NFL Prospects Use This To Combat a Drop in Draft Stock

The odds of making it to the NFL are fairly low for a college football player. The NCAA reported that only the top two percent1 of its football players are drafted by NFL teams, and even some of the most talented players never make it to the professional gridiron due to injuries or other career-threatening circumstances that can tank their draft stock.

This unfortunate scenario plays out all too often in a contact sport like football. According to the NCAA, lower limb injuries account for 50 percent of all injuries sustained by college football players, and knee ligament injuries account for 17 percent of injuries.2

What's left for the NFL prospects who sustain career-ending injuries? Losing all hope of ever playing professionally is a crushing experience, but the financial futures of these young athletes can be preserved thanks to a disability insurance policy, and in some cases, by a loss-of-value policy.

The Process.

As an advisor for professional athletes, my company has an affiliation with several division I programs. The school's personnel department works in conjunction with the university's compliance department. They have a list of vetted and approved advisors that can go out into the market and pursue permanent total disability and loss of value policies for these players.

Typically, about a year out, we start getting inquiries about the following year's draft. For example, right now we are getting a lot of inquiries for players that could potentially leave early and enter the 2019 NFL draft. There is a ranking system that the underwriters have on the players which they use when they go out and price the insurance and coverage. The underwriters then get those prices back to advisors like myself and from there, the advisors will get it over to the university. It's up to the university and the family to then reach out to us to potentially move forward and secure this coverage.

Greater demand for these policies.

Each year, this type of insurance and risk management becomes more and more popular and talked about. As more advisors go into this, they have the mindset of adding another tool to their tool belt.

Universities have certain student assistance funds that compliance allows to potentially fund the premium for these policies up to a certain limit. Anything above that limit is the responsibility of the family. Essentially what these players are doing is transferring the risk that they're inheriting themselves. They are transferring it to a big insurance company for potentially pennies on the dollar to offset that risk.

These policies can be game-changers.

According to Saturday Down South, one of these policies awarded a $1.7 million payout3 to South Carolina Gamecocks running back Marcus Lattimore. In 2013, the San Francisco 49ers drafted Lattimore but the running back never played for the 49ers due to a career-ending knee injury. Comparably, in 1998, Florida Gators player Ed Chester sustained a career-ending knee injury. Sports Illustrated stated that he was awarded a $1 million payout thanks to a policy he had reportedly forgotten about.4

NFL hopefuls are not insured just for career-ending injuries. In 2016, Notre Dame linebacker Jaylon Smith was projected to be in the top five picks for the NFL draft, but a knee injury caused him to be picked 34th. CBS Sports explained that he was reportedly awarded a $700,000 payout5 thanks to a loss of value insurance policy.

The market for these policies is extremely small given the low percentage of college athletes who are eligible to play professionally. Each contract is unique and is negotiated between the player or school and the insurance carrier based on the player's risks and value.

Permanent total disability vs. loss of value.

Permanent total disability (PTD) policies cover student athletes in case of a career-ending injury or illness. The benefits and premiums are based on the player's projected draft position and injury history. Coverage cannot exceed $10,000,000 for football players.6

Loss of value (LoV) policies are less common; they help protect NFL hopefuls against a significant drop in their contract value. A LoV policy is purchased for a limited time period, typically the year leading up to the NFL draft.

The benefits and premiums of each policy depend on the player's projected draft position. The insurer will determine a coverage threshold that usually corresponds to 50-60 percent of the projected value of the player as determined by the NCAA.7 The payout corresponds to the difference between this threshold and the value of the contract the player eventually signs. The NCAA recommends this type of coverage for players with a strong chance of being a top ten pick.

Fewer LoV claims are filed and awarded than PTD claims. Insurers only cover players for a significant drop in contract value, and players have to be able to prove that the lower draft pick was caused by an illness or injury. These policies do not cover other scenarios such as poor performance, another athlete's value increasing, disciplinary actions taken against the player, or changes in an NFL team's needs.

As a college football player or parent, there are a few practical things to keep in mind regarding PTD and LoV coverage:

• While all NFL hopefuls could benefit from PTD coverage, few should consider purchasing an LoV policy.
• Colleges and universities can use their NCAA Student Assistant Fund to pay for these policies.
• Families and players can purchase coverage independently from the school or buy additional coverage.
• Players can borrow against future earnings to pay premiums.
• Student athletes who receive assistance via their school's NCAA Student Assistant Fund can be taxed for this assistance, which can impact financial aid eligibility.
• Colleges and universities typically have a network of carriers and brokers to negotiate these policies. Athletes should seek recommendations from their schools on which carriers and brokers to hire if they want to buy independent coverage.

Other insurances to consider.

When it comes to the risk management world, I think that the disability side, especially in a game of football, is the most important. The numbers show that the chances of a player getting hurt or having a career ending-injury are a lot higher than any other insurance products out there.

Some other types of insurances that are being offered that I believe should be considered by an advisory team, players and his/her family are insurances that protect a player in the event of a lawsuit (cyber, harassment, etc).

Once players become professional athletes, they sometimes start their own business entities. Within those entities, they have to make sure they have the proper risk management associated with those entities in case there is ever a lawsuit against the personally or on their business entity side.

Becoming a legitimate NFL prospect is a dream come true for young student athletes, but it is important to measure the risks of sustaining a career-ending injury. While a LoV policy may not be justified, college players who are talented enough to have a shot at going pro should look into obtaining permanent total disability coverage.

Paul I. Franklin is the principal of Franklin Capital Strategies, a third-generation, full-service financial strategies and estate planning firm that began in 1940 in Cleveland, Ohio and has expanded to a nationwide presence today. Follow Paul on Twitter at @PaulIFranklin.

1. NCAA, "Estimated probability in completing in professional athletics," NCAA Research, March 10th, 2017, http://www.ncaa.org/about/resources/research/estimated-probability-competing-professional-athletics (accessed April 23, 2018).
2. NCAA, "NCAA football injuries," Datalys Center for Sports Injury Research and Prevention, 2009, https://www.ncaa.org/sites/default/files/NCAA_Football_Injury_WEB.pdf (accessed April 23, 2018).
3. S. M. Oliva, "Lattimore set financially despite early retirement," Saturday Down South, 2015, https://www.saturdaydownsouth.com/south-carolina-football/lattimore-set-financially-despite-early-retirement/ (accessed April 23, 2018).
4. Andy Staples, "Policy gave Chester life after brutal knee injury ended football career," Sports Illustrated, May 13th 2009, , https://www.si.com/more-sports/2009/05/13/ed-chester (accessed April 23, 2018).
5. Dennis Dodd, "Jaylon Smith's insurance payout could lead to more players skipping bowl games," CBS Sports, March 23, 2017, https://www.cbssports.com/college-football/news/jaylon-smiths-insurance-payout-could-lead-to-more-players-skipping-bowl-games/ (accessed April 23, 2018).
6. NCAA, "Loss-of-value whitepaper," NCAA, http://www.ncaa.org/about/resources/insurance/loss-value-white-paper (accessed April 23, 2018).
7. NCAA, "Loss of value FAQs," NCAA, http://www.ncaa.org/about/resources/insurance/loss-value-faqs (accessed April 23, 2018).