On this week’s episode of Rethink Your Money, we’re kicking off football season by welcoming two-time Super Bowl champion Lawrence Tynes, now a Director of Practice Development at Creative Planning. We’re talking football, tackling the topic of debt and sharing strategies for a winning approach to your financial future.
Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!
Episode Notes
John Hagensen: Welcome to the Rethink Your Money podcast presented by Creative Planning. I’m your host, John Hagensen, and today I’m diving into one of my favorite times of the year. That’s right, college football is in full swing and the NFL has now kicked off. I’ll be tackling a topic that can make or break your financial future, the difference between debt and leverage. Stay tuned later in the show because I’m sitting down with a football player who’s made history with two walk-off field goals that set his team to the Super Bowl. Now, join me as I help you rethink your money.
The National Football League is clearly a financial powerhouse. Last year, NFL Games accounted for 93 of the top 100 TV broadcasts across all networks. I mean, the league is a money making machine with revenue soaring into the tens of billions of dollars annually. But even with all that wealth, NFL teams strategically use debt to fuel their growth. In fact, just last October, the NFL increased the team operating debt limit by 17% from $600 million to a whopping $700 million. It’s a lot of zeros.
And here’s something interesting, NFL teams aren’t alone in this. Nearly all Fortune 500 companies carry some form of debt or as they prefer to call it leverage. Now, why would these extraordinarily wealthy, oftentimes highly profitable companies carry debt if all debt is supposedly bad? Many of these massive corporations have some of the sharpest financial minds at the helm, are they all making a mistake or is there something the average investor may be overlooking?
And when they make that blanket statement, that all debt should be avoided at all costs, they’ll shift gears a bit and talk about something that affects us all, and it’s related to debt, and I’ll tie it back to our conversation. In the age of social media, the comparison trap affects us all. It’s never been easier to compare yourself to others. You’re no longer just keeping up with the Joneses down the street, the few people in your neighborhood that you have a relationship with or your family members are close friends, you are trying to keep up with the entire world. Every day you’re bombarded with images of opulence, people showcasing their luxury vacations, their new cars, their designer clothes, the golf trip they went on, whatever it might be. But here’s the catch, and I want you to not forget this. That’s their highlight reel. It’s not reality.
And in fact, for most of those people, they might only barely be able to afford what you’re viewing or not at all. They might be buried in debt, struggling to maintain lifestyle that’s all about appearances, but that constant exposure has led to a level of discontentment and increased debt in America, massive overspending. That’s not the only reason, but it’s accelerated that trend, and I have some statistics on personal debt levels in America and how they’ve increased over time. If you just look at total US consumer debt, we’re over $17 trillion, which is a significant increase from just pre-pandemic levels, which were a little over 14 trillion, so that marks an increase of about 20% in just three years. If you go all the way back to 2003, total US consumer debt was about 7.2 trillion, meaning it has more than doubled in just the last 20 years. Credit card debt hit an all time high of now over $1 trillion.
If you look at mortgage debt, those balances stand at over $12 trillion, which is up from a little over 9 trillion just three years ago, and mortgage debt has steadily risen. Student loans, which are a big hot button, they stand at over 1.7 trillion, which is a massive increase. They were just at $1 trillion in 2012. And auto loan debt shows the exact same trends. Why is this? What’s with these increases? Let me ask you a question, have you ever felt pressure to buy something where if you’re being honest with yourself, it’s probably more about that you feel like you should or that others are doing it instead of something that is actually meaningful to you? I know I have. And the average American doesn’t do a good job with their money, so you do not want to be emulating what you’re seeing most others do.
Now this brings me to the man who hates debt more than anyone, and he does hate it at all costs, which I don’t 100% agree with, but I think he’s right on with his concern for debt. Dave Ramsey said, we buy things we don’t need, with money we don’t have to impress people we don’t like. It’s a dangerous lifestyle that can lead to financial disaster. And that’s the heart of today’s conversation, debt and leverage. Debt can be a powerful tool in your financial toolbox, but it’s also incredibly dangerous if not handled properly, whether it’s taken on too much credit card debt or over leveraging in real estate or misusing margin in the stock market, the consequences can absolutely ruin your financial life. But when used correctly, leverage can help you build wealth and it can actually secure your financial future.
So let’s break this down together and talk about the good, the bad, and the ugly sides of debt. My first example of utilizing leverage well is a fixed rate mortgage during high inflationary environments, as we just experienced. You just went through this, you’re familiar with it. If you locked in a 30-year mortgage at three or three and a half percent and inflation is running at eight, that payment, which is fixed and locked in for three decades, which seemed like a big commitment back then is now one of the best financial decisions you made. Everything else is going up in price, making your payment easier and easier.
Every 23 and a half years, historically, your money has to double just to keep up with inflation, and that’s not in high inflationary environments, that’s utilizing historical inflation rates. That means around every 20 years your mortgage payment feels like half what it was when you first took out the loan. Think of it this way, you’re essentially paying back your loan with cheaper dollars and is a classic example of good debt, leveraging borrowed money to secure an asset that appreciates over time.
