New York Yankees third baseman Alex Rodriguez–in year two of a 10-year, $275 million contract that could pay as much as $305 million with bonuses–sent a scare through the organization and the sports contract insurance market when it was announced in March that “A-Rod” would need surgery on his hip, costing him at least one-quarter of the baseball season.

While the injury is not expected to affect Mr. Rodriguez long term, what if the injury had been worse? What if the most expensive player in baseball was forced to miss half of the season, or all of the games? Even worse, what if, in the second year of a decade-long contract, A-Rod suffered a catastrophic injury that ended his baseball career?

The Yankees are not the only team in sports that have to consider such a worst-case scenario, as almost all have locked up one or more of their star players for a significant amount of years in mega-buck deals. And baseball is not the only sport where such exposures are proliferating.

In the National Hockey League, these types of contracts are becoming increasingly popular for star players. For example, in 2008, the Washington Capitals signed Russian superstar Alexander Ovechkin to a 13-year contract extension worth $124 million. In December 2007, the Philadelphia Flyers signed now-captain Michael Richards to a 12-year extension worth $69 million.

And in 2006, The New York Islanders signed goaltender Rick DiPietro to a previously unheard of 15-year deal worth $67.5 million–the longest NHL contract ever singed. (The Islanders were no strangers to long-term commitments, signing Alexei Yashin to a 10-year deal in 2001.)

Sometimes, as in the case of Mr. Rodriguez, an early injury shows the risk that comes with offering such long-term contracts. The Islanders, too, have seen injuries plague their own long-term investment in Mr. DiPietro, who has suffered through multiple hip and knee surgeries, as well as multiple concussions since signing his landmark deal.

So how do teams and players protect themselves? The answer, of course, is the way any person or organization protects assets–by buying insurance.

But long-term contracts do cause some extra work for insurers. Indeed, the longer a carrier is locked in, the more uncertainty that carrier is exposed to, noted William Hubbard, chair of the Wakefield, Mass.-based specialty underwriting agency HCC Specialty Underwriters.

Mr. Hubbard said he would prefer to write coverage for contracts on a year-by-year basis, but he understands that is not realistic. However, he insisted he is not willing to go out as far as 10-to-15 years on any one player's sports contract.

Citing a hypothetical situation that could be representative of the norm, Mr. Hubbard said HCC would agree to write perhaps three years of a 10-year contract. The team could buy coverage for the first three years and then self-insure the back seven, Mr. Hubbard suggested–or the contract could be structured so that if a career-ending injury occurs in the first three years, the insurance would pay out the remaining seven years.

At the end of the three years, Mr. Hubbard said, HCC could choose to extend coverage.

Anthony R. Caruso, who is a former agent, mostly in the NFL, and now chair of the sports and entertainment group for law firm Archer & Greiner P.C., said he believes long-term contracts can cause some issues with respect to insurance.

He said that as an agent, he was not deeply involved with insurance issues, but he brought up one point with long-term contracts that was also cited as a primary underwriting factor by insurance experts–the age of the player. Age, Mr. Caruso noted, is a big factor in sports and can come into play when considering coverage over a 10-year contract versus a four-year contract with options.

“My take on it,” he said, “is anytime you have a longer period to cover an asset, you're going to have greater concerns.”

But Peter Nash, managing director of Lloyd's syndicate Sportscover, which is based in Melbourne, Australia, said he will insure a long-term contract as a “guaranteed renewable,” similar to many shorter-term contracts in the United States. As a guaranteed renewal, the insurance provider agrees to cover the contract for the full term–but reserves the right to adjust the premium every year to effectively underwrite the risk.

Mr. Nash said this differs from insurance for a soccer player in Europe, for example, who can secure coverage for a $5 million contract with a five-year term if the player is unable to continue playing.

With many U.S. contracts, he explained, coverage in the case of a career-ending injury is for an agreed lump sum that is not the same as the full contract.

Career-ending injuries are not the only condition that triggers coverage, experts noted. Insurance will also cover a prolonged injury after a certain amount of time missed, with that amount of time varying depending on the contract.

For example, Mr. Hubbard said a baseball player's contract may trigger coverage after half of a season is missed with a covered injury. In the case of a baseball injury, the team would pay the contract for the first 81 games, and the insurance would kick in for each game missed after that.

The amount an insurer will pay out in this case depends on the contract, Mr. Nash explained. In the event a player cannot dress for games, he said insurance could pay for 50- or 75 percent of the contract–or whatever amount is agreed upon beforehand.

Speaking about the coverages typically involved in a sports contract, Mr. Hubbard said the primary cover is accidental death and disability, regardless of whether it's a two-year or 15-year contract.

Mr. Nash said some contracts could involve other liability coverage, such as injury to other players. This, he said, is not seen much in the United States. But in Australia, for example, he said some athletes seek personal liability coverage for an injury to another player stemming from negligence on the part of the insured player.

Additionally, some contracts for baseball players carry standard personal accident coverage for an athlete's family, Mr. Nash noted. Occasionally for hockey contracts, he added, medical coverage will be included for the player and the player's family.

Coverage is also offered for contract bonuses, where if the bonus is achieved, the coverage kicks in. Mr. Nash said this coverage is underwritten similar to “hole-in-one insurance” seen in special events coverages.

When writing this type of coverage, Mr. Nash said an insurer would charge a premium based on the likelihood of achieving the bonus. “We don't insure certainties,” he said.

For a premier player like Mr. Rodriguez, for example, Mr. Nash said he would look into and gain an understanding of the historical statistics when considering the likelihood of reaching a bonus.

When underwriting a sports contract in general, Mr. Nash said the age of a player is the biggest issue. Additionally, the type of sport is considered. Golfers and tennis players, Mr. Nash noted, are not as likely to injure themselves as football, hockey or even baseball players.

Drilling further down, Mr. Hubbard said underwriting also takes into account the position an athlete plays within the sport, the team's medical facilities and the quality of medical staff a team has, and the length of the season as well as off-field behavior.

On this last point, Mr. Caruso noted that sports contracts prevent players from performing in some off-field activities–sky diving being one of the common prohibited hobbies. But he noted that some teams do not even want players participating in a pickup basketball game in their off hours, noting that more than one have torn up their knees in such extracurricular activities.

These types of conditions in contracts all come down to leverage, according to Mr. Caruso. If an athlete is a top-name player, he or she will probably have more of a say in contract stipulations. But a seventh-round pick, he added, will not likely have much leverage in changing provisions.

Longevity in a sport could come into play for a long-term contract, as Mr. Nash noted that most insurers would be interested in a renewable contract on a golfer, for example, who typically has greater longevity than the average hockey player.

In general, Mr. Hubbard said the market for writing sports contracts is small and not growing. He said it is hard to think of what new insurance players could offer other than lower prices and deductibles. “History shows that's a recipe for disaster,” he added.

Mr. Nash, though, said the market is getting more competitive as sports becomes a bigger and bigger business. He said as the money offered in sports contracts increases, as it has over the last 25 years, the need for protection increases, presenting opportunities for carriers.

With respect to long-term contracts, he said it is one in a series of new wrinkles and ideas in the world of sports contracts. As sports continue to evolve as a career path, he added, more agents, managers and teams will develop more new coverage twists.

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