Felix Hernandez Extended: 7 years $175 Million

[PrinceFielderx1]

I think even bigger than the money is the expectation that a pitcher will remain healthy for seven years. One TJ surgery and a season or two are quickly erased. At $25MM/season, that's a tough pill to swallow, even at "real" (inflation-adjusted) rates. One rotator cuff injury, and you may have just eaten $175MM.

Insurance.

 

Insurance I believe covers "some" of what is owed, but not all of it. Perhaps very little when compared to 25 million.

[trwi7]

IIRC insurance covers most of the contract, especially a guy with no history of injury.

[SuddenRedScare]

Apparently there's an issue with his elbow that is holding up the completion of this deal.

 

http://espn.go.com/mlb/story/_/id/8933842/elbow-condition-eyed-seattle-mariners-felix-hernandez-deal-source-says

[Roderick]

IIRC insurance covers most of the contract, especially a guy with no history of injury.

 

I assume the amount covered is whatever the team is willing to pay for.

 

I think the sticky part is the payout. How do you handle a midseason injury? What injuries are covered? Assume the Brewers paid for insurance with LLoyds of London for half of the value of Marcum's contract. Even though he was out for two months, is that going to be any type of payout scenario there?

 

Here is an interesting article.

 

http://www.economist.com/news/finance-and-economics/21570723-calculations-behind-insurance-athletes-claim-game

[monty57]

Insurance is all math, and the odds of a pitcher getting a significant injury over a seven-year period would seemingly be pretty high, so I'd imagine the rates would be fairly prohibitive. I don't have any idea where I read it, but a couple of years back I read an article that teams were insuring less players, taking on the risk themselves rather than paying the skyrocketing premiums. Of course, a contract like Hernandez's would very likely be insured, as it could cripple Seattle if he got a career-ending injury. However, this is just a guess, but they probably have to budget several million a year to insure the $25MM/year contract. With all the Tommy Johns going around, it's just really likely that he'll miss a season over the next seven years. With a guaranteed contract, the actuaries have to be sweating bullets. Talk about small sample size... they're looking at the odds on one person receiving specific injuries which would prohibit them from doing specific tasks over a relatively short period in a field in which only a couple hundred people out of the billions of people in the world have the physical and mental skillset to participate.

 

This is something which doesn't come up often in all the threads discussing budgets, but I'm sure the Brewers have to budget millions of dollars a year for the insurance policies on players like Braun, Weeks and Gallardo. Another reason why something like the $20MM in new, upcoming revenues does not equate to $20MM in increased payroll.

[Invader3K]

I thought I recalled reading an article not too long ago that said the insurance rates were getting so expensive that teams weren't doing that anymore. I could be mistaken, but I feel like I remember reading that.