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How Can Advisors Best Serve Pro Athletes?
Monday, November 26, 2012
Partner Insights

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.

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:

Trusting Family and Friends to Invest, Manage Money

Many, though not all, pro athletes come from tough, economically depressed backgrounds. As a result, they lack even basic financial literacy skills, making balancing a checkbook difficult, not to mention properly diversifying a multi-million dollar portfolio. When they turn to friends and family, most of whom are inexperienced in money matters, the outcome is almost always disastrous, ending in outright theft in extreme cases or, more commonly, poor investments choices.

Lifestyle Expectation

In our increasingly celebrity-driven culture, athletes more and more are becoming bigger than any one individual, with the athletes themselves becoming a representation of a larger overall brand. Right or wrong, there is therefore enormous peer and media pressure on young athletes to convey an image by living a certain lifestyle.  As a result, whether it’s a fleet of luxury cars or a 15,000 square-foot estate in the Hamptons, they make purchases they neither require nor can sustain.

Not Having a Sense of Their Own Mortality

As stated earlier, athletes, for the most part, have very short shelf lives, with the average NFL career, for instance, lasting only 3.5 years, according to the NFL Players Association.  Still, there’s a sense of invincibility among athletes, who having been glorified from a very young age are frequently the last ones to know when their skills have diminished or star has faded. To them, there’s always another contract on the horizon.  To that end, they spend money like it will always be there, and in reality, it won’t.

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