It’s Baseball Playoff Time! So Naturally, Let’s Talk About Contract Insurance on Multi-Million-Dollar Contracts.

Are you a sports fan?

Did you ever wonder how professional teams can shell out the outrageous amounts of money they do on players, when so many of them end of being injured for a part, or a large part of the term of the contract, and some of those injuries are career-ending? Quite often a player is injured and the team with whom he/she is under contact still ends up paying them for years after they are no longer on the field or the court, the ice, or whatever the case may be.

An extreme example of this came to fruition back in August when Stephen Strasburg, a pitcher for the Washington Nationals, retired due to ongoing injuries, ending what was once an extremely promising career. He signed a seven-year contract with the Nationals after the 2019 season for $35 million per year. He only pitched about 31 innings over 8 games since then.

* For context, while relatively healthy Strasburg had spent his whole career pitching 130-215 innings per season! *

You may never know about it but when a player’s career fizzles out due to injury in the middle of a contract, usually the team has a medical insurance policy on the contract, so the player gets paid what they were due, but the team gets compensated as well. Although usually those insurance policies will only cover the contract in two- to three-year intervals, especially once a player gets older.

In any case, remember I said “usually.”

When Strasburg announced his retirement a lot of opinions swirled around about what was going to happen regarding his contract. As it turns out the Nationals did not have medical insurance on Strasberg’s contract at all, so they will be paying the entire balance of said contract.

Many commentators shook their heads at the perceived irresponsible contract doled out by the Nationals. And it led to wide-spread debate about the wisdom of such large-scale contracts in sports in the first place. Given Strasberg’s history of injury – it goes back well beyond 2019 – insuring such a contract for any period of time was probably quite difficult. Which leads one to naturally wonder why the Nationals were willing to take such a risk.

That’s what contracts are though. The team presumes a certain level of performance from the player. Risk of injury and inability to perform are – one hopes – factored in. In this way, it is very much like an insurance policy. Insurance companies hope nothing does happen when they sign a client to an insurance policy just like the Nationals signed Strasburg hoping he would stay healthy, but if not, thinking he was worth the risk.

As for the actual insurance policy that the Nationals did not put on Strasburg’s contract, had they done so, when Strasburg retired, the insurance policy would have compensated the team for the money they’d be paying Strasberg for at least that two- to three-year span.

Of course, that is assuming that it could be demonstrated that his retirement was due to injury, and not just because he didn’t want to play anymore. Those insurance adjusters are always on the case.

Scroll to Top