The Washington Post - September 2016

Worried about your ace's $100 million arm?  There is insurance for that.

by Barry Svrluga

September 9, 2016

There was a risk when the Washington Nationals sent Stephen Strasburg out to pitch Wednesday night, and there will be a risk when they send him out to pitch … well, whenever that is, be it this fall, as they hope, or next spring, or (gulp) beyond. “Football quarterback” might well be the most important position in American sports, but “pitcher’s elbow” has to be its most important body part — so valuable, so fickle.

Strasburg is one of just 19 pitchers in the history of baseball to receive a nine-figure contract. That deal — seven years, $175 million — doesn’t even begin until next season. And despite the take-a-deep-breath-and-relax pronouncement by the Nationals on Thursday afternoon — an MRI exam revealed Strasburg’s ulnar collateral ligament was intact, that he instead has a “flexor mass strain” in his elbow — next season might still be the next time we see Strasburg pitch.

But as Washington bit its lip and clutched its pocketbook in nervous nearly all day Thursday, the worst-case scenario was certainly considered, from inside the offices at Nationals Park to the streets of the District and out into the burbs. Among the considerations: If the Nationals committed $175 million to a pitcher beginning in 2017, and that pitcher wasn’t able to pitch during most or all of that contract, what would be the financial impact on the franchise?

(This is not to suggest Strasburg won’t pitch between 2017 and 2023, the seasons that the contract covers. But in that long, slow walk from the mound to the dugout tunnel Wednesday night, it certainly seemed like a second Tommy John surgery was among the possibilities, and a second Tommy John surgery comes with no guarantees. So …)

The quick answer, of course, is that baseball contracts, from a club perspective, are what the terms say they are. In baseball, you don’t hear phrases like “guaranteed money,” such common parlance in the NFL. In baseball, all the money is guaranteed. If a club cuts a player it signed for $175 million, or that player is hurt and unable to perform, the player is owed not a penny less than $175 million. What a world.

Clubs, though, sometimes try to find a way to mitigate risk, the risk they take every time a Strasburg or Max Scherzer or — pick any of the 19 pitchers who have signed those $100 million-plus contracts — takes the mound. The only real recourse: taking out an insurance policy.

Unlike the NBA and NHL, Major League Baseball has no mandatory insurance policy that clubs buy into, insuring the five most expensive contracts on a roster should they miss a certain number of consecutive games. (In the NHL, it’s 30.) Baseball clubs must go into an open marketplace and try to purchase insurance on their own.

“The majority of teams do buy insurance,” said Dan Burns, the CEO of (PFS) Pro Financial Services, a company that has been providing such policies for more than 35 years.

The policies, Burns said, are fairly straightforward. The decisions on whether to buy can be difficult. There are four main components that determine the club’s cost: the dollar amount of the contract the team wants to insure; whether the player is a pitcher or not, because pitchers cost “probably two-and-a-half to three times” as much to insure as position players, Burns said; age, because it’s cheaper to insure a younger, healthy player; and, finally, the length of the contract, which can get tricky, because companies don’t generally issue seven-year policies to cover seven-year contracts, preferring to offer the insurance in two- or three-year chunks.

 “It’s a pretty volatile space,” Burns said. “These are very large dollar amounts on professional athletes who are at risk of getting hurt.”

The premiums can be expensive, perhaps 3 percent for the contract of a position player, 7 percent for a pitcher. Thus, insuring even the first year of Strasburg’s extension, in which he’ll make more than $18.3 million, could cost the Nationals close to $1.3 million. In order for a team to collect on an insurance policy, a player must miss a predetermined number of days — usually around 60. And even then, the club would get back only between 60-80 percent of the player’s salary.

“Theoretically, on a contract that size, you would definitely get insurance,” said an executive from another major league club, speaking of Strasburg’s deal. “The challenge is that the insurance always asks for exemptions on previous injuries. Anyone will insure anything at a certain cost. But in this case, either they have an exemption for the elbow, which would make the insurance borderline useless, or it’s so expensive — $3-4 million or something — that a team might be reluctant.”

Burns said previous injuries are a factor, but if a player has returned to the major league level and performed, reservations about health can be overcome.

Still, policies aren’t for every club...

-- See original article in its entirety and subsequent updates on the Nationals' ace pitcher from The Washington Post here.

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