Athletes are highly skilled professionals. But one thing they often lack is sound fiscal knowledge, which may make a supposedly lucrative career end in financial distress.
Unlike many other people, professional athletes don’t grow their wealth over decades of experience and various promotions throughout their career. They often start earning a high income as soon as they sign their first contract. So, they may not have years of wealth management experience or knowledge.
Young age, sudden cash flow, and little to no knowledge about financial management can often lead to reckless spending, failed investments, and eventual bankruptcy.
Therefore, working with a financial strategist may be a good idea for professional athletes to help avoid the cliché and potentially have better long-term financial health.
But if you are still unsure about hiring a financial strategist, read on!
In this article, we are discussing how financial strategists can possibly help professional athletes live a financially-stable life, pre-and post-retirement.
Why Working with a Financial Strategist May Help Pro Athletes
Pro athletes are not always among some of the most financially responsible people. And the lack of focus on building fiscal acumen may only make matters worse.
Financial strategists can help professional athletes make smarter financial decisions and provide insights to empower them with better financial habits.
So, pro athletes might benefit from the services of a financial strategist in more ways than one, including:
Understanding Your Financial Situation
What a professional athlete earns on paper may not necessarily be equal to what they take home.[1]
Most professional athletes sign thousands of dollars worth of contracts. But the money they make from these contracts qualifies as taxable income, and hence they have to pay hefty amounts of tax on their income.
Additionally, pro athletes also have certain unavoidable business expenses, like agent fees and gym membership.
All of these inevitable expenses leave a big dent in your income, lowering what you ultimately take home.
So, while the income written on paper may give a false sense of financial empowerment, the reality might be a lot different than you think.
And this difference between what’s true and what appears to be true may lead to some questionable financial decisions.
A financial strategist may paint a clearer and more realistic picture of your financial situation. They might be able to help you identify unavoidable expenditures, so you know where you stand financially and possibly make better decisions.
Potentially Saving Money on Taxes
Pro athletes tend to earn a fortune, so naturally, they also spend a lot of what they earn on taxes.
And while tax is unavoidable, there may be ways you may be able to reduce how much you pay in taxes.
A professional financial strategist, particularly one who is experienced in working with pro athletes, might know of ways you can potentially bring down your tax liability.
They may also be able to work with your CPA to help you choose the better tax route, and assist you in deciding whether you should file for standard taxes or itemize your expenses to leverage some tax write-offs for maximum possible tax deductions.
So, working with a diligent and knowledgeable financial strategist may help increase your annual take-home income by preventing you from overspending on taxes.
Planning for Post-playing Days
Athletic careers are short-lived.
The average retirement age for professional athletes is around thirty [2]. But retirement may come way early for athletes who sustain injuries.
So, unlike “regular” people, athletes have a long life to live post-retirement.
The short-lived career and long-stretched retirement call for sound financial planning so players can continue to live a good life, even after they retire.
While retirement may seem far-fetched when you sign your first contract, the volatility of an athlete’s profession can trigger the early onset of post-retirement life.
So, you may have to start planning for your post-playing days as soon as possible.
You may consider finding another job soon after you retire. But switching careers might be challenging for someone who has spent their entire life training for active sports.
It may take some time before you can find a job that you can actually do and that pays well enough to sustain a comfortable lifestyle.
But the financial situation may get severe in the transition phase when you are off the field and are yet to find an alternate job.
A professional financial strategist can help build a retirements savings plan through which you can have a safety net to fall back on and enough money in your savings account to help you get through the transition phase.
Financial professionals may also help you choose and build alternate income streams that can give you a financial cushion while you look for other jobs.
Smart Investment Decisions
Making investments might be critical for a pro athlete’s long-term financial wellbeing.
But being an athlete, making smart investment decisions can be a lot tougher than you think.
It is not rare to see athletes falling victim to Ponzi schemes and scams.
