Financial Planning and Wealth Management for Athletes

Supporting College and Professional Athletes, Coaches and Owners with Comprehensive Advice to Grow and Protect Their Wealth

Our team of specialists, including former athletes, has extensive experience helping college and professional athletes navigate their unique financial needs. Creative Planning provides confidential, fiduciary financial advice, meaning all recommendations are made in your best interests. We don’t sell or make commissions on proprietary products. Our only goal is to help you achieve yours.

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The Unique Financial Challenges of Athletes

Making it as an athlete (and/or eventually coaching athletics) is a big deal that often offers a correspondingly big paycheck. Particularly in the NFL, players have the potential to become millionaires overnight. While making this type of money is a great payoff for your years of hard work, it also presents its own set of challenges and risks. A fiduciary financial advisor can help you make smart decisions regarding your paycheck, investments, taxes and savings. The topics discussed in this article can help prepare you for long-term financial success.

Topics Include:

• Why It’s Important to Work With a Fiduciary Financial Advisor
• Financial Do’s and Don’ts for Athletes
• How an Athlete’s Financial Needs Change Over Time
• Insurance Needs for Athletes
• Planning for a Career After Sports

Why It’s Important to Work with a Fiduciary Financial Advisor

What is a fiduciary financial advisor?

A fiduciary advisor is held to the fiduciary duty standard, which means he or she is legally obligated to act in clients’ best interests at all times. As part of their fiduciary duty, fiduciary financial advisors have both a duty of care and a duty of loyalty. The duty of care includes not only providing advice that is in the best interest of each client but also executing that advice in the best way possible — and the advice is ongoing throughout the client relationship. The duty of loyalty means the advisor may not put their interests ahead of a client’s.¹ Fiduciary advisors are typically fee-based, which means they’re usually paid a percentage fee based on the assets they manage. This practice helps align the advisor’s interests with those of the client, because the advisor’s fee grows in proportion with the client’s assets.

In contrast, some advisors charge a commission and generally conduct transaction-specific recommendations rather than providing advice that covers the entire client relationship like a fiduciary advisor would. These advisors are held to a best interest standard at the time of the recommendation, meaning an investment must be suitable for the client.² These advisors must “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer.”³ Because they’re often paid commissions for the investment products they sell, they may be incentivized to push products and make frequent portfolio transactions that could create a conflict of interest with what’s best for the client.

Why it’s important to work with a fiduciary advisor

There are several reasons why choosing to work with a fiduciary advisor is vital to your long-term financial success as a professional athlete.

A lifetime of earnings in a few short years

The career spans of professional athletes are significantly shorter than those of other professions. Athletes have, on average, 3.3 years in the NFL, 4.5 years in the NBA and 5.6 years in MLB.^{4, 5, 6} Even with a multi-million-dollar salary, that’s not a lot of time to save enough to last a lifetime. A qualified fiduciary advisor who has experience working with professional athletes can help you develop a budget, spending and investment plan that meets your needs and helps stretch out your earnings.

Attention from unscrupulous “advisors”

As soon as you sign on the dotted line of your professional contract, you’ll be flooded with calls and emails from various financial “advisors” who all claim they can help you turn your millions into even more. The problem is, not all these advisors are well-qualified or have the right experience to help you. Not only is a fiduciary advisor legally obligated to put your best interests first but they should also take time to explain every potential decision to make sure you’re comfortable and onboard with all actions taken on your behalf.

Unique tax considerations

There’s no way around it; professional athletes’ taxes are complex. Competing across the country means you’ll need to file taxes in multiple states based on each state’s unique requirements. If you earn money internationally, you’ll need to report that income to both the IRS and the country in which you earned the money. Depending on the circumstances, you hopefully won’t be taxed twice on this income,⁷ but you’ll need to track it in order to qualify for a U.S. tax credit on income earned abroad. Add to that income earned from endorsement deals, investment dividends, etc., and your tax situation quickly becomes incredibly complex. A fiduciary advisor will work alongside your CPA and other professionals to implement a tax planning strategy that’s in line with your overall financial goals.

By taking a comprehensive approach to managing your finances and taxes, your advisor can identify opportunities to legally minimize the amount of taxes you owe through strategies such as charitable giving, tax-loss harvesting, retirement plan contributions and more.