Now, I know mortgages are a hot button. I know even just talking about debt and leverage and that it’s not all terrible creates emotion in someone. I understand that. I recognize that. If you hear these examples of good debt, and you say, “I get it, John, I know I could on paper have more money, but I just can’t emotionally get there. I want peace and the only way I achieve peace is by having zero debt, even the good kind, no leverage at all,” well then that might be the right move for you. But possibly, through this discussion and further ones just like this, you may see that not all of it needs to be feared.
Another example of good debt is using a line of credit to start or grow a business. Now, ideally you could cashflow the entire business or you had a rich uncle that gave you an interest free gift to start your business. But I have one client in particular who used a $50,000 line of credit to kickstart a business that’s now worth millions, really smart leverage because without it, the business doesn’t exist today.
Along those same lines, if you are running a highly profitable business and you need capital to fund new initiatives, borrowing money can be a smart move even if you’re going to be charged 5% interest because if you’re confident that those funds will generate, in an extreme example, a 50% return inside of your business, then even after paying the 5% interest, you’re still looking at a 45% net gain. Of course, it’s important to fully understand the risks, especially the danger of over leveraging in case the business takes a downturn. But if managed properly, this kind of strategic leverage through borrowing can accelerate growth significantly. We often see this with businesses that borrow to expand capacity like building a new manufacturing plant, once completed even though they had to borrow for it, that investment can help scale operations and boost profitability.
Here’s another one, how about an investment in education obtaining a degree with a strong ROI?Now, I’m also going to use education here in a moment as an example of bad debt, but if you want to be an engineer, you need a degree in engineering. If you want to be a dentist, you have to go to dental school and you have an opportunity to make a whole bunch of money once you’re out, but you need that degree. But it’s crucial to weigh the cost of education against the expected increase in income. If you have kids or you have grandkids who are processing this decision, help them assess this.
All right, well we talked about the good uses of debt, but I’ve got two categories on the negative side and that probably is representative of the disproportionately negative impacts of debt relative to the good ones. So you probably know someone who bought a brand new car that they really couldn’t afford, maybe it was you, as I did when I was in my early 20s. I loved buying cars I couldn’t afford and they made me feel really cool. It looked great in the driveway. But the monthly payments were steep and the value of the car started dropping the moment I took it off the lot.
This is a classic example of bad debt, buying something you don’t need with money you don’t have that depreciates faster than you can pay it off. You’re in the finance manager’s office and they’re trying to convince you to buy gap insurance because you just bought an $80,000 SUV and financed 75 grand and they’re trying to explain to you that if you total this thing over the first year, it’s not going to be worth anywhere near as much as you owe. Are you going to write a check out of pocket in that scenario?
Another example of bad debt is closely related to the good debt associated with education, but taking out student loans on a degree that doesn’t offer a significant return on investment. There are all sorts of people that have spent high five figures or even six figures on bachelor’s and master’s degrees, the debt’s crippling, they don’t have a clear path to pay it off and they don’t obtain a high paying job that’s correlated to that degree. So the type of education and how it aligns with your career goals really matters which category that type of debt goes to.
And now to the ugly, which is a huge category when it comes to debt, we can pile a laundry list for the rest of the show into the ugly sides of debt. The first is margin calls are over leveraging in the stock market. To illustrate this point, let’s hear from bestselling financial author Morgan Housel in a conversation he had with Howard Marks on his podcast, The Memo. Housel talks about Warren Buffett, Charlie Munger and their third original partner that you’ve probably never heard of. He’s a lot lesser known because he fell off the map after having too much leverage. Have a listen.
Morgan Housel: Several years ago, a hedge fund manager named Mohnish Pabrai had dinner with Buffett and Mohnish said, “What happened to Rick Guerin? He was all over the early history of Berkshire and now he’s not. What happened to this guy?” And Warren told a story, which was that Warren, Charlie and Rick made all the same investments together. Rick did one thing different, which was that he invested very heavily on margin. And I think it was the 1974 bear market, he got clobbered.
Warren had a saying that stopped me in my tracks, I thought it was so fascinating. He said, “Rick was just as smart as us, but he was in a hurry.” And that is amazing. And I don’t think it’s an exaggeration to say Warren and Charlie have gone through their entire life intentionally at 70% of their potential. They could have been levered, they could have gone into debt and earned higher returns, but they willingly operated below their potential because they were more focused on endurance. And the fact that Buffett’s been compounding for 80 years now or whatever it is the sole reason that he has the net worth and has accumulated the assets that he has. And so much easier to say, I’m in it for the long term than it is to willingly operate below your potential in the short term.
John: Again, that was Morgan Housel on Howard Mark’s podcast. Thank you for that example of the cost of leverage when it comes to the stock market. Another classic example of ugly debt is what happened during the subprime mortgage crisis in 2008 and 2009, and frankly, this is why some people, even when they hear about maintaining that 30-year fixed rate mortgage, the good debt that I referred to earlier, they don’t see it as good debt because they’ve seen people’s lives destroyed by something that if you strip it all back and remove the layers, it’s a mortgage. You had many people over leveraging themselves, buying multiple properties with little to no down payment at all. They don’t have any income to support it, banking on renting it out, property values spiking, watching their net worth increase, utilizing all of this leverage and eventually selling off the properties. They just ride it out indefinitely.
