Why is it important for athletes to keep their personal financial planning top of mind?
Often at a young age, star athletes are in the prime of their careers. Yet many don’t have sufficient life experience to make the important financial decisions required of them, especially at the outset of their careers. Some defer to family or close friends, a family advisor or their agent. Others. . . just wing it.
Sadly, we’ve seen this happen before: the rags-to-riches-to-rags tale that too often plays out. For years, widely read magazines have published studies showing that 78 percent of NFL players are in financial distress within two years of retirement.
The NBA has shared similar stats, showing that 60 percent of players are reportedly “broke” within five years of retirement. Couple these tales with several high-profile examples—the NBA’s Antoine Walker squandering $108 million in earnings; MLB’s Curt Schilling’s loss of $50 million; or, perhaps most infamous of all, boxing legend Evander Holyfield and Mike Tyson squandering $250 million and $300 million in earnings, respectively.
As financial advisors, we have to ask why. Why does this happen and why so often? How and why do lucrative athletic careers so frequently backfire? Is it a societal issue? A socioeconomic issue? Or is there something more nefarious afoot?
We at CBIZ Private Client Services believe it is all three, and we are doing something about it. By offering proactive client service, client education and a proven fiduciary process, we believe we bring better value and longer-term financial security to our clients, with no agendas.
Through client-centric teams, our clients are educated on prudent financial practices and strongly encouraged to contemplate expenditures for non-income-producing assets like homes, cars and jewelry. Then there are our educational programs covering basic financial concepts, such as cash flow, investments, risk, taxes, business practices and strategic planning.
We believe that a financial advisor must be financially agnostic, and act in a true fiduciary capacity. In other words, if the alpha advisor gains by implementing a particular tactical or strategic plan for the client, then that plan either shouldn’t be implemented or should be taken over by another professional. In other words, separate the decision maker from the deal maker whenever possible.
The accountant’s role is another factor. In many situations, this professional can be a sort of financial CFO for the client.
This “CFO” can pull together all the important advisors, such as wealth advisors, estate and business attorneys, insurance agents, bankers and agents. Ensuring that these experts work together efficiently is critical to an athlete’s personal financial success and long-term independence.
Then there is the question of what the advisory team can do as a whole. In fact, its members can run forward-looking scenarios based on the athlete’s earnings, years under contract, spending, purchase choices (like those for homes and cars), tax brackets and family needs.
Finally, there are taxes. It’s not uncommon for professional athletes to forget to pay attention to their biggest bills: tax payments to the IRS, because with high earnings come high taxes. That’s why tax planning is a critical component to longterm financial security. An athlete’s tax advisor can ensure that he or she maximizes all tax advantages.
Overall, it’s important for new athletes to be active in the conversations driving their financial planning. Becoming educated and choosing the right advisors are factors critical to their financial health and the management of their hard-earned money. No athlete fortunate enough to accumulate substantial wealth should ever lose those assets due to avoidable poor decisions.