Financial Do’s and Don’ts for Athletes

Tip #1 – DO surround yourself with a team of competent fiduciary advisors

Perhaps the most important “do” is to surround yourself with a team of experienced, qualified fiduciary advisors. As mentioned above, fiduciary advisors are held to the fiduciary standard, which means they’re legally obligated to act in their clients’ best interests at all times. As a professional athlete, you’ll likely need the guidance of several professionals, including a financial advisor/wealth manager, a CPA and an estate planning attorney. These individuals should be willing to collaborate to help ensure all aspects of your financial, tax and estate planning are working together to help you achieve your goals.

Tip #2 – DON’T fall for get-rich-quick schemes

Professional athletes are often flooded with calls and emails from all kinds of people claiming to provide access to the next big investment opportunity. Unfortunately, many (if not most) of these “opportunities” are designed to make others rich at your expense. To protect yourself, make sure any potential investments are fully vetted and recommended by your team of fiduciary advisors.

Tip #3 – DO implement appropriate insurance

It’s especially important for professional athletes to plan for the unexpected. As part of the planning process with our professional athlete clients, we often consider and implement the following types of insurance policies:

• Life insurance – Provides financial security to your loved ones should you die unexpectedly
• Permanent total disability (PTD) – Provides coverage should you become permanently injured and unable to continue with your sport
• Temporary total disability (TTD) – Provides coverage should you be unable to compete for a short period of time
• Loss of value – Provides compensation in case an injury or illness causes you to miss out on an opportunity

Tip #4 – DON’T take on too much debt

One mistake frequently made by professional athletes is taking on a level of debt that’s unsustainable over the long term. While a strong current salary may allow you to easily meet your monthly debt obligations, what happens if your career is unexpectedly cut short due to injury or another unanticipated event? Will you be able to continue making those payments over the next five, 10 or 30 years? We usually recommend paying down as much debt as possible, as early in your career as possible, in order to protect your wealth and bolster your long-term financial security.

Tip #5 – DO live comfortably within your means

You’ve worked incredibly hard to achieve success as a professional athlete, and you’re finally being well-compensated for all your efforts. Congratulations! You’re able to afford a comfortable lifestyle, and you should enjoy it. Keep in mind, however, that most professional sports careers are short, and you’ll likely not maintain this level of income for your entire life. Continue to focus on achieving financial goals, and choose to live a comfortable lifestyle that’s within your means and in line with your long-term financial goals. Don’t sacrifice your long-term financial well-being by overspending in the short term.

Tip #6 – DON’T try to keep up with the Joneses — beware of “lifestyle creep”

Once you sign that big contract, you’ll likely face all kinds of external pressure to live a certain lifestyle. You may feel pressured to compete with your teammates and other successful individuals in showing off your wealth. Don’t let this pressure to keep up with the Joneses derail your long-term goals. Instead, establish a reasonable budget and learn to live a comfortable, sustainable lifestyle that’s within your means (not anyone else’s).

Tip #7 – DO build a solid financial foundation before taking unnecessary risk

While it may be tempting to immediately invest your new wealth in a business venture or other exciting (but risky) investment, it’s wise to first establish a solid base from which to pursue such opportunities. Taking unnecessary risks before building a solid foundation can cause irreparable damage to your long-term financial goals. Your wealth manager can help optimize your finances so that you’re in a place to take appropriate risk based on your situation and pursue “fun” investment opportunities.

Tip #8 – DON’T think your current income is sustainable

Sports Illustrated once estimated that 78% of NFL players become bankrupt or are under financial stress within two years of retiring from the game, and 60% of NBA players run out of money within five years of retirement.⁸ One main reason for this is because athletes sometimes have a tendency to overspend during their prime earning years, thinking their current income will last a lifetime.

In reality, professional athletes can typically only sustain peak income for a few years. Players have, on average, 3.3 years in the NFL, 4.6 years in the NBA and 5.6 years in the MLB.⁹ Even with a multi-million-dollar salary, that’s not a lot of time to save enough to last for the rest of your life.

Tip #9 – DO pay it forward in the right way

Professional athletes are typically very generous when it comes to helping their loved ones. However, it’s important to choose ways to pay it forward that don’t threaten your own long-term financial well-being. Remember the saying, “If you give a man a fish … ”? Instead of buying material items that make others dependent on your income and generosity, consider paying for something your loved ones can use to help them develop skills and become more successful in their own lives, such as college tuition or job training.

Tip #10 – DON’T go on a spending spree

When you encounter sudden wealth, it can be tempting to go on a spending spree for all the items you’ve always dreamed of owning. However, regardless of your salary (be it $30,000 or $30 million), if you spend more than you make, you’ll end up with nothing. Even the wealthiest individuals must live within their means and plan for the future. An important key to long-term financial well-being is avoiding the temptation to overspend, living on a portion of your salary and investing wisely for the future.