That is not, by the way, what I was talking about when I referenced home mortgages, this sort of strategy led to countless foreclosures, bankruptcies and a financial crisis that was the worst since the Great Depression, it rippled through the entire economy, both domestically and globally. It’s a stark reminder that leverage can amplify not just your gains but your losses, and when the tide turns, it can turn fast. Remember, just because there are good uses of debt and Fortune 500 companies utilize it doesn’t mean that it’s not dangerous.
Which leads me to my final example of ugly debt, and this is probably the most common and destructive form, credit cards. Imagine someone who’s been using credit cards to fund a lifestyle that they can’t afford. They’re dining out, they’re getting Door dash even though it’s twice as expensive because it’s convenient. They’re going on fancy vacations, they’re shopping for expensive clothing, whatever it might be, the debt starts to pile up, but they keep making the minimum payments, they’re just getting by. They’re telling themselves, I’m going to pay this off eventually then something unexpected happens, they lose their job and suddenly they’re unable to even make the minimum payments. They don’t have an emergency fund. They’re generally not well positioned for retirement. The interest keeps accruing. The late fees start piling up. The collectors start calling and before they know it, they’re filing bankruptcy. It’s a financial disaster that is a real tragic tale, and it could have been avoided, but it would’ve taken restraint. It would’ve required them not to overspend.
And as Americans, we see overspending modeled not just by individuals, but as a country, we’ve amassed a staggering $35 trillion of national debt with a budget deficit well over a trillion dollars each year, literally spending more than a trillion dollars every year than we bring in. And this is an example of how poor financial habits at the top can set a bad example for the rest of us, this could apply to me as a father to seven children. More is caught than taught. What am I modeling for my kids? What am I spending money on? What am I discussing with them about saving and giving? Because if you and I are not teaching the next generation how to do it right, they’re going to learn from a culture and society that mostly does it wrong. So to recap, debt can be good, it can be bad, and it can be downright ugly, but the key is understanding when and how to use it. As with most things in finance, it’s all about planning and about balance.
Today I’m joined by a special guest, Lawrence Tynes. Lawrence is a two-time Super Bowl champion with the New York Giants, and he’s the only kicker in NFL history with two overtime walk-off field goals that sent his team to the Super Bowl. Now he’s part of the practice development team here at Creative Planning, working with professional athletes and with the rise of NIL, college athletes and recruits as well. Lawrence, thank you for joining me.
Lawrence: Thank you for having me. I’m excited.
John: Let’s start with those iconic moments in your career, two NFC championship game-winning kicks in overtime. What’s going through your mind as you walked onto the field?
Lawrence: Just a lot of prep. Everything you do to lead up to that moment is for that. Kicking is pretty mundane to be honest with you. Take three steps back and two steps over and you just repeat, repeat, repeat. By that time I had been doing it 15 years and trying to dial in your routine and I was a place kicker. The only thing you can take out there on the field with you is your routine.
There’s nerves involved in those kinds of kicks. The one in Green Bay specifically, I had made two early in the game, missed two, and then obviously got fortunate to get a really good play by our defense in overtime, picked off Brett Favre, Corey Webster makes a great play. And then three or four plays later, we had another opportunity to kick a 47 yard field goal, which still to this day, it’s kind of bizarre to me is the longest field goal in playoff history at Lambeau Field. At the time it was the third-coldest game in NFL history. I think the windchill was minus 28. So there was a lot of different challenges in that game, specifically the weather, that was tough.
And then fortunately for me and our team, four years later, I was put in the same position in San Francisco. It’s funny as I’m going out there, I know it’s only seconds that you have to think about it, but I’m like, this is happening again. That’s very rare. As you mentioned, I’m the only player that’s ever done that, but that’s really just luck, and then being on some really good football teams.
John: And if I remember correctly, one of those missed kicks in the second half in Green Bay was due to a less than ideal snap. So that wasn’t entirely on you, but it was probably in your head.
Lawrence: I felt like it was going to, and then our holder made an unbelievable play to even give me a chance to kick it. But even in good conditions that would’ve been hard to make. But you add in the fact that it was minus 28 windchill, the body’s just not working properly and those temperatures. And the challenge of the day was incredible because we would typically do 10 kicks on each side of the field to get warm for the game. My holder had to stop, Jeff Feagles after five kicks on the first side because his hands were not capable of catching a football, that’s how cold it was.
John: And that’s what people often forget, it’s not just the kicker. There’s a lot more involved. You beat Tom Brady twice in Super Bowls, the only guy I’m aware of who’s done that, what’s the secret? Do you have a formula, Lawrence?
Lawrence: Yeah, just bring Eli Manning with you.
John: I love it.
Lawrence: If you can bring Eli Manning to the party, you have a chance to beat Tom Brady. And Eli has done a really good job on TV and making note of that, they have a pretty good rivalry going back and forth and they’re good friends. But I was really fortunate just to be on two really good teams with great coaching staffs, people that believed in each other and we were just fortunate to get it done twice against Tom Brady, who’s probably the greatest quarterback of all time.
