America’s professional athletes rake in the big bucks, accumulating hefty bank accounts oftentimes by a young age. At the same time, though, knowing how to manage their new-found wealth is an entirely different ball game for many of them.
Financial Regulation News recently spoke with three seasoned advisors who discussed the challenges professional athletes face in managing their money and how they can protect their assets.
“There are so many stories of professional athletes not managing or protecting their money and losing it all that the athlete should do everything they can to protect what they’ve worked so hard to earn,” said sports legal analyst Todd Glassman, a partner at the Chicago-based law firm of Allen, Glassman & Schatz LLC.
Over the past ten years, Glassman has delivered presentations to the NFL and various professional teams, providing advice on the challenges that come with pursuing a career as a professional athlete.
“Professional athletes should understand that they have a target on their back and should be extra careful when managing their wealth,” Glassman added.
There are certain fundamentals that have to be mastered, certain rules that have to be followed by pro athletes about where they want to go financially and how they are going to get there, said Blake Williams, a financial advisor at Lakefront Capital, an independent wealth management firm based in Cleveland.
Williams brings personal insight to this financial game following almost 15 years as a former football coach in the National Football League (NFL), where he finished his career in 2020 as the defensive assistant coach of the New York Jets.
“The model of what we do, how we do it, how we explain it, why we do it, is all inextricably tied up in the structure, lingo and lessons from my life in coaching athletes,” Williams said. “I’m still coaching, I’m still educating, I’m still mentoring, I’m still helping with goal understanding and formation and helping build the fundamentals and actions to achieve those goals, I’m still motivating and helping move to action, I’m still listening to them… and building a relationship and an evolving plan around each of them, because they are each unique.”
Real-world financial challenges
Glassman and Williams outlined the specific challenges pro athletes face in wealth management and offered strategies for how they might successfully remain financially solid.
“Because most professional athlete careers are short lived, the oftentimes high amount of money earned needs to be protected even more because the athlete may never make close to that amount of money again in the future,” Glassman said.
Williams agreed, pointing out that pro athletes have an inverted wealth creation timeline.
“They should look at themselves like an older person, at the end of their life’s work, making the most they are ever going to make, and quickly nearing retirement age,” said Williams. “An athlete’s financial picture is closer to that subtype of earners than they are to the peers in their age group, and the planning should reflect that.”
Williams pointed out several other common financial challenges that pro athletes face during and after their careers, including intermittent/atypical cash-flow; variance and volatility of cash flow; lack of financial literacy and understanding; improper/unsustainable spending vs. a savings plan; and improper risk management and advising.
Regarding their cash flow, for example, pro athletes get paid in game check installments or signing bonus lump sums followed by very little base salary. “If you’re not careful and intentional, then you can have some issues with the cash-flow difference in cadence of income coming in versus the regularity of expenditures going out,” Williams explained.
Additionally, the variance and volatility of a pro athlete’s cash flow should be considered, he said, noting that players get injured and it reduces their money while they’re on IR, or the reserve/injured list.
“Players get cut anytime, any day, and then don’t get the money they thought they were going to get,” said Williams. “Or players think/expect to get a big free agency deal, and then don’t and have to settle for low-ball, one-year, prove-it deals and assume all the risk,” he said.
Another challenge is not knowing anything about the financial world, said Williams.
“Ignorance is bliss, until it isn’t,” he said. “Mistakes made from the lack of basic financial literacy in the core curriculum of this country is not just an athlete thing, it’s an everyone thing.”
At the same time, Williams said that when pro athletes invest large portions of their money in high boom or bust things in which they could lose it all, or listen to either the wrong people or to no one at all, “both scenarios can create their own problems.”
Another consideration, according to Glassman, is remembering that anything the professional athlete puts out there — whether it’s a text to a significant other, a social media post, or an interview — can have real consequences on their finances.
“The professional athlete needs to understand that the communication can be used against them in the future,” said Glassman. “They are being watched and oftentimes scrutinized at such a higher level compared to others that they should be careful.”
These individuals also should try and use their pro athlete status to do as much good as they can, he added.
