Safeguard or trick play? Loss-of-value insurance for college athletes has its share of detractors
Look, I’m not trying to sell you anything. You just need to be aware of this. It’s a perk, see. And it has the potential to tilt the tender world of college athletics in unseemly ways.
So let me risk breaking your brain a moment and take you into the arcane land of sports insurance.
For 26 years now, top collegiate players have bought disability coverage in case of career-ending injuries. Increasingly, though, pro prospects in football and basketball are purchasing something called “loss of value” insurance, which takes some of the risk out of forgoing the draft and staying in school.
Loss-of-value insurance, with annual premiums generally in the $18,000$25,000 range, covers a football player if he blows a wheel and drops from a first-round NFL pick to, say, a fifth-rounder.
The policies are sometimes paid for by athletic departments, which is one of the flash points. Ohio State reportedly paid for five of the policies this year, while USC and UCLA say they cover none of their players.
But players can take them out on their own, as UCLA quarterback Josh Rosen recently did, a move financial planners say makes more sense than athletic department coverage because of the tax consequences on possible payouts.
Insurance. Taxes. Nothing sexier than that, right?
Well, stay tuned, because LOV insurance has implications beyond the financial security of a few millionaires-in-the-making. It’s one of the enticements that top schools can offer in the carnival market of college recruiting.
Critics see the policies as fool’s gold, citing a payoff rate almost as low as the lottery. Supporters point to the policies as appropriate gestures increasingly rich athletic departments can make to keep top performers for their senior year.
The bottom line: They can be either, or both at once.
“There’s so much gray area in this thing, and that’s the problem,” says former UCLA star Danny Farmer, whose agency works with athletes to set up policies.
For parents and players, those gray areas include what is covered and whether payouts are reliable, making for a dizzying decision over whether to take out coverage. School officials insist they go out of their way to fully explain the plans.
But can anyone really explain them?
Loss-of-value policies have been around for about five years. Athletes became aware of them when Florida State and Oregon paid the policies for Jameis Winston and Marcus Mariota.
Under NCAA bylaws in place since 1990, top athletes take out traditional disability policies that cover loss of earnings if injury cuts short a career. The loss-of-value policies are add-ons to those and cannot be purchased individually.
But under a little-known NCAA policy, elite athletes can take out loans for disability and loss-of-value policies based on future earnings.
“A lot of these kids don’t have the time to look into it,” said Nico Grasu, who took out a loan to cover his younger brother, Hroniss, an All-Pac-12 center at Oregon, with premiums partially paid by the university.
“Without loss of value, his senior year would not make sense,” Grasu said. “So LOV kept him in the [college] game.”
The main knock against LOV policies is how rarely claimants collect. The NCAA’s magazine, Champion, says only two college athletes, USC’s Silas Redd and Oregon cornerback Ifo Ekpre-Olomu, are known to have received a loss-of-value benefit. Former Trojans receiver Marqise Lee has sued his insurer over nonpayment on his policy.
Ekpre-Olomu collected a reported $3 million after a knee injury dropped him from a projected firstrounder into the seventh round. Also a victim of a knee injury, Redd went undrafted. Because he was not projected as a high pick, his payout probably was less lucrative, though terms were never disclosed. Lee is suing for $5 million after a knee injury dropped him from the first round to the second.
As with most LOV policy holders, he was insured by Lloyd’s of London.
“With so few examples of loss-of-benefits being paid, it’s hard to say at this point whether or not these really are a useful tool for studentathletes,” Northwestern administrator Jim Phillips, chair of the NCAA Division I Council, told the magazine.
Sure, universities are cool to this. It ups their costs, despite the growing treasure chest from TV deals, bowl games and $280-million clothing contracts.
Maddening for athletes, meanwhile, is the policies’ poisonous fine print, under which athletes can later discover their full drop in value was not covered. Many lawyers, let alone 20-year-old linebackers, would come away scratching their heads.
The quick emergence of the policies also concerns school compliance directors. USC’s Dave Roberts says the coverage didn’t even exist when he arrived as the school’s vice president for athletic compliance six years ago.
“It certainly is growing,” Roberts said. “I don’t think it’s a bullet to the top. It’s not a 90-degree angle [of growth]. It’s more of a 30degree angle.”
“You really run some risks when you use it as a recruiting tool,” he says, citing a school possibly being legally liable for something that might not pay out as promised.
Another knock, according to Roberts: When schools pay premiums, they generally turn to so-called “student assistance funds,” rainy-day accounts for athletes’ small financial emergencies. Generally, assistance funds benefit the rank and file, not just top stars. One annual premium could eat up 15%-20% of that fund.
In the end — as with any insurance coverage — athletes don’t always get what they pay for in loss-of-value coverage.
“The hardest job I have is getting them to be normal,” says Jeremy Drake, an investment adviser who works with athletes. “It’s tough because these guys are risk-takers.”
Yet, given the riches that star athletes provide their institutions, covering a Heisman candidate’s premium would seem the least a school should do, especially if it keeps him around another year.
“Looking back, it’s the peace of mind,” explained Nico Grasu, the big brother adviser who assisted with his brother’s policy.
Skeptics might wonder whether Oregon’s starting center — sturdy as a tree stump — really needed such coverage. At one point, Hroniss Grasu made 50 consecutive starts.
But in his senior year, the projected first- or secondrounder suffered a fractured ankle and was unable to fully take part in the combine, dropping him to a third-round pick.
Under the terms of a loss-of-value pact, the policy should cover some of the millions he missed out on.
They filed a claim last fall. They are waiting on a check.