John: Which of the two Super Bowl wins was sweeter for you?
Lawrence: The 2007 season, 2008 Super Bowl, by far. The Patriots were undefeated in that game, 18 and 0. And I couldn’t imagine the pressure they walked into, that had to have been stressful as heck because there’s two weeks in between the Super Bowl, so you take the week off and then the whole week everyone’s talking about, first undefeated team since the ’72 Dolphins or whatever, and we had played them in week 16-
John: And you played them tough.
Lawrence: Played them tough, lost at home, 38-35. So it was a really close game and we knew we could play with them, but I just couldn’t imagine the pressure. And you’ve heard guys come out over the years recently and say there was a great deal of pressure on us to finish that, but it was a hell of a game. I mean, without Tyree’s helmet catch, I still don’t know how he caught it. We don’t win that game and then a throw to Plaxico in the end zone.
John: Hey, I have friends who are Patriot fans and they still argue that Eli was in the grasp and that everyone stopped because they thought he was sacked and that there were 17 different holding penalties that weren’t called. They’ve got all their reasons for why it didn’t go their way. Speaking of that season, Randy Moss was incredible. When you guys took the lead, Brady threw an absolute bomb down the field and Moss, I’ve heard him saying in interviews to this day, he thinks he should have caught it.
Lawrence: Corey Webster, I believe, was in coverage on that and he had pretty good coverage-
John: Oh, he did. Yeah.
Lawrence: … obviously we were playing deep. But at the same time for me, I’m rethinking that game, there’s a lot of moments still that I watch that make me nervous.
John: You know the outcome but you’re still scared.
Lawrence: It’s weird, and you know the outcome, but the Patriots only needed a field goal. I just didn’t understand the deep shot, deep shot, deep shot. But we were able to get after Tom pretty good and sack him maybe once or twice. I know exactly the play you’re talking about when he throws it 75 yards down the field and Randy Moss had a chance at it.
John: Okay, last football question before we get into money topics, would you prefer to be iced? Does it matter for a kicker? So should a timeout be called so that you have to think about it for a while or do you like that extra time?
Lawrence: I actually didn’t mind either way. I know that’s kind of a cop-out answer, but it didn’t bother me one way or the other. I mean, sure, if they call it timeout, it just gives you a little bit more time to check the spot, gather your thoughts or whatever.
John: So would you tell them to snap it anyway so that you could get that practice kick in?
Lawrence: A hundred percent. We had obviously pre-planned that. Anytime we heard a whistle, we would have our snapper, Zach, he knew to snap the football, so just to get a practice rep. But now if you see it in NFL games, because of that, you’ll hear the whistle and you’ll see these refs jump right in front of the kicking area, which I would’ve absolutely just unloaded a ball right into the official. Because I’d be like, “I didn’t see you. I had my head down. I was-”
John: “Hey, I didn’t hear the whistle.”
Lawrence: What are they going to do, call a penalty? I mean they can’t. But now you see guys still to this day, they’re able to get a kickoff, even on punts.
John: Well, Lawrence, you’ve been with Creative Planning for a while now. You’ve worked with a lot of athletes who suddenly find themselves with real money to manage. Talk to me about the first time you realized, “I have some money now, I need to steward this well, I need to make some decisions.” What’s the process like for a professional athlete trying to figure out who to trust with their money?
Lawrence: Yeah, that’s a great question. My dad was in the Navy making 45, 50k a year. We were not poor by any means, but obviously we just had enough to scrape by. And we had a nice life and we were able to have things that we needed, no extras, not a lot of vacations, things like that.
And then to your point, I bounced around a little bit, came to the Chiefs, got cut, went to NFL Europe where you’re making 700 bucks a game. It’s not life-changing money by any means. I go to Canada, and it’s the first time I’m making real money for me, it was six figures and obviously there’s tax consequences there, tax consequences, which I learned when you bring it back to the US. And then fortunately for me, I was back in the NFL the following year. But that was the first time, obviously, there was no such thing as NIL, which we’ll talk about later, that I ever had any kind of real money. I did work McDonald’s and Wendy’s, and Church’s Chicken, I had those $4.25 cent per hour jobs. But being a real adult, okay, you have to file taxes, you have to hire someone. So when I got in the NFL, I went with another firm early in my career.
John: How’d you find them? Did a teammate recommend them, or was it your agent?
Lawrence: It’s an interesting story. I met a guy in an airport who was on a flight from Atlanta back to Kansas City. We just got to chit-chatting. And was right after my rookie year, so the first time in my life really again that I made significant money as a rookie in the NFL and I just did the Bank of America thing. Okay, I’ll just put it in there and see how it goes. And then obviously I knew I was going to continue playing and making more money even double what I made my first year, and so it just made sense. So I really learned a lot from them and that’s how I met the first guy I ever went with and I was with them for most of my career I would say. And then obviously I found Creative Planning, which is right in our backyard here in Overland Park figured out they do things a little better.
John: Now, Lawrence, you’re a part of the practice development team here at Creative Planning. You’re working with professional athletes, you’re working with college athletes and college recruits now with the advent of the NIL, how do you parlay your NFL experience to guide these athletes as they navigate what can be very complex?
