Is loss-of-value insurance for colleges in for a contraction?
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This article will provide the latest updates on LoV litigation and potential and future claimants.
By Glenn Wong and Cameron Miller, SportsBusiness Journal, 12-4-17
THE PROLIFERATION OF loss-of-value insurance policies purchased by college athletes has implicated wide swaths of the sports world. From lawsuits targeting insurance monolith Lloyd’s of London to the notions of amateurism that underpin collegiate sports, LoV policies have raised salient legal and business issues in and outside the NCAA. This article will provide the latest updates on LoV litigation and potential and future claimants, then shift to a discussion of these policies’ relationship with amateurism and the future of the LoV market.
■ LoV Insurance In Brief
LoV insurance is a separate policy often combined with permanent total disability insurance (PTD) that protects a college athlete’s professional earning potential in the case of an event (i.e. injury) that decreases their value (e.g., results in a lower selection in a draft and smaller contract). Coverage typically falls between $1 million and $10 million. Though the NCAA does not offer LoV insurance due to an inconsistent record of payouts, it does maintain an Exceptional Student-Athlete Disability Insurance Program that revenue sport athletes can collect on should their injuries cost them a professional career.
■ Litigation Update
Former USC football players Marqise Lee and Morgan Breslin sued underwriter Lloyd’s of London in 2015 when the insurance giant failed to pay out their LoV policies. While both ultimately settled their lawsuits against the insurer, Breslin also sued USC, alleging that the school had failed to properly educate, assist and guide him through the process of acquiring an athletic insurance policy. Breslin and USC submitted the dispute to arbitration in February 2017.
Former Penn State football player Nyeem Wartman-White filed suit against Lloyd’s in May 2017, alleging that the company reneged on the PTD and LoV policies he purchased in 2016. Wartman-White, who tore his ACL early in the 2016 season, claims he twice contacted the broker, ISI, regarding his injury — once in November 2016 and again in February 2017 — but never heard back from the firm. His civil complaint alleges the policy stipulated a payout of up to $1 million and $500,000 for permanent total disability and loss-of-value, respectively. Wartman-White’s complaint is worth reading, as it includes the LoV policy itself (one of the first to become publicly available).
In August, Lloyd’s sought to dismiss Wartman-White’s lawsuit, but the case is ongoing. With the NCAA still choosing not to financially support athletes’ purchase of LoV insurance, this will be an important case to follow.
■ Recent and Potential Claimants
In addition to Wartman-White, other post-collegiate football players with LoV insurance who could potentially collect on their policies (or have recently collected) include:
Jake Butt, tight end, Michigan: Butt was expected to be a second-round pick in the 2017 NFL draft before tearing his ACL in Michigan’s bowl game. After sliding to the fifth round, Butt is set to collect on his $2 million LoV policy, which stated he was owed $10,000 (tax-free) for each pick past the middle of the third round he went unselected. The projected value of Butt’s payout was said to be $543,000, though it is unknown whether he has been paid yet.
Sidney Jones, cornerback, Washington: Jones tore his ACL during Washington’s pro day workouts in March. Jones previously had taken out a loss-of-value policy that would pay him if he slips out of the first round ($500,000 for LoV; $500,000 for PTD). Ultimately selected No. 43 overall by the Eagles, it’s unknown at this time if Jones has attempted to collect on his policy.
Former Ole Miss quarterback Chad Kelly and former Oregon tight end Pharoah Brown also held LoV insurance and saw their 2017 NFL draft positions slip due to injury, though the terms of their policies have not been disclosed and it’s unknown whether either player has attempted to collect.
Likely members of the 2018 NFL draft class who have obtained LoV policies include Saquon Barkley, Sam Darnold, Josh Rosen and Malik Jefferson. Michigan State basketball player Miles Bridges is covered by both PTD and LoV insurance after electing to return to school for his sophomore year.
■ Relationship With Amateurism
These college players and many others with professional aspirations have, in some instances, relied on their athletic departments to purchase LoV insurance on their behalf. Power five conference schools have become particularly interested in LoV policies over the years, with some hiring consultants to aid in the procurement of the insurance.
The cost of this insurance can be steep. The premiums for ex-Georgia running back Todd Gurley’s $10 million in coverage — about $135,000 — were paid through the school’s student assistance fund. Likewise, Jameis Winston’s LoV premiums came out of Florida State’s student assistance fund, as did Bridges’.
