By Andrew Ahrens | Financial Planning
It’s a well-worn a cliché, mostly used in association with professional team sports and meant to convey a cutthroat but fundamental reality: You’re only as good as your last game. It may be harsh, but such is the nature of professional sports, a world where high-stakes games are played by extremely wealthy, though frequently unsophisticated young men who all too often have a meteoric rise to stardom, only to have it be accompanied by a sudden, abrupt fall from grace.
“Long after the game has ended and the cheers of adoring fans have grown quiet, having a trusted estate planning and business attorney, CPA and financial expert can mean the difference between enjoying a comfortable and financially secure life with your loved ones or having a decade of fast cars, expensive jewelry and luxury homes, only to live out the bulk of your life in poverty,” said Laura Bianchi, director of RLG’s Estate Planning/Asset Protection Department.
For even star players, however accomplished, nothing is assured beyond their next hit, three-point shot or touchdown pass. Off the field, this holds especially true – When the cameras stop rolling and the paychecks stop coming, many professional athletes are woefully unprepared financially for the next phase of their lives.
Indeed, for every Magic Johnson, the former Los Angeles Lakers superstar who has become perhaps the gold standard when it comes to transitioning from the world of big-time sports to successful business entrepreneur – there are dozens, if not more, cases such as Curt Schilling, the three-time World Series winning pitcher who recently declared bankruptcy despite having earned over $114 million over the course of his career.
While pro athletes undeniably have outsized earning power, the career span of a professional athlete is short and unpredictable, with salary taxed at exceptionally high rates – not the more tax-efficient capital gains rates so often paid by the ultra-wealthy. Without the help of a competent and professional money manager it is somewhat easy to see how the fortune of a professional athlete can vanish so quickly.
Some of the more common pitfalls pro athletes encounter after tasting fame and fortune for the first time:
The financial advisor needs to be the gatekeeper. Structure an agreement with the professional athlete upfront that centralizes decision making on financial gifts to so-called friends and family with the advisor, not the athlete. By taking ownership and deciding who gets what and when, the financial advisor may not be popular, but they will be perhaps the only one who has the best interest of the athlete in mind.
Assume the current contract is the last contract. An athlete is always one serious injury away from retirement, and if their money has been mismanaged, where there was once an endless stream of income is now an untenable flood of debt obligations. Of course, much will depend on the age of the client and the size and length of the current contract, but the key is to build a substantial nest egg that can generate income that will fund a comfortable lifestyle for a lifetime and preserve generational wealth rather than a five-year spending extravaganza. If the contract renewed, then the strategy can be modified accordingly.
Establish a very clearly delineated monthly budget. With a set of long-term lifestyle goals in mind, earmark maybe 20 percent of their income for expenses and invest the rest, avoiding needless purchases on big-ticket items like a second car, an extravagant home or a handful of other frivolous material goods. Considering that athletes by nature are not conservative in their spending, it can be difficult to lasso them into traditional asset allocation portfolios. It is far easier, however, to raise expectations moving forward than it is to wean a client accustomed to a particular lifestyle off of dwindling assets.
Also: 10 Star Athletes Who Excelled at Losing Millions – DailyFinance
If you’d like to discuss estate planning/asset protection, contact Laura Bianchi, Director RLG’s Estate Planning/Asset Protection Department., lbianchi@roselawgroup.com