Lawrence: Yeah, as someone that’s done it, someone that’s lived in their shoes and experienced what they’re about to go through, especially for some of our younger players, and we do have veteran players as well, retired players, and those guys can help. But I love helping younger players because the reality of the situation is I would love for every one of our clients to see a second contract, but less than 50% of those guys are going to play more than 3.7 years, some crazy statistic-
John: It’s wild how short it is.
Lawrence: … they’re not going to get to that magical fourth season. You do get retirement now after three, but there’s so many huge benefits to playing four, five, six, seven, eight, nine and 10 years. It’s where the massive matches come in for obviously your 401k is one thing, but the NFL player benefits on the annuity side are massive. In year four, the team is contributing roughly $85,000 a year outside of your salary and everything else into your annuity. And then the following year it’s 105. That’s why it’s so magical in the NFL and it varies from sport to sport to get to a second contract.
John: Well, and I’m a wealth manager, this is what I do professionally and I don’t know the ins and outs of what you’re talking about in terms of specific player benefits and how much go into these annuities. So I can only imagine if I’m a 22-year-old wide receiver from Florida State and all of a sudden I’m being told I’m going to get a certain amount in an annuity based upon years of service, I’m probably wondering, what’s an annuity? So it’s incredibly valuable to have someone that you can trust to offer insight that’s independent, that’s a fiduciary, that’s looking at the entire picture because you’ve got this very short window to make good financial decisions that essentially are magnified because you’re earning a lot in a compressed amount of time.
Lawrence: And the goal for us is after your first four years, because paragraph five salaries for all of these players are identical, whether you’re a first round pick, second round pick, third, it doesn’t matter, undrafted, you’re going to make the same amount of money in year one, two, three, and four. And the goal is to have roughly over a million dollars put away after that. You can live very comfortably depending on where you are geographically in the country. Kansas City’s a lot cheaper than playing in New York. And then obviously there’s some state income things in certain states, but you should certainly have seven figures in your account. And listen, if that’s all you ever do for us, and we obviously would love for every one of our clients to sign that next big contract, but if that’s all you ever do at 26, 27 years old, that’s a really good start to life.
You just have to take advantage of the opportunity, because the NFL is a 100% injury league, everyone’s going to get hurt. Hopefully it’s not season ending, career ending, things like that, but that is something that all players have to plan for. It’s a violent game. So we really just try to position them first four years and then second, hopefully four through 10, four through 12, whatever that number is, but the first four years are very pivotal to save and put money away and invest and become familiar with the process. And that’s what we try to do to and to help our young athletes.
John: And I’m assuming through a planning process and having access to CPAs and attorneys and all the specialists we have on our team, that’s helpful and also that you’re able to anticipate some of their challenges because you’ve personally dealt with them and hopefully can get in front of those. One of those challenges I imagine is helping them balance enjoying some of their money at 23 years old. When they finally make it to the NFL, how do you help them find balance between saving for the future and enjoying the present?
Lawrence: Obviously, they work their tails off to get here. It doesn’t matter if it’s baseball, NBA, NFL, professional soccer, whatever the sport may be, everyone has worked really hard. You’re not going to fake it into these professional leagues. So obviously you want to enjoy the fruits of your labor.
And traditionally how we set things up is we will get them to have everything come to us from a financial standpoint and then we give them a monthly stipend that can change from month to month. But what it does is it puts guardrails on things like, “Hey, if I go into the Rolex store and see the $27,000 Batman, I don’t really need to buy that, but if I do want to buy it, guess what? I got a call my advisor.” So it puts a little, not doubt, but it creates, do I really need this? And certainly we can say yes or no, and then obviously they have final say, but we want them to enjoy their money, but we also want them to be smart and save some of it for a rainy day because the NFL is short. It’s a very, very cruel league. Like I said, the injury rate is crazy.
John: A lot of the contracts aren’t fully guaranteed, obviously.
Lawrence: Yeah, and that’s the difference. I don’t know if people understand this, unlike hockey and baseball and NBA, the NFL is year to year. You are trying to make the team every year to make your salary. The only thing guaranteed typically is what we all see on ESPN’s Bottom Line is a $115 million signing bonus. Well, the signing bonus is guaranteed, but your paragraph five salaries, for younger players especially, you have to make the team every year to get that salary. So you could play two years and in your third season, the team cuts you and guess what? You make zero. It is unlike any other professional sport because there’s no guaranteed contracts in the NFL.
John: Oklahoma State is putting QR codes on the back of their helmets so someone on TV can scan the QR code and donate to the NIL fund. It’s the Wild West right now with name, image and likeness. You have a son in high school starting to look at colleges and it’s a lot different, I’m sure, than what you experienced. How is our athlete division at Creative Planning helping college athletes navigate this new environment?
Lawrence: Well, that’s become a lot more popular in the last, I would say six, seven months. We read about it. We stood in the background last year. We still don’t understand how it’s a 501(c)(3), but somehow it is. There’s collectives involved. We’ve had some meetings with schools. We have a big meeting coming up this week with a very big school. We are really just trying to understand it more and see what it is. We’ve also had kids come in and call us, parents call us and say, “Hey, my kid was offered half a million dollars to go play basketball.” And we brought on some of those younger clients, 18, 19, 20 years old in college that are taking the right steps to think, “I am never probably going to make any money college.” And the smart ones are going to try and maximize their dollars while they’re in college.
