View Full Version : Money management key to future for athletes

05-02-2010, 12:13 AM
Money management key to future for athletes
A story every National Football League draft pick should read
Sunday, May 02, 2010
By Roy Hadley, McClatchy-Tribune News Service

Another crop of talented college players has been selected in the annual NFL draft. Now, as we look forward, a staggering number have no idea what lies ahead financially. Despite promises of big contracts and enormous paydays, the numbers are actually stacked against them. A full 80 percent can expect to face bankruptcy soon after they retire.

As we look at the top rookies this year, the hope is that these young men will not follow the path taken by so many of those who have preceded them. Many professional athletes, regardless of the sport, succumb to the demons of outrageous spending, poor investments and misplaced trust. There are, however, precautions a young athlete can take to avoid future financial ruin.

Let's say that a particular first-round draft pick receives a $10 million guaranteed signing bonus. It is worth noting that in the NFL, contracts are usually not guaranteed. But, for the sake of argument we will say that our player's contract is guaranteed. Here's how his initial bonus expenditures might work out:

First, Uncle Sam has to be paid. Federal, state and possibly city taxes likely will take away anywhere from 40 to 55 percent of the $10 million. With good, realistic tax advice, he could pay 45 percent. He now has $5.5 million left.

Next, the agent must be paid. This payment comes from the gross amount and not after taxes. With a typical 3 percent agent fee, the athlete owes $300,000. This now leaves him with $5.2 million.

Naturally, the athlete has to find somewhere to live, and a $4 million mansion might seem very appealing. We are down to $1.2 million.

Of course, he might choose to purchase something nice to drive. OK, that $250,000 can go very quickly with a shiny, new, super-luxury vehicle. He now has $950,000 left.

Throw in new clothes, jewelry, gifts for family and friends, an investment in a friend's "can't-lose" restaurant venture, household expenses, travel, and other luxury items to maintain the "lifestyle," then it is easy to see how one can quickly go through a "guaranteed" $10 million.

So, what is an athlete to do to avoid the financial slaughter? Here are some basic precautions:

First and foremost, he should surround himself with advisers he can trust. Such advisers should be well-educated in their respective fields and should be able to provide sound references from others they have served. Some athletes may find that advisers who charge on a fee basis, as opposed to a commission basis, usually provide sounder and more unbiased advice.

He should be made to realize that statistically speaking, his career could be very short, likely no more than three to five years. Accordingly, he should have a "life plan" that outlines how his money will be invested for the long haul and how these investments will support his goals after his playing days have ended.

He should try to limit unnecessary expenditures and set a budget. It is easy to understand the allure of "living the lifestyle," but such things are obviously poor investments. Athletes should set aside a certain amount of "fun money" for whatever they choose, with the rest going toward sound and prudent investments. No matter how much an athlete makes, it's a simple -- yet often ignored -- fact that he'll go broke if he spends more than he makes.

He must maintain a clean image. While a newly signed athlete could have a long and lucrative career ahead of him in the NFL, additional sums can be made from endorsements. Most companies look for athletes who can be brand ambassadors to promote and enhance that company's products. If an athlete has been arrested in the past year, busted for drug possession or has a bad reputation overall, successful companies will not come calling.

If an athlete decides to get married, he should get a pre-nuptial agreement; but more importantly, stay faithful to his vows. Nothing can lead to financial ruin quicker than divorce or multiple out-of-wedlock children.

Finally, he should take time in the offseason to study the benefits of financial planning and money management. Every athlete needs to know where his money is going and how it is being invested. He needs to understand the risks associated with certain investments and how to read a bank statement. At the end of the day, the only person a professional athlete can truly count on to manage his finances is himself.

Today's athletes can certainly avoid financial ruin, perhaps more easily than their predecessors, given the resources available today. Many who came before them have been led down a destructive path.

But, with proper guidance, discipline and conscientiousness, hopefully this flock will not be led to bankruptcy like lambs to the slaughter.
Roy Hadley is an attorney in the commercial and intellectual property practices of Bryan Cave LLP in Atlanta. Hadley counsels athletes in legal matters associated with professional sports and helps them to position themselves for lifelong business, personal and financial goals.

Read more: http://www.post-gazette.com/pg/10122/1054575-66.stm#ixzz0mkJjx8cS

05-02-2010, 08:41 AM
What they need to do is have the NFL or the teams keep financial advisers on staff. They'd be on salary so they wouldn't have any conflicts of interest from commissions.

The $10M bonus baby ($5.2M after taxes and paying the agent) should then make a planned giving donation to him alma mater. Let's say $1.5M...in exchange he gets a guarantee of $50K a year for life. Nice baseline, which will in most cases will be added to his NFL pension (he's a good bet to last five years) and guarantee him a middle class living.

Then he can buy a house and a ride for himself, a house for his mama, etc. Whatever's left over after that should be invested in municipal bonds. If he wants to "live the lifestyle", do that on his regular salary.

05-02-2010, 09:36 AM
Is it me or is that a retarded assessment? Do these kids actually spend 4million of 5.2 million on a house:? I can't imagine anyone being that flipping stupid.

You want sound advice? Put 75% of your take-home pay into your 401K or roth account, or stash it away where you can take advantage of it when you are smart enough, like in your 30s or something.

They should work with very little so they appreciate what they've got and will therefore not "blow" the rest of it.

If I were to hit the lotto, that's what I'd do. I'd put away 50% for retirement off the bat, then 25% for me and my family and 25% for charity, family and friends.