No matter what happens, the 10-year contract Patrick Mahomes signed with the Kansas City Chiefs will make him among the richest athletes of the modern era. The deal is reportedly worth up to $503 million and contains a signing bonus of $63 million. Another reported feature is an injury guarantee that rises to $141 million by 2022.
If all goes well, Mahomes will lead the Chiefs to a decade of dominance in the AFC, more Super Bowl appearances, and the deal could end up looking like a bargain for the Chiefs.
But plans don’t always materialize. On any play, Mahomes could suffer an injury. He needs no reminder. Last October, Mahomes suffered a dislocation of his right knee while attempting a fourth-and-one conversion.
Mahomes was fortunate. Despite expectations he would miss five games, the 24-year-old former MVP only missed two. He returned to action and is, by all accounts, healthy.
The next time he might not be so lucky. This is why insurance could play a major role in the contract.
“Patrick,” sports insurance attorney Richard Giller tells Sportico, “should take out a disability policy or multiple annual policies to cover his non-guaranteed monies.” Giller, a partner at Pillsbury in Los Angeles, stresses that the non-guaranteed portion of the contract considerably outweighs the guaranteed portion.
“He’s young,” Giller acknowledges, “but has already suffered a significant injury.”
Mahomes may not be able to purchase insurance on the entire non-guaranteed amount, and what he can insure would be costly. According to Giller, it’s “doubtful” that Mahomes would obtain more than $100 million in coverage for any particular year of his new contract due to industry standard policy limits.
Giller projects that given his age, Mahomes would probably need to spend about $9,000 for every million insured; and then, the premium would go up $1,000 per million each year. The increase would reflect Mahomes getting older and enduring more wear-and-tear. Under this calculation the policy would initially cost $900,000 and then rise to $1 million in year two, $1.1 million in year three and so on .
“Expensive,” Giller opines, “but may be worth it.”
Should Mahomes purchase a policy, it could provide 24-hour injury protection—meaning it could cover injuries that occur outside of football as well as potentially career ending illnesses. However, given his injury history, Giller expects that a disability policy for Mahomes “might contain a right knee exclusion for a year or two or the carrier might charge a higher premium in light of his knee history.”
The Chiefs, Giller predicts, are also likely to pursue their own insurance protection for the contract. He expects the team “will probably take out a key person disability insurance policy on the guaranteed portions of the contract and the amount of coverage might change depending on which year of the contract.”
Between now and March 2021, the Chiefs could likely take out a disability policy for $63 million. However, some of these types of policies contain limits of $50 million to $100 million.
A key person disability insurance policy will also contain an elimination period. The period refers to the amount of time the “key person”—and certainly Mahomes is a key person for the Chiefs—must be disabled or unavailable before the insurance company is obligated to pay.
For example, a Major League Baseball player might have to miss 60 consecutive days; for an NFL player, Giller says, it could range anywhere from 4 to 10 games missed in a row during a season. The shorter the elimination period, the costlier the insurance coverage will be. Also, if a player attempts to come back during a particular elimination period and injures some other part of his or her body, the insurance company could take and has taken the position that a new elimination period begins based on the new injury.
