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Incentive Contracts:A Form of Co-Insurance

Last week, Ed Belfour signed a contract to play goalie with the Florida Panthers.

Belfour agreed to a one-year contract with a base salary of $750,000 (all figures U.S.). However, as a player older than 35, Belfour is eligible for individual bonuses under the new collective agreement and was granted bonuses for games played, games dressed and playoff performances that could bring the one-year total to $1.5-million.

... Keenan said once Belfour passed his medical examination by the Panthers team doctors, the contract was nailed down. Belfour had back surgery in April and the Panthers wanted to be assured he was capable of playing a full season.

This contract has been labeled an "incentive-laden" contract by some television sports talking heads. Another way to look at the contract is to see that it is just a form of co-insurance.

Belfour is assuming some of the risk that he might not be able to play the entire season. His contract is just like the co-pay clauses we have that say our insurance company pays, say, 80% of a claim and we pay the rest. In this case the Florida Panthers are the employer-insurers, and Belfour is the co-insurer.