round, Lee could collect as much as $5 million on the policy he bought in the summer before the 2013 season. Lee was selected in the second round, going to the Jacksonville Jaguars.
It's not just Lee. Another USC player, linebacker Morgan Breslin, is in line to collect on his loss of value. His drop was more severe, going from a possible first-rounder to an undrafted free agent. Breslin did sign after the draft with the San Francisco 49ers, but the odds of making the NFL are long for him, making his benefit perhaps his only payoff for his years of football.
USC has long encouraged its players to get this type of coverage. Matt Leinart and Carson Palmer both had this type of policy, though neither got a payoff as Lee and Breslin are likely to. Lee's policy was in excess of the NCAA's policy, which is capped at $5 million. The $10 million total payoff will not be in place here. For the NCAA, the amount would only be in place for a "total disability," which is clearly not the case for Lee and is restricted to disability, not loss of value.
That has been an issue in the past. Ball State WR Dante Love was ticketed by many to be a first-round pick before a devastating spinal injury ended his football career. However, Love was not covered under the NCAA's policy. While the school did pick up his significant medical bills, Love's dream of playing in the NFL ended before he could do the things many dream of.
Another recent case that brought this type of insurance to the forefront was that of Nerlens Noel. The Kentucky and Philadephia 76ers player had a dramatic knee injury, but was selected high in the first round of the NBA draft despite it. The policy did not pay off because he had no major loss of value.
Lee's drop from a top wide receiver pick to the second round was costly. Comparing what he'll get as a second-round pick to what he might have gotten is easy due to the NFL's slotting system. Lee could have been projected to go somewhere in the same range as Odell Beckham Jr., who will receive a bit more than $10 million under the current rookie wage scale.
At 39th overall, Lee is likely to receive something near $5 million, though the exact value is not known. Last year, Robert Woods, another USC WR, was selected with the 41st pick and received a contract from the Buffalo Bills for $4.9 million. That $5 million gap is where the Loss of Value insurance will come in, though it will not be matched dollar for dollar due to provisions in the insurance contract.
Lee suffered from a moderate (Grade II) MCL sprain during the 2013 season. While he was able to get back on the field, it was clear that he never really got back to 100 percent. That was confirmed at the NFL Scouting Combine in February, where several teams "red-flagged" Lee due to laxity in the knee. While the MCL is usually not repaired surgically, many believe that laxity can lead to more injuries down the line.
Breslin had a much more serious injury. He had to have hip surgery in November and was not able to return. While details of Breslin's injury have never been publicly disclosed, an internal hip issue that requires surgery is rare but not unheard of in the NFL. Colts tight end Dwayne Allen missed much of the 2013 season after injuring his hip. Ed Reed and Percy Harvin had to have their hip labrums repaired, which cost significant time and value.
Chris Larcheveque, the EVP of Sports for International Speciality Insurance, the company that underwrites these types of policies for Lloyd's, explained to me that the players are valued at the time of underwriting. "We take a look at where he is expected to go. We talk to scouts we have relationships with and look at two or three trusted NFL voices, like Matt Miller."
The value of the contract takes care of the gap between the evaluated value and the actual value. "There's a formula, since the benefit is tax free. Five million is really like nine million due to taxes, but it's relatively cut and dry. We'll know in a matter of weeks with Lee. It will will take longer for Breslin since he'll have to make the roster before he gets a contract," Larcheveque told me by phone.
The insurance is expensive, normally around $10,000 per $1 million in coverage. Since an NCAA player shouldn't have $100,000 lying around the dorm room, the premium is usually delayed and will be paid by the player's first professional contract. If a player is unable to be signed, the premium is deducted from the benefit at the time of payment.
While availability of these policies has been around for years, it is very difficult to meet all the conditions to receive the benefit. A player not only has to be injured while playing football, but he also has to have a demonstrable loss of value, specifically due to the injury. A player like Lee could have slid to the second round on production or his team having a poor season, which has always been the previous argument.
If NCAA stars are going to stay in school and risk their future earnings potential at the same time the NCAA is fighting to not pay them or even increase their in-school benefits, insurance policies become even more necessary. While a check can't replace a player's ability to chase his dreams, it can compensate his work to help him figure out what comes after football.
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