Another player who benefited from the use of such resources was Texas A&M offensive lineman Cedric Ogbuehi, whose LoV policy cost a reported $50,000 to $60,000. By his own accord, Ogbuehi would not have returned to school had it not been for the athletic department’s financing of LoV insurance.
Given all this, how well does institution-fronted LoV insurance comport with the principle of amateurism?
At their core, LoV policies protect athletes’ professional earning potential, a topic from which the NCAA has usually steered clear. But the NCAA has permitted LoV to expand, even opening the door for athletes to take out loans against their future earnings to cover the costs of the insurance. Given this permissiveness, it would seem that college athletic leaders do not consider LoV policies a threat to the amateur ideal. Others would argue that Texas A&M’s use of the student assistance fund to cover Ogbuehi’s premium was a thinly veiled leveraging of future cash to ensure the participation of its star offensive lineman.
Either way, the traditional view of amateurism enters murky waters in the LoV insurance market.
■ LoV Policies — Future Issues
Three key issues worth following with respect to LoV insurance: The tax implications of this type of insurance; the control athletes have over LoV selection and purchase; and the overall contraction of the LoV market.
One of the more underreported aspects of institution-financed LoV policies is the resulting tax implications for the athletes who collect on them. Because the premiums covered by the school are technically "gifts,” athletes should be reporting the policies on their annual income tax forms. For the most part, LoV policies are going unreported to the IRS, according to an industry source.
Another issue that has flown relatively under the radar is the process by which athletes select and purchase LoV insurance. Some schools have designated an insurance adviser — including alumni and boosters — to counsel players on such issues. In a limited number of cases, reliance on institutional guidance has proved problematic, with reports of several players not receiving payouts because PTD, not LoV, insurance had been purchased. Still, schools can play a valuable role in the process by working — as many do — to educate athletes on policy options and the intricacies of coverage.
Given these challenges and the others outlined here, many inside the LoV industry realize that contraction may be imminent. The market has become oversaturated, as the policies written today depart further and further from their original purpose.
The intention of these policies was to cover only the truly "elite” prospects (projected top-half lottery picks in the NBA draft and projected top-half first-rounders in the NFL draft). Instead, insurance has been obtained by a growing number of sub-elite prospects who, even without injury, were late-round projections at best. A prime example is former Clemson receiver Artavis Scott, who has no opportunity to collect on his LoV policy after going undrafted in 2017 — despite being injury-free. Industry experts say the number of players in Scott’s position has been increasing over the years, and with the inherent litigiousness of the industry, it would not be surprising to see both athletes and insurers shy away from LoV policies moving forward.
The overall efficacy of LoV policies is hotly debated within college athletics. There are differing views even among power five conference commissioners: Big 12 Commissioner Bob Bowlsby called the LoV market "a total mess,” while ACC Commissioner John Swofford mentioned the insurance as a way in which institutions could "enhance the student-athlete experience.” In a sense, they’re both right: Though relatively unregulated, LoV policies are many college players’ only guarantee they’ll receive direct compensation for their athletic skills.
Thus, LoV insurance can be a key asset for players (the importance of which will continue to grow as advances in rehabilitation decrease the likelihood of career-ending injuries). It therefore becomes critical that athletes make fully informed decisions regarding LoV by avoiding opportunistic brokers and understanding the financial consequences involved. Further progress will come when the brokers and underwriters who have fueled the LoV proliferation adjust the market back to its original intent. The industry may be in for a slowdown and it arguably erodes the amateur underpinnings of college sports, but LoV insurance will continue to hold real value for college players so long as professional league money waits on the horizon.
Glenn M. Wong (firstname.lastname@example.org) is the executive director of the Sports Law and Business Program at the Sandra Day O’Connor College of Law (Arizona State University), where he is also Distinguished Professor of Practice — Sports Law. He was formerly a consultant in the sports insurance industry. Cameron Miller (Cameron.Miller.email@example.com) is a graduate of Stanford University and the Sports Law & Business Program at Arizona State University. He currently works as a case clerk for Lieff Cabraser Heimann & Bernstein in San Francisco.
This article has been reprinted on Clips with the authors' permissions and that of SportsBusiness Journal.