Butt had taken a $2 million loss-of-value policy that he started collecting insurance on when he wasn't picked in the top half of the third round Friday night.
He first started collecting, at $10,000 a pick tax-free, in the middle of the third round, a source with knowledge of the policy with ISI told ESPN. By being passed over in the fourth round as well, Butt was set to receive $543,000 on the policy.
The 2016 Mackey Award winner for the best tight end in the nation, Butt suffered a second torn ACL in the Orange Bowl. The subsequent surgery prohibited him from showing teams what he could do.
Prior to Butt's injury, he was projected to be picked near the top of the second round, which would have grossed about $4 million in guaranteed money. As the first pick in the fifth round, Butt will receive about $380,000 in guaranteed money.
With the $543,000 of tax-free insurance money equated to about $900,000 that is taxed, that means the Orange Bowl injury cost Butt around $2.8 million.
Butt took out a $2 million total disability policy with a $2 million loss-of-value policy attached before the start of the season. The loss-of-value rider cost roughly $25,000, a source said.
The Broncos believe he will be recovered from the torn ACL by September, a source told ESPN's Adam Schefter.
Broncos general manager John Elway tweeted about nervously following the draft at the end of Round 4, hoping Butt would stay on the board until the team's selection.
We were holding our breath these last few picks hoping to get Michigan TE Jake Butt. A top-notch TE we're fortunate to select in the 5th.
— John Elway (@johnelway) April 29, 2017
Through the first three rounds, six tight ends have been drafted: Alabama's O.J. Howard (No. 19), Ole Miss' Evan Engram (23), Miami's David Njoku (29), South Alabama's Gerald Everett (44), Ashland's Adam Shaheen (45) and Florida International's Jonnu Smith (100).
Loss-of-value policies have gained popularity over the past five years. The players who have most famously collected from their draft stock falling have been Oregon's Ifo Ekpre-Olomu, who made $3 million in insurance after tearing his ACL and dropping to the seventh round in 2015, and Notre Dame's Jaylon Smith, who collected $850,000 from his fall to the second round after teams passed on him following ACL and MCL tears. Both policies were also with ISI.