Once a player makes it to the NFL or the NBA, they need to step up their financial game. With big salaries and bonuses can come even bigger mistakes.
Professional athletes who manage wealth wisely understand it requires budgeting, planning, financial analysis and trustworthy experts in your corner. I tell my clients if they can be as disciplined with their money as they are with their athletic training, they are on the right path. Even MVPs need to budget.
A famous Sports Illustrated analysis from 2009 showed that 78% of NFL players are bankrupt, or nearly so, just two years after their career ends, and 60% of NBA retirees lose it all in five years.
The career of a professional athlete is finite and may be sporadic. A player can get injured at any moment, or be called into the coach’s office and told he is being released from the team. The average pro athlete’s career is about 10 years, and just 3.5 years for an NFL player. That means if you start your career at 20 years old and live to the average age of 79, you have 49 years left to budget for.
For a professional athlete whose livelihood is on an upward trajectory, now is the time to create a whole-life plan that includes everything from taking care of your family to tax reduction to retirement from the field and desired lifestyle after professional sports.
Balanced and straightforward expert advice will extend your success beyond game day. A good financial adviser will coach you through the planning process and match you with an appropriate asset allocation strategy, a diversified investment portfolio, and planning for your life after professional sports.
A qualified Certified Public Accountant (CPA) is your tax coach. The right accountant understands the lifestyle of a professional athlete and delivers proactive tax planning to help you keep as much of your earnings as possible.
Players will be approached by advisers who want their business. I advise my clients to interview a few different advisers before settling on one. My advice for vetting advisers is to surround yourself with a professor, a coach and reliable, trusted teammates who have your best interests in mind. They will help guide you.
The FINRA BrokerCheck website, brokercheck.finra.org, is another resource that can help you obtain a financial adviser’s history. This is a resource to inform the general public which financial advisers have been sanctioned or sued or have complaints against them. Some sports teams even have advisers on staff.
Take it slow on those big-ticket purchases like a house, a car and the jewelry collection you’ve been dreaming of. Think about your long-term and short-term goals. What do you want to accomplish with your wealth? What are your goals for the future? What are your post-career business interests?
Setting financial objectives can also help avoid overspending. Committing yourself to a goal, for example, of paying cash for a vacation home, might just keep your eye on the prize and help you create a habit of mindful spending and saving.
Create a budget
It’s time to create a plan that encompasses all aspects of your financial life. Work with your adviser to determine what you need to live a comfortable lifestyle. It will take some thought and time to create an accurate budget — from agent fees to mortgage payments, right down to your phone bill and your morning stop at the coffee house.
You’ll also need to ask yourself: Do I go out a lot? Will family and friends be looking for financial help? Do you want a portion of your budget set aside for helping those close to you? Who do you want to help, and how? Do you need support addressing family or friends who want money from you? A proper budget should account for all of it.
I had a client with at least five high-priced vehicles. He generously gave allowances to friends and family. After a half-dozen extravagant vacations and a streak of poor spending choices, his lack of budgeting nearly drove him into bankruptcy.
Another client simply never gathered the tools, skills or drive most everyone needs to manage their personal lives. He was unwilling to do anything on his own and relied entirely on his team of advisers to manage every piece of his finances. Even with millions of dollars in the bank, this client did not pay his property taxes, and his home — paid for in full — was sold at auction. Gone. His career was a finite one. He did not live up to his potential off the field or on.
Plan for the unexpected
Ask your financial adviser or your agent to recommend a responsible insurance broker. Short-term and long-term disability insurance, along with basic umbrella coverage, protects you from unforeseen circumstances.
I have a client whose dog got loose in the neighborhood and bit a person. Initially, the victim wanted reimbursement for the medical expenses associated with the accident — until he became aware the animal belonged to a professional athlete, at which point he called a lawyer. If not for umbrella coverage, my client would have been paying out a hefty settlement because of this accident.
There is no universal prescription for financial wellness. However, if you take my advice and follow through on the four points above — hiring experts, setting goals, creating a budget and planning for the unexpected — you will reap the benefits of a durable financial plan that will help you manage your wealth wisely.