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  • California’s workers’ comp laws causing pain for team owners

    Sports teams and leagues are facing more scrutiny in regard to exposing players to career- and life-threatening injuries. As information has become increasingly available about the effects of head trauma, medical research initiatives have been geared toward examining the risks that professional athletes encounter on a daily basis. With retired boxers and football players, notably, showing demonstrable signs of brain damage, league commissioners are facing pressure from players associations and health advocacy groups to implement policies protecting their employees.

    Fortunately, progress is being made across most sports on the way to improved security for athletes. As players embrace the additional protection, owners and league officials, particularly in smaller leagues, are growing worried about the long-term financial implications.

    The basics

    Cumulative trauma injuries, also known as repetitive strain injuries or overuse injuries, are the result of continued exposure to actions that gradually damage a body part to the point of disability. The American Academy of Pediatrics defines this type of injury as “a microtraumatic injury to a bone, muscle or tendon that has been subjected to repetitive stress without sufficient time to heal or undergo the natural healing process.” Some prevalent sports-related overuse injuries are tennis elbow, runner’s knee, stress fractures, tendinitis and shin splints.

     As in other industries, athletes or former athletes can file a workers’ compensation claim against their employer — the league or team(s) — in the event of a temporary or permanent disability. Indeed, over the past several decades, workers’ comp laws have been amended to contain provisions both for cumulative trauma injuries and sports teams. It is the permanent injury that has risen to prominence the last few years, with the number of cumulative trauma injury cases booming, and teams understandably concerned.

    California climate

    California offers the most worker-friendly policies in the country. Its cumulative trauma injury laws, specifically, are aggressive, resulting in the majority of U.S. claims being filed there. While athletes filing for temporary injuries usually seek a percentage of weekly earnings, permanent injury claims can leave teams on the hook for lost earnings and a player’s lifetime medical costs. Additionally, players not even belonging to California franchises can bring a claim in the state, either on the premise that a percentage of their “injurious exposure” occurred in California (in away games, presumably) or doing so on the grounds of hiring a California-based attorney. Though these cases are filed in California, they are brought against the out-of-state team that employed the player. However, many leagues require an indemnification agreement with California teams that essentially transfers the liability from the league and its non-California franchises to the California franchise(s).

    The law has a one-year statute of limitations, which appears to be a narrow window to file. This statute, though, is both loosely interpreted and difficult to enforce. It can apply to either a year from the last instance of injurious exposure or a year from the onset of the injury, giving players flexibility in their claims and defense attorneys a troublesome task in challenging.

    The reality

    The options at teams’ disposal to combat potentially astronomical workers’ comp costs are few. Insurance agreements offered by leagues to teams are not always adequate to cover significant cumulative trauma claim damages, especially in California. In this situation, teams can purchase an excess insurance policy, which can be very expensive. Teams hire doctors and trainers and devise medical trade deals to lower costs for temporary injuries, but these practices are largely ineffective in protecting against permanent injury claims.

    Players not even with a California franchise
    can file permanent injury claims in that state.

    Some attorneys and insurance providers advocate outlining workers’ comp rights to players each year to allow for a stricter enforcement of the statute of limitations, but owners are wary that explicitly informing players could only add to the already-mounting number of claims.

    Team insurance policy deductibles stipulate that owners are liable to pay any damages awarded in a claim until the claim exceeds a certain level ($250,000, for instance). Serious head trauma cases can fetch upward of $500,000 per claim. Factoring in all the retired players from every team (since most athletes bring their cases in California), the risk seems limitless.

    Cumulative trauma costs may not deter owners in the big four leagues, who are often worth nine figures and whose franchises have major revenue potential. They are, however, a great cause for concern among existing and prospective owners in smaller leagues such as the WNBA, AFL and independent baseball leagues, to name just a few. Teams in these leagues can struggle to make profits and are vulnerable to considerable losses if hit with prohibitive cumulative trauma damages. Annual insurance costs approaching $1 million can deter potential owners or force current owners, who are wealthy but typically not super-high-net-worth individuals, out of the picture. Moreover, athletes playing in smaller leagues make less money and are more motivated to seek compensation where possible.

    For these reasons, leagues and California franchises have been attempting to soften the state’s workers’ comp laws and make the landscape more favorable for teams. The natural inclination to defend disabled athletes will always be a hurdle for owners trying to maintain a financially viable operation. Bystanders may argue that players know what they are getting into, but courts will not rule in such a dismissive manner.

    California and sports leagues will likely be entrenched in an arduous process to address workers’ compensation and cumulative trauma policies in the state for years to come. In the meantime, the intimidating cost ceiling related to players’ claims will likely turn away prospective owners that are qualified and enthusiastic but without infinitely deep pockets. Much as with its economy, California faces an uphill battle in quelling the skepticism of its sports franchises’ owners and potential investors. Whether some smaller, less profitable sports can survive this struggle remains to be seen.

    Sean Clemens (sclemens@prkln.com) is an analyst at Park Lane, a sports-focused investment bank.

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