John: Well, yeah, you get a half a million dollars at 18 years old and just pretend you don’t have it and let it compound until 65 and you’re sitting pretty.
Lawrence: That’s the message. Yeah, that’s a great point. We show them things that this could look like obviously in a decade. It’s a really good start to life. And pro sports is not guaranteed to anyone, I don’t care how good you are or how much money you make. There’s a argument to be made that some kids should stay in college because they’ll make more money instead of leaving early for the draft or things like that. I mean, we’re seeing quarterbacks make two, three, four million a year in college. I mean, that’s a significant number. I would stay in college as long as I could because the NFL is very, very, very hard.
John: Totally agree. You’re seeing now someone that is a borderline lottery pick, let’s say in the NBA, but can go back to school and get millions of dollars at Duke or Carolina or Arizona, why not do that, try to improve their draft stock and reenter the draft the next year. Before it was, well, I want to earn some money, now that’s not the case anymore, so maybe we’ll get a more interesting college sports landscape that retains some of the talent that would’ve otherwise left earlier for professional leagues.
Lawrence: Yeah, and then next year, obviously, there’s revenue sharing much like an NFL or MLB or NHL, there’s going to be revenue sharing in some of these bigger conferences where the money pile is 25 to $30 million to spend on athletes per school. That is significant dollars. So basically this is pro sports.
John: Well, I just saw that Alabama, their person threatened to leave for USC and they upped their pay to, I think it was $800,000 to keep them in place. I read the article and thought, “Wait, did this just say that Alabama has a general manager?”
Lawrence: It’s a newly created position. Our team here has really been studying it from every different angle. And just like an NFL franchise or any sport for that matter, the general manager is going to assign values to players. Quarterbacks are going to make the most, left tackles, defensive ends, things like that, and then so on and so forth. So it is fascinating. We are just tiptoeing on it because I don’t understand the 501(c)(3) angle. I really don’t.
John: Lawrence, explain to the listeners, if they’re a fan of Nebraska and they want to give money to Nebraska, you’re telling me that that’s deductible at this point, even though they’re going to turn around and give that to the players theoretically?
Lawrence: It is, and it’s a deduction, but at the same time, the collectives which run the NIL and distribute the money, take 15 cents to 20 cents on every dollar. That’s what I don’t understand.
John: It sounds like you and I are in the wrong business, we need to be in these collectives. That’s what we need to do.
Lawrence: I’m telling you, the amount of money pouring into the schools and you are taking 15 to 20 cents of every dollar that’s given for the collect… We don’t understand it, and we have a lot of very smart people, obviously, as you know, in this building. So I just don’t know where the IRS comes in and puts the hammer down and says, “This is no longer acceptable.”
John: Let’s talk about taxes. They can be confusing for all of us and particularly complicated when it comes to athletes earning money in various states as well as from endorsements and a variety of sources. How do you help them navigate those challenges? Because I would assume having over 250 CPAs at Creative Planning is helpful.
Lawrence: Huge. Yep, massive. It’s one of the main reasons I came over here. To have your wealth advisor speaking with your CPA people every day is a huge, huge benefit. There’s some efficiencies there. But yes, having the team here in the building obviously and the whole family office structure that we have built at Creative Planning, I think that’s what speaks to a lot of pro athletes and quite frankly why we have a lot of them. To make one phone call and one email is really good because players do not prioritize this stuff and they’re not probably going to make two or three different phone calls to call their CPA or call their advisor or call their trust or estate attorney for things, so streamlining the business, which we do well here, putting everything under one roof is significant. I want to circle back a little bit quickly to NIL. So one of the other things we do, I think, that’s important for our NIL kids, is we make an LLC for them.
John: Well and the legal aspect too, with 60 attorneys.
Lawrence: Yeah, we have our own law office downstairs, probably one of the biggest estate attorney’s offices in the world right here in our building, and we can knock out an LLC very, very quickly for our young athletes, especially on the college side. We have some pro athletes that do it more for the write-off side of things in terms of taking care of their body and maybe buying sauna and things and equipment like that, that is a business expense, but certainly for the young college athletes, because all that money is 1099, you’re an independent contractor, and so we’ve done some LLCs for these young men and women to get them set up and so they can be more efficient with their taxes. And that is the biggest thing we talk about on the education side. When we go into these schools, it’s all about education. That’s what we want to provide to the young men and women playing college sports is taxes. Just because someone gave you $40,000 doesn’t mean you get to spend all 40.
John: Yeah, it’s a surprise when they’re like, “Wait, why don’t I have 40? Where’d the rest go?”
Lawrence: But I will say this, the majority of these kids are much more advanced than I was even while I was in college because I think there is so much more information out there. There’s apps, as we all know, things like that, but these kids are fairly sharp, but they still need some guidance.
