Adam Rubin of ESPN New York, does a fine job of explaining why the Mets chose not to insure Johan Santana’s contract.
The Mets will be on the hook for the remaining $31 million owed to Johan Santana because they did not insure the contract. Why?
As premiums have skyrocketed because of escalating salaries and past payouts — such as the bailout when Mo Vaughn was owed $17 million and could not play for the Mets in 2004 — the organization began more often “self-insuring” its larger contracts than seeking outside coverage. In essence, the Mets chose to create a rainy-day fund available so that the organization would not be crippled financially by the loss of a key player due to injury.
It saves potentially a $2 million insurance premium per year to protect a contract, although the amount annually paid to an insurance company naturally decreases as the years on the contract elapse — like you’d pay less to an insurance company on a car as the years go by and the vehicle is worth less.
Across baseball, outside insurance has “declined tremendously,” according to one baseball official.
Santana was self-insured by the Mets, whereas the Mets contracts for Carlos Beltran, Jose Reyes, Tom Glavine and Mike Piazza’s were insured externally during their Mets days as well. David Wright’s last contract also was insured externally.