Playing sports can expose an individual to injury and other health risks, espec ially with the high contact nature of a sport like football.
This past weekend, we witnessed one of the most highly touted NFL prospects, Tua Tagovailoa, starting quarterback for the University of Alabama’s Crimson Tide, get carted off the field with a season-ending and possibly career-altering hip injury. Often projected as the potential number one overall pick in the 2020 NFL Draft, Tua, with this injury, has many people wondering whether he will ever play football — at any level — again.
It is no secret that top NFL prospects sign huge multimillion dollar deals coming out of college. If you’re a sports fan or just curious about the topic, it may have you pondering, “how much money would Tua leave on the table if he falls in the draft?”
Tua’s Projected Income Loss
Using the contract value of Kyler Murray, the first overall pick in the 2019 NFL Draft, and adjusting for 2% growth, we can conservatively estimate what Tua’s contract value would be if he were to be selected first overall in 2020.
This approach would give us a value of $35,861,818 ($35,158,645 x 1.02). Again, this is a conservative estimate as Murray’s contract value was over 7% greater than fellow Oklahoma Sooner’s Baker Mayfield’s contract value in 2018.
If Tua ultimately never plays football again, his injury would result in a loss of nearly $36 million. Although that may be the case, let’s conservatively say that he eventually gets drafted but drops to the first pick of the second round. Utilizing the exact same approach, only this time referencing the contract value of Byron Murphy, Arizona Cardinal’s first pick of the second round in the 2019 draft, we would come up with a value of $8,149,288 ($7,989,498 x 1.02).
That’s a potential loss of approximately $28 million!
How Could Tua Protect from the Potential Loss of Future Earnings?
With football being such a high risk sport, there has to be some way to protect in the case that something like this happens, right? Of course! Disability insurance is a type of insurance that will provide income in the event a worker is unable to perform their work and earn money due to a disability. There are several types of disability insurance policies that are triggered in different circumstances, but the one that seems most relevant in Tua’s situation is a Loss of Value (LOV) policy.
LOV insurance is a personal accident policy designed to protect a player’s current market value while they play out their final season under their current contract as they head towards free agency, or in Tua’s case, designed to protect a student-athlete’s future contract value from decreasing below a predetermined amount. The insurance usually agrees to protect a certain percentage (e.g. 50% [to approximate an after tax effect]) of a player’s expected next contract against the perils of injury, illness, or death. It requires medical underwriting and may be capped (e.g. $10 million benefit) or include exclusions for specific pre-existing injuries or illnesses.
Who Pays for a Student-Athletes LOV Policy?
If you’re familiar with insurance, you know that policies require a premium to be paid in order to be in effect. As Tua is student-athlete with no significant form of income, who is responsible for paying for a LOV policy?
The following was taken from the NCAA’s FAQs on Loss of Value Insurance:
The NCAA provides permanent total disability (PTD) coverage through the NCAA Exceptional Student-Athlete Disability Insurance (ESDI) Program which protects athletes who suffer an injury or illness that prevents them from ever competing as a professional athlete.
The NCAA does not offer LOV insurance at this time because the coverage has not been shown to consistently benefit student-athletes who file a claim. Because of the complexity of LOV policy wording and the subjective nature of underwriting and accurately projecting draft positions, LOV claims are often times litigated and the market is consistently changing.
If an athlete chooses to purchase LOV coverage, the NCAA recommends they only do so if they are projected to be selected among the top 10 picks in their respective draft. Athletes projected to be selected outside of that range may have challenges proving the cause of their loss in earnings if they file a claim.
Subject to conference policies and procedures, schools may permit student- athletes to use the NCAA Student Assistance Fund to purchase either PTD or LOV policies. Student-athletes may also take out loans against their future earnings to pay these premiums. Please note that premiums paid using Student Assistance Funds may be considered a taxable benefit to student- athletes and may affect their eligibility for financial aid. In addition, it is recommended that a tax professional is consulted to determine any tax implications for a student-athlete on claim payment of PTD or LOV policy benefits if the coverage premium was paid using Student Assistance Funds.
So to answer the question, either the school through the NCAA Student Assistance Fund or the student-athlete is required to pay for this coverage.
To the NCAA’s point, LOV claims are highly contested and often rejected as it can be difficult to prove future earnings when there is so much subjectivity in draft positions. However, for those projected to go in the top 10 picks, there may be enough evidence and support to back your claim. If you fall in that category and you’re faced with a difficult decision of whether or not to purchase the policy due to cost, consider what you could be risking.
All of the talk about Tua’s future is merely speculation at this point so there are many questions that could be asked: Will Tua ever play again? Will he be as dominant after recovering from his injury? Will he get drafted high? Will he have a long career?
But for now, I believe a great question to ask is, “does Tua have a Loss of Value Disability Insurance policy?”
Reggie D. Ford, CPA is the Founder and President of Rosecrete Wealth Management. Rosecrete provides personalized, comprehensive financial services to affluent and high net worth clients. Rosecrete focuses on sports, legal, and medical industries with a passion for helping younger generations with early retirement planning.
Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
For a list of states in which I am registered to conduct securities business, visit my website at www.rosecrete.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing includes risk including potential loss of principal.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. You may also visit your state’s insurance department for more information.