And How to Avoid Common Mistakes Among Sports and Entertainment Professionals
Professional athletes and entertainers have a bad reputation for mismanaging their finances. Some of the biggest earners in sports and entertainment ended up bankrupt or in debt. In fact, Sports Illustrated once estimated that 78 percent of NFL players become bankrupt or are under financial stress within two years of retiring from the game, and 60 percent of NBA players run out of money within five years of retirement.1
How can you protect yourself from the same fate? Following are five common financial mistakes made by professional athletes and entertainers, and tips to help you avoid them.
Mistake #1 No financial plan
Implementing and adhering to a detailed financial plan is the single best way to ensure your financial security. Having a plan is essential to identifying, understanding and achieving your goals. Planning can help increase your level of confidence and comfort, result in more constructive financial behavior, and ensure your family will be provided for throughout your lifetime and beyond. Ultimately, a good financial plan puts you in control of your financial future.
The Six Ramifications of Not Having a Financial Plan
When creating your financial plan, choose a fiduciary advisor who has experience working with professional athletes and entertainers. This will help ensure your best interests are driving all recommendations and that your unique challenges are addressed.
Mistake #2 Overspending
It’s easy to overdo it in the spending department. Keep in mind that the average career span of a professional athlete or entertainer is significantly shorter than other professions. Athletes have, on average, on average, 3.3 years in the NFL, 4.6 years in the NBA and 5.6 years in the MLB.2 Actors often face long periods of unemployment due to intense competition for roles, which can make it difficult to count on a steady stream of income. Musicians have faced especially difficult times during the COVID-19 pandemic as concerts and tours have been cancelled across the country.
Given these uncertainties, it’s vital to have a budget and spending plan in place to help ensure you are living within your means and that your finances will be able to support you over your lifetime.
Mistake #3 Not paying taxes
Professional athletes and entertainers have unique tax circumstances that are best handled by a Certified Public Accountant (CPA) who has experience working with sports and entertainment professionals.
Mistake #4 No prenup
While no one envisions divorce in their future, it’s wise to protect yourself with a prenuptial agreement. A qualified lawyer can draft an agreement that is fair to both you and your future spouse.
Mistake #5 Not having the proper estate planning documents
Professional athletes and entertainers have the potential to bring in a lot of income in a short period of time. If you want to make this income last for the duration of your lifetime and beyond, it’s vital to have the proper estate planning documents in place.
In addition to protecting your loved ones and ensuring your assets are passed along according to your wishes following your death, estate planning can ensure your privacy. Without the proper documents in place, your will may be a matter of public record. If you are a well-known figure in sports or entertainment, the paparazzi can have a field day sharing your most personal information. Distant family members and “friends” may come out of the woodwork to solicit your beneficiaries. At the very least, this can cause your family to be bombarded with advertisements from companies trying to sell their services. Proper estate planning can protect your privacy and the privacy of your loved ones.
Need help avoiding these common financial mistakes? Creative Planning is here for you.
Creative Planning Sports & Entertainment is a specialty practice of Creative Planning. Each of our dedicated teams specializes in working with sports and entertainment professionals and includes an attorney, a CPA and a CERTIFIED FINANCIAL PLANNER™ practitioner. These teams are also supported by Creative Planning Legal, one of the largest estate planning law firms in the country with attorneys licensed to practice in multiple states. We serve as your partner in navigating the unique challenges of your profession while helping you remain on track toward achieving your long-term financial goals, both on and off the field/stage. For more information about how we can help you plan for your financial future, please schedule a call.