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Making the Play: The Right Financial Guidance for Athletes

By Michael Harris

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For most of us, our salaries are lowest at the start of our careers, and build steadily over the decades as we win raises and promotions, and build businesses.

Not so for the professional athlete: for many of them, the big payday often starts early on with lucrative signing bonuses, contracts, and possibly product endorsements—assuming no injuries or other issues. With a few exceptions, by about age 40, or, more often younger, the big paycheck days are gone, for good.

Unfortunately, too, as news articles have made clear, during their “big” earning days, many athletes get sucked into poor investments, with little or anything to show for the effort, except debts or lost money, as they reach their 50s, 60s and beyond.

According to a March 23, 2009 Sports Illustrated article,  How (and Why) Athletes Go Broke, by Pablo S. Torre, 78% of former NFL players had either gone bankrupt or were under financial stress due to joblessness or divorce after just two years of retirement; approximately 60% of former NBA players were completely broke after being retired for just five years; and, at least 78 NFL players lost a total of more than $42 million between 1999 and 2002 because they trusted money to financial advisers with questionable backgrounds.

For many in their 20s and even early 30s, retirement seems barely visible in the distant future. Planning for those far off days is wrongly put off. For professional athletes, that delay is hazardous, with little or no opportunity for a late “game” comeback. 

For athletes, their agents and their other advisers, the best game plan would be to set the tone from the very beginning.

Ultimately, athletes have the same financial needs and desires as everyone else. They want opportunities to grow their assets and have their money work hard for them. And, they want to be secure in retirement. But, most, of course, are neither keen on the idea of locking up their funds for 35 years or more, nor interested in having to worry about withdrawal penalties. And rightfully so. 

On the other hand, like all of us, athletes may also need swift access to cash to cover a range of unanticipated expenses for themselves and their families such as accidents, vacations, mortgages, taxes, and all the other similar traditional expenses of life. All of these must be folded in early to the planning process.

Whether a professional athlete or sports enthusiast, one goal should be to achieve cash flow to ensure it is working in the individual’s best interest, while optimizing other opportunities.

There are many issues athletes especially need to consider compared to the sports enthusiast, starting with early, big paychecks that are, by comparison, relatively short-term.  But athlete or fan, the objective is to get to the same goal line: financial security.

Just as athletes hire coaches and trainers to boost their skills, so too should they link with a financial adviser to help find the right plan. 

Lincoln Financial Group has identified a few basic rules that will help mitigate financial risks for athletes. The guidelines work well for others, too. The overarching rules: Access to the right guidance, right planning process and right investment vehicles. These sound obvious, but the media are filled with stories of athletes who have neglected them.  (Non-athletes sometimes make the same mistakes, but outside the sight of reporters.)       

Finding the right financial “coach” isn’t significantly different than finding the right sports coach, agent or trainer.

The financial adviser selected should have experience successfully working with other athletes. The adviser also should have an understanding of the major issues, risks, and ins and outs of allocations, and how to plan for the needs of athletes, sport-by-sport. What may work well for one professional might not work for another, just as one size doesn’t fit all in the broader community.    

Professional advisers understand the various markets and spend their time analyzing what works.  And, they are able to see challenges and provide guidance to deal with potential unexpected turns in the future. Almost all of us have unexpected turns.  Beyond the obvious need for “chemistry,” the adviser should be able understand the athlete’s current lifestyle and offer guidance to maintain an agreed upon long-term plan to cover the post- playing days. 

In short, the financial coach should be someone able to identify financial strengths, weaknesses, opportunities and threats likely to affect the athlete, and design a customized playbook that takes all that into account.  

A list of qualified, pre-screened financial advisers can be found through players associations, unions, personal accountants, personal lawyers, agents or recommendations from other players who have had success with a particular financial professional.

Regardless, athletes need to interview candidates to ensure there is a level of comfort and trust with the adviser, and confidence the adviser will act ethically and plan within that athlete’s best interest. Hiring a friend and family member, who holds no financial licenses, and hasn’t successfully guided any other athlete is a nice thing to do, but not necessarily the right thing to do.

In designing an athletes’ retirement playbook, the athlete and adviser should consider one that is flexible and easily adjusted over time. Nothing in life is the same for ever. A good retirement playbook will include growth opportunities and factor in specific protective measures to hedge against a variety of risks, including market volatility, inflation, and longevity. The financial playbooks that will fare best will be those that are realistic, clear, manageable, tested, and beyond all, followed.

There are many solutions in the marketplace. In today’s environment, athletes and non-athletes alike need a diversified portfolio to hedge against different risks. For example, some people invest in bonds for the liquidity. And some, such as municipal bonds, offer some tax efficiencies. But both lack real growth potential. 

Other individuals may invest in the equity markets or mutual funds because of the growth potential. But many of these investments do not produce optimal cash flow and are subject to market volatility. And, of course, many of these do not offer financial guarantees.  

As every athlete who has reached the professional level knows, it’s the desire to succeed, coupled with a constant honing of skills, and the study of the opponent, that produces results. The same is true for financial planning.

Michael Harris is head of the Advanced Solutions Group at Lincoln Financial Distributors, Inc. (LFD), the wholesaling distribution organization for Lincoln Financial Group. He holds Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC) and Chartered Life Underwriter(CLU) designations.