Haris Ashley
NFL teams and players can purchase insurance for the contracts they sign, protecting themselves from financial risk in the event of injury or illness. This insurance is not automatically included with every contract, but it is becoming more common as salaries increase and injuries become more likely. Teams can insure portions of the money in a contract that are fully guaranteed at signing, and in some cases, players have also bought insurance, even at the college level, to protect themselves before turning professional. This has led to tension as richer teams can afford to spend more on insurance, giving them a competitive advantage.
| Characteristics | Values |
|---|---|
| Can NFL contracts be insured? | Yes, NFL teams and players can purchase insurance for contracts they sign. |
| Who buys the insurance? | Teams generally insure some portion of the money in the contract that is fully guaranteed at signing. Players have also bought insurance, even at the college level. |
| Why is insurance purchased? | To mitigate the risk of injuries, which are inevitable in a collision sport like football. |
| How does insurance help teams? | Insurance provides salary cap relief to teams by being labelled as a "refund from the player," which qualifies the amount as a cap credit for the following season. |
| Largest amount insured | $111,999,994 of Deshaun Watson's five-year, $230 million contract with the Cleveland Browns in March 2022. |
| Teams with insurance | Broncos, Packers, Lions, Browns, Cowboys, Vikings, 49ers, Eagles, and Bengals. |
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What You'll Learn
NFL contracts are insured against injuries
Players can also buy insurance, even at the college level. This serves as a safety net in case they are injured before turning professional, which could affect their draft stock and the value of their first pro contracts. For example, high-profile college players like Andrew Luck and Tim Tebow purchased insurance policies to cover any potential injuries in their final college seasons that might have prevented them from joining the NFL.
When a player is injured, they are examined by the franchise doctor, who determines whether they can continue playing. The Collective Bargaining Agreement (CBA) gives players the right to seek a second opinion, which the club will pay for. The CBA also ensures that the franchise must pay players while they rehabilitate from their injury and provides salary continuation for the year the injury occurs.
The CBA labels insurance proceeds as a "refund from the player," which qualifies the amount as a cap credit for the club for the following season. This means that if a player taking up a significant portion of the club's salary cap misses a lot of time due to injury or illness, the club can recover space for the next year. This has caused some tension, as it gives richer teams with insured players an advantage over teams without insurance.
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Teams insure portions of contracts
NFL teams and players can purchase insurance for the contracts they sign. Teams generally insure some portion of the money in the contract that is fully guaranteed at signing. This is done to mitigate the risk of injuries, which are inevitable in a collision sport like football. The 2006 NFL Collective Bargaining Agreement (CBA) introduced the concept that teams could get salary cap credits for receiving insurance payments when players are injured. The CBA labels insurance proceeds as a "refund from the player," which qualifies the amount as a cap credit for the club for the following season. This means that if a player who takes up a significant portion of a club's salary cap misses a significant amount of time due to injury or illness, the club can recover space for the following year.
For example, the Green Bay Packers insured $20 million of Aaron Rodgers' then-NFL-record $35 million signing bonus. The Detroit Lions insured $40 million of Matthew Stafford's five-year, $135 million extension, averaging $27 million per year. The largest amount to date has been $111,999,994 of the fully guaranteed five-year, $230 million contract Deshaun Watson received as part of his trade from the Houston Texans to the Cleveland Browns in March 2022.
The Dallas Cowboys, Minnesota Vikings, San Francisco 49ers, and Philadelphia Eagles insured $60 million, $40.8 million, $30 million, and $29,841,630, respectively, for the contracts of wide receivers CeeDee Lamb, Justin Jefferson, and A.J., and edge rusher Nick Bosa. The Kansas City Chiefs did not insure any of defensive tackle Chris Jones' contract, making him the lone exception among the league's five highest-paid non-quarterbacks.
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Players can insure themselves
NFL teams and players can purchase insurance for the contracts they sign. This insurance covers players in case they are injured and are unable to play for a certain period. For example, the Broncos bought an insurance policy for Peyton Manning that would have paid out $10 million if he had missed the 2014 season due to an injury.
Players can also buy insurance for themselves, even at the college level. This serves as a safety net in case they are injured before turning professional, which could affect their draft stock and the value of their first pro contracts.
The decision to purchase insurance for players ultimately rests with the owner of the club, and it is not a mandatory requirement in the NFL. Some clubs are more inclined to insure their players than others, and the decision can be influenced by the salary cap staff's analysis.