John: Having your financial life simplified is valuable. Having everything handled under one roof hopefully optimizes your plan and creates better financial outcomes, but also lowers your stress and your anxiety because your professionals are all communicating with one another.
Lawrence: It’s very powerful. And we just want our athletes to go play, we don’t want them to think about anything from a financial-
John: It’s hard enough to stay at an elite level.
Lawrence: It’s a difficult… People always say, “Do you miss the NFL?” And I’m like, “I miss Sundays. I don’t miss Monday through Saturday at all,” because when no one’s watching, there’s a lot of hard work and sacrifice and selfishness that goes into this, being away from your family, spending time at the facility, trying to get better, and you’re doing it for your family, but you become a very selfish person when you’re an athlete, and then obviously you got wives and families at home. There’s a lot of sacrifice there to make this thing happen, but we just want you to go play.
John: That’s a really good point.
Lawrence: Let us take care of everything else, and that’s what Creative Planning has done for me personally and then obviously is what we’re doing for our athletes. And we love seeing the successes of our athletes and hopefully there’s success on the field, but financial success too, if you play good, you get paid good, and obviously we want to take care of their family and the generations after that and I think teaching young guys, that is pretty cool. I never wanted to coach. I just saw the hours that coaches had to put in. We obviously have coaches as well, and I love the coaches, but the hours for me didn’t work.
John: Oh, you didn’t want to sleep on your couch in the office for six months of the year?
Lawrence, Guest:
No, no, no, no. But this gets me back involved with athletes in a meaningful way without having to go spend 16 hours at a facility teaching a kid how to kick a football. So I’d much rather be on this side wearing a collared shirt and a blazer in the air conditioning talking to you.
John: Well, Lawrence, I’m having way too much fun. We could continue on for another hour. This has been enlightening for me. Thank you so much for joining me on Rethink Your Money.
Lawrence: I really enjoyed it, and let’s do it again soon.
John: Schedule a tax planning visit with your CPA. If you are a regular listener, you might remember Creative Planning director of tax services, Ben Hake last week was my guest, and he emphasized that this is your financial pre-season. Just as the best teams don’t wait until the playoffs to start getting ready, you don’t want to wait until you’re filing your taxes to get your strategies in order. By meeting with your CPA, now you can position yourself with the best shot at maximizing your tax benefits and minimizing any surprises.
If you don’t have a CPA or your advisor isn’t coordinating with one head over to creativeplanning.com/radio to connect with us, this should be a priority within your financial plan. A financial plan in fact, isn’t really a comprehensive financial plan if it doesn’t account for taxes. When is the last time your financial advisor reviewed your tax return? Again, if you missed it and you’d like to listen to my interview with Ben Hake, you can do so on the radio page of our website at Creative Planning, which is also where you can schedule that visit if you’re not sure where to turn and you’d like our help. Again, that’s creativeplanning.com/radio.
Now, I know today’s show has been really heavy NFL, so if you’re a sports fan, if you like football, you’ve probably loved it. If you don’t, you’re like, “John, can we just get back to Roth conversions and rebalancing and small cap versus large cap?” And I promise this won’t be the norm for every week until the Super Bowl, but with football kicking off, it’s been fun for me to draw some parallels between the Gridiron and your finances, and I’m going to keep that going just a bit longer as we rethink common pieces of wisdom from both football and finance.
And the first is that teamwork makes the dream work. In football, just as in personal finance, the team that you surround yourself with is absolutely crucial. Bryce Young, the number one draft pick last year, many are wondering, “Is he a bust?” I don’t know, they threw him in there on the Carolina Panthers, a team and an organization in complete disarray. I’m not sure anyone could have done much with that because of the team around him, an erratic owner, a coach fired mid-season of his first year. That’s tough.
The reality is you might be the best quarterback in the league, but without a strong team around you, you’re going to get sacked. The parallel is pretty obvious, you need the right professionals helping you achieve your goals. Do you have the right advisor? Do you have the right CPA? Do you have the right estate attorney? How about your risk management? Are they all working together on your behalf? Because it’s not just about having a team, but it’s about having the right team that communicates effectively with you and with each other.
In fact, I recently had a conversation with a prospective client who received a large bonus at work. Their advisor suggested investing it but didn’t talk with the CPA, invested it in the wrong place. After the fact, the CPA indicated that had they been contacted, they would’ve advised opening a different style of account, and then together they would’ve determined that the specific investments held in each of those different tax-treated accounts should have been altered. The bonus was somewhat unexpected, and it was a lot larger than any bonuses previously received, which was great, but it dramatically changed their tax situation, escalating them into a much higher bracket that needed to be strategized and planned for. And as a result, they ended up paying more taxes and the investments as I mentioned, were not efficient and aligned to that one-off situation.
How about the idea that the best defense is a good offense? Conventional wisdom was always that defense wins championships, not in today’s NFL. Although the Chiefs did have a great defense last year, and it was a little under the radar because they have the best quarterback in the world in Patrick Mahomes, but nowadays, the best defense is having a phenomenal offense that keeps your defense off the field. That scores points. We’ve seen at the last two super Bowls, the 49ers had a phenomenal defense, but they struggled against Mahomes. The Eagles had a great defense, the Super Bowl before, they couldn’t do anything against Mahomes. He just went right up and down the field the entire second half, because the reality is good offense will beat good defense.