“If the athlete feels the need to use social media, use it to convey positivity and to help the community and to do as much good as you can around you,” Glassman said. “Professional athletes are held to a higher standard and need to do everything possible to eliminate distractions or anything that can be used against them and should focus on positivity. If not, all that they have worked so hard for financially can be negatively impacted at the snap of a finger.”
Protection strategies & advice
Williams and Glassman recommended several key financial strategies for pro athletes to ensure long-term financial stability.
“Save as much of your earned income as possible, this includes creative ways to reduce tax liability now,” said Williams, who also suggested that the pros get a great financial coach that they can trust and have a real working relationship with.
Lakefront Capital, for instance, approaches wealth management for athletes differently compared to other clients. According to their CEO, Brian Boucher, there are three main ways the firm does so: By using the servant-leader/coach-to-athlete relationship model that athletes are familiar with and understand; helping them understand that they are an institution, a business, and a brand and how to build a C.A.T. (Collaborative Advisory Team) around that model; and using the young, sudden-wealth model of planning.
“Every advisor at Lakefront Capital was a former college athlete, and most of them have coached or currently coach athletes in sports from youth level to pro level and everything in between,” Boucher said. “We take this unique understanding and experience and apply it to our financial coaching practice.”
Williams also suggested that pro athletes use the time they have while still in the public eye to build multiple other revenue streams while also preparing themselves for a life and career after their playing days are over.
“What is truly needed to maximize their long-term gains and earning potential is to play maximum defense (insurance, estate planning, legacy vehicles) and special-teams, which are tax advantageous strategies that maximally reduces the tax liabilities now and keeps more house money in their possession to grow into the future,” advised Williams.
Meanwhile, Glassman dug into financial strategies focused on the personal side of finances for pro athletes.
For example, if a professional athlete is engaged or thinking about becoming engaged to be married, before he/she does so, they should consult with a family law or specialized attorney about a prenuptial agreement, which they would agree upon before marriage to determine what their rights in issues such as property and financial support would be in the case of a divorce, legal separation, or if either one of them dies.
“Meeting with a family law or specialist attorney and undertaking a prenuptial agreement will help protect an athlete’s income and assets and at a minimum, the athlete needs to be aware of his/her rights to one and what the agreement entails,” said Glassman. “The professional athlete should also be mindful of jurisdictional issues. For example, if they live in two different states, they should consult with an attorney in both states before making a decision as to how best to proceed.”
It’s also important for pro athletes who are in relationships and have made parenting and financial arrangements with a significant other to ensure such items are placed into a binding, legal document once they’ve had the appropriate discussions and paperwork drawn up by an attorney, preferably a family law or estate planning attorney or a CPA or financial planner, he said.
“Missteps can include everything from parenting time to child support,” said Glassman.
For example, a professional athlete may be dating but never marry a significant other, have a child together and a few years down the road they might break up without having any legal agreements in place.
“The athlete may be paying certain sums of money to the former significant other but never solidified the same in any legal documents,” Glassman said. “Similar with parenting time — there may be a parenting schedule the parties have been ‘living by’ but it never was placed into a court order. For a number of reasons, the relationship between the co-parents can deteriorate.
“Then, in certain situations one parent can file a legal claim against the other for alleged owed back child support, support going forward, child-related expenses, and custody and parenting time even when the athlete thought they had an agreement,” he said. “The important lesson here is to not rely on side deals or verbal agreements and to seek the appropriate advice from legal and financial professionals as soon as reasonably possible and not to wait for the worst case scenario.”
Professional athletes should also meet with a trust/estate planning attorney to talk about drafting certain trust documents to protect financial accounts/real estate and other personal property and investments, but also to ensure the appropriate succession plans are in place with their money.
“Also, it would be wise to have a CPA and a financial planner or financial expert to work with that can also assist in protecting the athletes’ assets and investments,” Glassman advised, adding that pro athletes should be personally involved in selecting trustworthy financial advisors and legal professionals.
“The athlete should be in the interview process and also may consider having their trusted people in the meetings too to obtain input,” he said. “Also, it is wise for the athlete to obtain referrals and recommendations from people they trust for potential financial advisors and legal professionals, but it also makes sense to interview at least three options or more to determine whom they feel most comfortable with in hiring.”
All of these tools can help set up the professional athlete for a higher chance of success in their financial journeys, said Glassman.