Weak financial acumen and lots of money to spare may lead athletes towards costly investment mistakes.
Antoine Winfield, an American football player, lost almost half of his $3.5 million signing bonus to such scams [3].
Apparently, he trusted his “friend” to make investments on his behalf. And this friend not only made some deplorable investment decisions but also pilfered Winfield’s earnings, transferring money from Winfield’s account to his own, all under the pretense of making investments.
So, it is vital for athletes to be vigilant of such scammers and prevent burning their hard-earned money.
Losing a million dollars on a Ponzi scheme may not seem much when you are still playing, but one wrong decision can quickly turn into a bad habit and trigger a series of bad investments, which may come back and haunt you once you retire with little to no savings.
A financial strategist might be able to help you avoid drowning your income in fake investment schemes.
Experienced financial strategists often have a keen eye for spotting fraudsters and can help you steer clear of scammers that may inevitably approach you once you start making more money.
Torii Hunter, an American professional basketball player, lost $70,000 back in 2000 when he trusted a scammer and invested in an “inflatable furniture raft” invention [4].
The investment never generated any returns, but who did return was the scammer, asking for an additional $500,000 in investment. But this time, Hunter talked to his financial strategist first, who immediately declined and saved Hunter’s half a million dollars from going into a fake investment.
Financial strategists may also build a custom portfolio designed for your unique needs which can be diverse and contain potentially less risky investments, where the expenses align with your current financial standing, to help you reach your financial goals.
Sound Wealth Management
The former heavy-weight boxing champion, Mike Tyson, was worth $400 million but had to file for bankruptcy even before retiring in 2003 [5].
Many professional athletes start their careers with millions of dollars worth of contracts. And having a massive cash flow like this can result in some questionable financial decisions.
The sudden wealth is blinding and often results in reckless spending.
And this habit has led some pro athletes to bankruptcy soon after and sometimes even before they retire.
Therefore, building healthier financial habits is paramount to present and future financial stability.
A financial strategist can help pro athletes build healthy financial habits that may result in long-term financial wellbeing.
Financial strategists can devise goal-based financial plans designed to help you live a lifestyle you desire while still contributing to your future financial goals and working towards them.
They can help you see what’s worth spending on and what’s not. And once you develop a habit of questioning yourself, “do I really need this?” every time you buy something, reckless spending tends to fade into the past.
A financial strategist can offer advice tailored to your needs, requirements, and nature and may potentially help you manage your cash more effectively.
Final Word
A lack of profound fiscal knowledge and a small earning window often make it difficult for pro athletes to sustain a comfortable lifestyle before and after retirement.
So, professional athletes may not necessarily “need” a financial strategist, but choosing to work with one may work in their favor and lead to better financial health.
Working with a financial strategist can potentially empower you to fight the financial menace that victimizes many professional athletes and may help you avoid making costly and often regrettable financial decisions.
At Dayton and Sydney, we have experience helping pro athletes deal with their financial situations. Our financial professionals can build customized financial plans and devise goal-based roadmaps for you to help you make potentially sound financial decisions. Talk to our financial professionals to get tailored financial advice today.
This information has been obtained from outside sources and is provided for general informational purposes only. Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. Equitable Advisors, its affiliates and financial professionals do not provide tax and/or legal advice.
1 “Pro Athletes Need Financial Advice before the First Snap”, Rodney Brooks, Andscape, April 24, 2017.
2 “What is the Average Length of Career in Each League?”, Alec Deleppo, Sport-net, May 29, 2021.
3 “20 Famous Athletes and their Worst Investment Blunders”, Franchise Help.
4 “Minnesota Twins Outfielder Torii Hunter Almost Lost $500,000 in the Weirdest Investment Scam”, Joe Kozlowski, Sportscasting, April 23, 2020.
5 “Tyson’s Bankruptcy Is a Lesson In Ways to Squander a Fortune”, Richard Sandomir.
