Athletes considered ready for the pro leagues before they become eligible for the draft face significant financial risks when they continue to compete as amateurs. In some cases, they have already been deprived of income they would have earned had they entered — or been able to enter — the NBA or the NFL the preceding season.
The NBA limits draft entry to athletes who are 19 years old during the calendar year in which the draft is held and at least one NBA season removed from their high school graduating class. The NFL limits draft entry to athletes who are three NFL seasons removed from their high school graduating class.
Recognizing this risk to their future earnings as professionals, elite prep and college athletes purchase insurance policies to protect themselves.
Greg Oden, the top pick of the 2007 NBA draft, held a policy for $5 million in coverage while still in high school. He raised that coverage to $10 million before his one and only season at Ohio State.
The regulation of one’s ability to earn a living in pro sports has been a lightning rod for social debate for more than a decade.
Rules delaying the entry of professional-ready athletes, and the corresponding fears regarding the loss of financial security due to this delay, also raise concerns as to who should bear the costs of such risks.
That now rests with the student athlete. He ultimately may pay the value of his scholarship in insurance premiums to secure the millions he is temporarily forgoing as a pro because of draft entry restrictions.
Top NBA draft pick Greg Oden had a
$10 million insurance policy during
his one year at Ohio State.
As the financial risks to elite athletes who remain in college grow higher, the insurance policies to balance those risks grow larger, prompting many student athletes to ask, “Should the responsibility for securing and funding these policies rest with the professional league, or even the university?”
Since the NBA and NFL were responsible for instituting draft entry rules, one could argue that they should be responsible for protecting the financial interests of players affected by the rule.
To this end, the NBA and NFL might consider creating a fund to assist athletes whom league executives would consider capable of playing successfully in those leagues if not for the draft entry rules.
This fund could underwrite the payment of insurance premiums for these athletes and, in certain instances, act as a security interest for larger policies.
Another way to transfer responsibility to the leagues would be to assert a legal challenge to the league’s draft entry rules. This option, however, presents a potential uphill battle given previous court rulings in favor of the league.
Alternatively, as elite athletes search for more extensive levels of coverage based on their increased financial potential, they may look to the university for assistance to help defray the costs associated with those policies.
From the perspective of these athletes, the universities not only would be in a better position to pay the premiums, but, like the leagues, would also have the necessary capital to secure policies that provide greater coverage.
Checklist for an insurance policy to protect future pro earnings:
1. Valuation of the policy in relation to the expected earnings at risk
Despite increases in the maximum coverage insurance companies are willing to offer elite athletes, these amounts still may not adequately protect athletes from the opportunity costs lost due to their delayed entry to the pros.
2. Costs associated with maintaining the policy
The NCAA states the cost of Exceptional Student-Athlete Disability premiums is based on the market rate. Typically, premiums to insure elite college athletes cost $10,000-$12,000 for every $1 million of coverage.
3. The realization of the benefit or the protection the policy provides
Certain athletes may realize neither the benefits of a pro career nor the insurance protecting that future interest. Generally, insurance policies compensate only athletes with “career ending” injuries. Athletes will not recover any decrease in salary due to injuries that diminish their pro skills but do not foreclose their ability to play professionally.
There are at least two potential obstacles to these alternatives.
The larger obstacle concerns whether current NCAA rules would allow the university to provide financial assistance for the student payment of insurance premiums.
Article 16 of the NCAA bylaws prohibits the provision of any additional benefit to a student athlete.
Article 15 of the NCAA bylaws restricts universities from providing a student athlete with an amount of financial assistance that is greater than the student’s cost of attendance.
Thus, the university’s payment of an elite student athlete’s insurance premium may violate the article if it is considered assistance that exceeds the student athlete’s total cost of attendance.
The NCAA could, however, carve out an exception to either rule for the provision of elite athlete insurance. This issue will arise only in extremely limited instances (presumably less than once or twice a year with the majority of programs).
Also, any concern about an overextension of funds and benefits would be negated if the university incorporates the eligibility and evaluation procedures used by the NCAA for its Exceptional Student-Athlete Disability Insurance Program.
This program allows elite athletes, projected as high draft picks, to receive loans from the NCAA to pay for insurance premiums. The amount of coverage is based on the athlete’s prospective status in a professional league draft.
Assuming an insurance program with university-financed premiums ultimately would pass NCAA muster, the second obstacle to implementation involves whether the university would be willing to accept a philosophical shift in how it recruits and retains student athletes.
In recruiting, the university may be required to market its ability to enhance an elite athlete’s future financial interests (through television/tournament exposure) and also market its ability to protect those interests.
In addition, the university’s analysis of its athletic program would necessarily become even more quantitative, as administrators determine whether the financial gain associated with the addition or retention of an elite student athlete (i.e., the revenue associated with victories, ticket sales, licensing and television/tournament appearances) outweighs the costs of the premiums associated with insuring him against the loss of his professional salary.
Brian Michael Cooper is in the Houston office of Haynes and Boone, a certified NFL player agent and a member of the governing council of the Texas State Bar Entertainment and Sports Law Section.