And in financial terms, when it comes to your money, a good offense means taking proactive strategic actions, as I just mentioned with this week’s one simple task around taxes. Another would be instead of merely trying to avoid losses during market downturns, focus on consistently investing in a diversified portfolio over time, dollar cost, average tax loss, harvest, rebalance and buy more shares while things are on sale. This allows you to take advantage of compound growth and the dips in the market, which may significantly increase your wealth even in the face of volatility.
Consider this, if you had invested 10 grand in the S&P 500 two decades ago and just left it untouched, despite the ups and downs, you’d have seen massive growth due to that power of compounding. Contrast that with somebody who kept their money in a low yield savings account out of fear that the market would go down, yet felt safe, they were playing defense, but their money’s barely grown and that person’s missed out on years of potential returns. It’s like running the ball three straight times, punting and saying, “All right, D, get a turnover. Stop them.” That’s not what you see when you turn on a football game here in 2024, times have changed. The Wishbone offense from the military academies of the 1960s ain’t around anymore. Georgia and Ohio State are throwing the ball.
And my final piece of common wisdom is that the game is won in the trenches. That is absolutely true. In football, that’s your offensive and defensive lines, those less glamorous positions that don’t always get the spotlight but are crucial to a team success, can you run the ball? Can you stop the run? Can you protect your quarterback, and can you get to theirs? If you can answer those questions to the affirmative, you’re probably going to have a lot of success because no matter how talented your quarterback is, if they’re running around for their life like Patrick Mahomes was in the one Super Bowl that the Chiefs lost to Tampa Bay when both of his offensive tackles were out and he had no time to throw, your team won’t win.
In your financial life, what are the trenches? Well, they represent the fundamentals of financial planning. To start, a written documented detailed financial plan. Most Americans don’t have that. Most people don’t actually have a financial plan. That’s the ultimate foundation. Along those lines, having a budget, understanding your cashflow, saving, managing debt, maintaining an emergency fund. I mean, these are not flashy. These aren’t buying NVIDIA before it goes up 100% in short order, but they’re essential for your financial stability and success.
And if you don’t want to do it, find someone, pay a professional to help you do that because your ultimate success will depend upon it. Having a solid budget helps you avoid overspending, which in turn prevents you from racking up high interest credit card debt, saving regularly, even in small amounts, builds up an emergency fund that can cover unexpected expenses and keep you from dipping into your investments at the wrong time. Let’s say you’re faced with a significant car repair. If you’ve got an emergency fund, it’s not a big deal, but if you don’t, you haven’t stuck to the fundamentals, that bill goes on a credit card, the interest high, oftentimes around 20%, and it can lead to a debt spiral that’s really hard to escape. So just like in football, neglecting the fundamentals can leave you vulnerable when the unexpected occurs.
As I wrap up today’s show, I want to talk about something deeper, I know, even than football, and that’s really the purpose behind the money that you’ve worked so hard to earn and save and hopefully give. They say money can’t buy love, and I believe there’s a lot of truth to that. Sure, money can provide comfort, convenience, security, maybe the ability to enjoy experiences, can buy you some time, but at the end of the day, it’s not the money itself that brings fulfillment, it’s what you do with it and the relationships that you build along the way. You can pay for the most expensive sports camps for your kids or for your grandkids, but you know what that doesn’t replace, showing up to their games, cheering them on, and being there for their highs and lows.
And I see this with my kids. You know what they want more than anything, my time, my attention, for me to set down my iPhone, look them in the eyes, invest in what they care about. Less than 2% of high school athletes will go on to play at Division 1 schools and even fewer, much fewer, will make it to the pros. So while it’s great to support your kids’ dreams, maybe their sports, it’s also important to enjoy the experience for what it is. It’s a chance to bond. It’s a chance to create memories and for them to learn valuable life lessons and for you to be there to have those discussions. At the end of the day, money is a tool. It’s there to help you build the life that’s rich in the things that truly matter to you, the family, friendships, experiences. Remember, we are the wealthiest society in the history of planet Earth, let’s make our money matter.
Announcer: Thank you for listening to Rethink Your Money, presented by Creative Planning. To hear past episodes or learn more about the topics and articles discussed on the show, go to creativeplanning.com/radio. And to make sure you never miss an episode, you can subscribe to Rethink Your Money wherever you get your podcasts.
Disclaimer:
The preceding program is furnished by Creative Planning, an SEC registered investment advisory firm. Creative Planning, along with its affiliate, United Capital Financial Advisors, currently manages or advises on a combined $300 billion in assets as of December 31st, 2023. John Hagensen works for Creative Planning and all opinions expressed by John or his guests are solely their own and do not necessarily represent the opinion of Creative Planning. This show is designed to be informational in nature and does not constitute investment, tax or legal advice. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on the show, will be profitable or equal any historical performance levels. The information contained herein has been obtained from sources deemed reliable, but is not guaranteed. If you would like our help request to speak to an advisor by going to creativeplanning.com. Creative Planning Tax and Legal are separate entities that must be engaged independently.
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