It’s never too early to start thinking about your future. For professional athletes, it’s common to suddenly come into a large income while having little financial acumen.
Below is an interview with Ben McLemore III, currently a member of the Portland Trail Blazers. Almost a decade into his professional career, Ben provides his thoughts for those starting their professional sports careers paired with industry insights from Managing Director/Wealth Manager Sean Granere and Director of Business Management Hazem Al-Gibaly of Creative Planning.
- Question: When an athlete first signs a contract, what do you think their financial goals generally look like? When you were in this spot, did you feel like you had someone to discuss these goals with?
Answer from Ben: To be honest, for many players signing their rookie contracts, their financial goals typically revolve around taking care of their families. A lot of us don’t come from a place of means, and the rookie contract typically serves as our ticket out. One of the first things I did was buy my mom a house so that she wouldn’t have to worry about rent or a mortgage ever again.
Answer from Hazem: As Ben mentions, it’s common for many professional athletes to want to do something for their families, such as buying a parent a home or paying off a parent’s mortgage. This is, of course, wonderfully helpful for an athlete’s family — and often a large financial commitment. Building on this, my number one tip is always to develop a financial plan before doing anything. Establishing a comprehensive road map to guide all aspects of your financial plan is a great way to plan for a financially fit future. You can read more about the importance of a financial plan here and here. In the wise words of Nike, “Just do it!”
- Question: After receiving a steady paycheck for several months during your first contract, tell us how you managed your finances. Did you simply deposit the funds? Did you have someone helping to guide you that you trusted? Do you think there’s a common practice in this regard?
Answer from Ben: I had a business manager and a financial advisor. This is a common practice for athletes, although very often (including for myself), the players themselves aren’t extremely educated on financial best practices. So it’s very important to choose someone you trust so that you know they’re working on behalf of your best interests. It’s also important to work with a fiduciary, as they’re legally bound to only operate in your best interests — and can be penalized if they don’t. That won’t always stop it from happening, but it stacks the odds in your favor.
Answer from Sean: As Ben said, having a fiduciary financial advisor is highly recommended. This is an individual who is held to fiduciary duty standards, which means he or she is legally obligated to act in a clients’ best interests, always! A fiduciary is not tied to a family of funds or other investment products and makes independent recommendations based on an individual’s needs/goals.
In contrast, non-fiduciaries, such as brokers, have a family of funds or investment products that they are recommending, and they often charge a commission and conduct transaction-specific recommendations rather than offering advice that covers the entire client relationship.
- Question: Do you have any recommendations for newly drafted professional athletes, especially as it relates to handling new-found income?
Answer from Ben: I would try to live off endorsement income and not touch on-court money. In a case where someone isn’t drafted high enough to do that, or they don’t have the marketability, I think it’s smart to set a strict budget and live within your means. After all, we aren’t all earning LeBron James-level money, so we should know that even though we suit up next to max players, our lifestyles will differ. If you’re smart, you can have the lifestyle you want without trading your future.
Answer from Sean: Living within your means is important, as Ben mentions — you never know what your career will look like from game to game, and if you’re suddenly unable to play your sport, you want to ensure you’ve handled your new-found income in a strategic manner. For anyone — but especially for a professional athlete who has increased risk of becoming injured on the job — it’s important to plan for the unexpected. There’s a lot to consider when it comes to different types of insurance and disability coverage. Typically, we recommend four types of insurance to protect your family and your future: life insurance, permanent total disability, temporary total disability and loss of value.
- Question: What do you wish someone had taught you, or what’s something you’re glad you were taught, about managing your finances/income?
Answer from Ben: I’m thankful to have learned about budgeting, investing, saving, negotiating and spending. Everyone is going to spend, and you should enjoy the fruits of your labor in moderation, otherwise the sacrifice can feel pointless.
Answer from Hazem: Compared to other professions, a professional athlete typically reaches peak earnings earlier in life, before many standard financial obligations (family, mortgage, student loan debt, etc.) are incurred. It’s important to take advantage of this and save at the beginning of your career to take advantage of compounding returns. This may mean putting aside a big chunk of your signing bonus, or money from an endorsement deal, then investing it wisely for the long term and letting it grow. Continue to add to your savings and investments by budgeting for it; when it’s time to retire and you see the payoff of those compounded returns, you’ll be glad you did.
At Creative Planning Sports and Entertainment, we are fiduciary advisors who specialize in helping professional athletes navigate the unique financial challenges of their profession. As a specialty practice of Creative Planning, our experienced team members include CERTIFIED FINANCIAL PLANNER™ professionals, certified public accountants, attorneys, insurance specialists and more. We help you navigate today’s challenges to prepare for a financially smart future. To learn more, please schedule a call.