How an Athlete’s Financial Needs Change Over Time

The Evolution of Lifetime Wealth Planning for Athletes

As a young athlete signing your first multi-million-dollar contract to play professionally, you may feel like you’ve just received your ticket to easy street. And, in many ways, you have. There are very few people who are able to bring in this amount of money so early in their lifetimes, if ever. That said, it’s not infrequent for professional athletes to end up in financial trouble. So, how can you avoid the same fate? At Creative Planning, we believe the best way is by working with a fiduciary financial advisor who has experience serving the unique needs of professional athletes. This advisor should have an understanding of how your financial needs change over time as you progress throughout your life and career.

Early career

Congratulations! This is the windfall you’ve been hoping for. You just signed your first professional contract with a salary you’ve long dreamed of — not to mention the signing bonus and sponsorship opportunities that come with becoming a professional athlete. As exciting as this moment is, you’ll soon feel immense pressure from friends, family members, teammates and even strangers to spend, spend, spend. Everyone you know will want to take part in your newfound riches, and it can be incredibly tempting to immediately start living an extravagant lifestyle. Keep in mind, however, that professional athletes’ careers are typically short. Even with a multi-million-dollar salary, that’s not a lot of time to save enough to last a lifetime. At this early stage in your career, you should be working with a trusted financial advisor who can help you find a balance between enjoying your new lifestyle today and planning for the future. Believe it or not, saving for retirement should be a big part of the conversation. So should investing in a diversified portfolio with an appropriate level of risk, engaging in trust and estate planning for your loved ones, and applying risk management strategies, such as establishing appropriate insurance policies. While it may seem overwhelming to be having these conversations at such an early stage in your career, in the long run, you’ll be glad you did.

Mid-career

As you progress in your career, you’ll likely want to purchase a home. You may also begin looking for ways to give back to the people and causes that matter most while maximizing your tax benefits. If this is the case for you, you may want to consider establishing a foundation or a donor-advised fund. A qualified financial advisor can advise you on these matters and help maximize your impact while also reducing your tax liabilities.

Unexpected circumstances

As a professional athlete, you put your health and fitness on the line every day in order to compete at the highest possible level. As a result, you’re susceptible to unexpected, and potentially career-ending, injuries. It’s important to make sure your family will be okay should an unexpected event occur. This is where insurance planning comes into play. Your financial advisor can help ensure both you and your family are protected by the appropriate life and disability insurance policies.

Retirement

As you near retirement, you may be plagued with questions about the future, such as:

• Am I contributing to the right types of accounts in the most efficient manner?
• Will I be able to support my current lifestyle after my career as a professional athlete is over?
• What will I do when I’m no longer able to play?
• Will my family be okay?

Meeting regularly with your qualified financial advisor can help you answer these questions and prepare for life after the game.

Legacy

Once you have successfully transitioned to retirement following your career as a professional athlete, you may begin to consider your financial legacy. What will you be able to leave to the people and causes that matter most to you? How can you make sure you’re transferring assets in a private and tax-efficient manner? Again, your financial advisor should be able to answer these questions and help you leave a lasting legacy.

Insurance Needs for Athletes

As a professional athlete, you have a lot riding on your health and wellness. Because the career span of a professional athlete is significantly shorter than that of most professions, an injury can completely derail your ability to save enough to last for your entire life. Even if you have a lucrative contract, either your current contract, your opportunity for future contracts or both may be directly tied to your health and wellness. Given the above, a typical disability insurance policy likely won’t provide the level of coverage you need. So, what policies should you have? We recommend four types of insurance to protect your family and your future.

Life insurance

This is a non-negotiable, because it provides financial protection for your loved ones should you die unexpectedly. No one likes to think about what will happen after they die, but it’s critical that you have the appropriate policy in place to support your family. Learn tips for choosing a life insurance policy.

Permanent total disability (PTD)

PTD insurance provides coverage in the case of a permanent injury or illness that prevents you from continuing in the sport. PTD policies typically pay a lump sum amount after 12 consecutive months of disability.

Temporary total disability (TTD)

TTD insurance provides coverage if you’re unable to compete for a short time due to injury or illness. This can be especially important for players who get paid for entering and winning competitions, such as golfers and tennis players, because missing a few months during the peak playing season can result in a huge financial loss.

