The Insurance “Conspiracy” Facing A-Rod and the Yankees

Alex Rodriguez is widely considered one of the greatest baseball players of his generation, but much of his career is filled with controversy. The most recent debate concerns A-Rod’s receipt of a hefty salary from the Yankees although he has not played a single game this year. Reportedly, the 12-time All Star is now grumbling that the Yankees are intent on keeping him off of the field so as to trigger insurance dollars. In December 2007, Rodriguez and the Yankees agreed to a 10-year, $275 million contract; at the time, the richest contract in baseball history. Following his underwhelming performance in the 2012 playoffs, and his off-season surgery which may not heal this year, A-Rod is reportedly questioning whether the Yankees are conspiring to keep him on the disabled list so as to trigger an insurance clause to cover his albatross-like contract.

Reportedly, A-Rod believes that the Yankees would prefer to dig itself out from under his massive contract.  So the theory goes, a possibility presented itself when A-Rod underwent hip surgery that very well could prevent him from playing at all in 2013.  Of particular import, Rodriguez’s contract is partially insured, meaning that if he misses the entire season due to injury, insurance will cover 80 percent of the $28 million he’s due this year ($86 million is due from 2014-2017). So, despite reports (from A-Rod’s own Twitter account) that he has been cleared to return to the Yankees’ line-up, A-Rod “thinks it’s all about the insurance” and that he has been effectively black-listed from joining the team this year. A-Rod makes a good point.

These reports are interesting from the perspective of a baseball fan and a member of the professional liability community.  Insurance products are designed to manage risk.  The Yankees took a major risk when they agreed to compensate A-Rod more than the Astros paid their entire team. However, to their credit, the Yankees managed that risk by insuring certain aspects of the contract.  Even the baseball purists realize that the sport is a business with associated risk, strategy, and unknowns that occur outside the lines. Like all businesses, those tasked with managing risk would be foolish not to consider the use of insurance products as a safety net and, as here, as a potential means to overcome a financial obstacle.