In some cases, clubs have renegotiated contracts to include insurance addendums. For example, the Giants, who have rarely insured their players in the past, added $10 million insurance addendums to the contracts of three players for the 2024 season.
It is important to note that insurance policies can vary in their specifics, and not all contracts include insurance by default. Players and clubs should carefully review their contracts and consider the potential risks and benefits of insuring against injuries or other unforeseen events.
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Salary cap relief
The NFL's salary cap is based on a complex calculation that considers the league's revenue and allocates around 48% of that revenue to player expenses. This player cost figure consists of player benefits and player salaries, with the latter being referred to as the Salary Cap. For instance, the overall Player Cost number for 2024 was $329.4 million, while the Salary Cap was set at $255.4 million.
The salary cap is calculated differently during the offseason, as team rosters can total up to 90 players, making it impossible to fit all salaries under the cap. Therefore, the CBA includes provisions that limit the Salary Cap calculation to the highest 51 Salary Cap numbers on the team, along with signing and option bonus pro-rations and roster bonuses. This "Rule of 51" is in effect from March until the first game of the regular season. Once the season starts, all players, regardless of their roster status, count against the team's Salary Cap, except for those on one of the NFL's exempt lists.
A player's Cap number includes their yearly base salary, known as P5 Salary, and various types of bonuses, such as signing bonuses, option bonuses, and roster bonuses. Incentives can also impact a player's Cap number and the Salary Cap implications. While most NFL contracts include some "guaranteed" money, it is rare for the entire amount of the contract to be guaranteed. However, the 2011 CBA introduced a 4-year rookie contract for first-round draft picks, guaranteeing a significant portion or the entire contract.
Understanding the intricacies of the NFL's salary cap and its calculations is essential for teams to effectively manage their rosters and stay compliant with the league's regulations. The salary cap provides a framework for teams to operate within a defined financial structure, promoting competitive balance among franchises.
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Richer teams benefit more
The NFL is the richest sports league in the world, with revenue reaching $20 billion, largely due to TV deals that average $12 billion a year. The league's 32 teams share this revenue, which means that each franchise is worth at least $4.1 billion. This revenue-sharing model is a significant benefit to the teams, as it ensures a certain level of financial stability and security, even for the less successful teams in the league.
However, it is clear that some teams are more valuable than others. The Dallas Cowboys, for example, have been the most valuable team in the NFL for 18 straight years and were the first team to cross the $10 billion threshold. The Washington Commanders were sold for a record $6.05 billion, which included a $200 million earn-out. This indicates that there is a significant disparity in value between the teams, and this gap is likely to grow due to several factors.
Firstly, the NFL is growing internationally, with five games being played abroad in 2024 and flag football debuting as an Olympic sport in Los Angeles in 2028. This expansion will likely lead to increased revenue for the league, which will benefit the richer teams that have the financial resources to invest in international marketing and branding. Additionally, the NFL is pushing for an 18-game regular season, which will result in higher revenue from ticket sales, merchandise, and sponsorship deals. Again, the richer teams will be in a better position to capitalise on these opportunities and further increase their value.
Furthermore, several teams are pursuing new stadiums, which typically boost revenue. Building a new stadium can lead to increased ticket sales, improved corporate sponsorship deals, and enhanced brand value. Richer teams have the financial capability to invest in state-of-the-art stadiums and related infrastructure, which can attract more fans and generate higher revenue. This, in turn, can lead to a higher valuation for the franchise.
In conclusion, while all NFL teams benefit from the league's significant revenue and revenue-sharing model, it is evident that the richer teams have advantages that allow them to further increase their value and solidify their position at the top of the league's financial hierarchy. The financial disparities between teams are likely to continue to grow due to factors such as international expansion, longer seasons, and stadium developments, which favour the richer franchises.
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Frequently asked questions
NFL teams and players can purchase insurance for contracts they sign, but it is not a requirement. Teams generally insure some portion of the money in the contract that is fully guaranteed at signing.
NFL teams are trying to mitigate the risk of injuries through the purchase of insurance policies on player contracts as salaries continue to grow. If a player misses significant time with injury or illness, a club doesn't have to take it as a total loss but can recover space for the following year.
The amount of salary cap relief provided is considered a "refund from the player" under the CBA. For example, the Packers insured $20 million of Aaron Rodgers' then-NFL-record $35 million signing bonus.
Yes, there are concerns that richer teams/owners with more financial resources can afford to spend more on insurance premiums, giving them a competitive advantage in negotiations. Additionally, there is a risk of abuse as teams could use insurance as a way to get rid of high-salary players who are underperforming.