Loss of value

Athletes who have the potential for high salaries in the near future may want to consider a loss of value policy. These policies pay out if an unexpected event, such as an injury or illness, causes you to miss out on an opportunity. Two situations where loss of value insurance may be particularly important include:

• To insure highly rated draft picks, should they slip down the draft board due to illness or injury
• To insure top players entering into free agency

In addition to the insurance types discussed above, you may want to consider the following policies based on your specific situation and needs.

Contract completion

If a key athlete is unable to play, the team may lose out on revenue from ticket sales while still needing to pay the athlete’s salary. This can result in millions of dollars of financial loss for the team at a time when it must find a new player to take the injured player’s spot. A contract completion policy insures the key athlete’s compensation so that the team doesn’t have to take on this financial burden.

Loss of endorsements

Top athletes often make significant money through endorsement deals. However, many of those deals have claw-back agreements if an athlete isn’t able to participate in enough games. A loss of endorsement policy can help protect from endorsement money claw-backs.

Cost of agents/managers

Athletes often want to work with their agent or manager during periods of disability, as these professionals continuously enhance the athlete’s value and endorsement power. The cost of paying agents and managers can be significant, but there are policy options that cover this expense.

College draft protection

A college athlete who decides to stay in school rather than going pro risks sustaining a career-ending injury while playing in college. A college draft protection plan insures the future value of a professional career.

Planning for a Career After Sports

As a professional athlete, you didn’t begin competing at the top level of your sport by accident; it took years of hard work, struggle and sacrifice. It also took a lot of passion, and that passion for the game can be difficult to let go of. However, at some point all top athletes must begin considering what life after their sport will look like.

If you’re like many professional athletes, you may find yourself “retired” at a young age and looking for a second career. Fortunately, preparing for your second career likely won’t take nearly as much dedication as preparing for your first, but it’s important to have a plan. The following tips can help.

Tip #1 – Leverage your skills

You may be surprised to discover that your experience as a professional athlete has prepared you for a second career in many ways. Not only have you been training your body over the years but you’ve also been training your mind. It takes a lot of resilience, confidence, grit, optimism and determination to compete at the highest level of athletics, and these are all skills that will translate well into whatever second career you choose to pursue; just remember to tap into them.

Tip #2 – Ask questions

A great way to figure out your next step is by asking questions. Start by reaching out to other former athletes who have successfully transitioned to second careers. Whether you’re interested in pursuing the same career or not, these former athletes can be a great resource for helping you navigate this life change.

Also reach out to those who are currently working in careers you may be interested in pursuing, as they can provide great perspective on how they’ve been able to get to where they are today. The more questions you ask, the better prepared you’ll be for the next chapter in life.

Tip #3 – Develop relationships

Through your experience as a professional athlete, you’ve likely met many people who can help you pursue a second career. It’s important to continuously foster those relationships, as well as develop new relationships with others outside the sports world. Having a strong professional network can pay off in many ways down the road. The more relationships you have, the more opportunities will be available to you, both today and long into the future.

Consider attending networking events in industries you’re interested in pursuing. These events are often hosted by a chamber of commerce, a sponsoring corporation or a professional organization. Be sure to ask for business cards, and schedule a follow-up coffee or phone call with anyone who seems willing to be a connection.

Tip #4 – Take care of your image

As a professional athlete, you’re often in the public eye, and the manner in which you portray yourself can stick with you for many years after you retire. Take care of your public image by always presenting yourself in a professional manner. You should let your personality shine through, as this can be a huge advantage later on as you pursue a second career, but do so in a manner that shows your intelligence, wit, maturity and confidence. If this doesn’t come naturally to you, consider enrolling in media training or a public speaking class. After all, your future employer may be watching!

Tip #5 – Take a course or two

Not only can continuing your education help prepare you for a career after sports but it can also allow you to try out different career paths without committing to one. If you think you’d like a career in business, consider taking a business administration course. Or communication studies may be a great introduction to broadcasting.

Tip #6 – Have a financial plan in place

One of the best ways to prepare for life after a professional sports career is by having a financial plan in place. A solid financial plan is essential to identifying, understanding and achieving your goals. The average career span of professional athletes is significantly shorter than that of other professions, which makes having a financial plan in place even more important.

Financial planning can help increase your level of confidence and comfort, result in more constructive financial behavior and give you some time to get up and running with a second career after you retire from your professional athletics career. Ultimately, a solid financial plan puts you in control of your financial future.