The early years of a successful athlete’s career are a thrilling time for both the athlete and their families. Change comes swiftly and often, with a lot of important life decisions to make in succession. For a spouse or family member, it can sometimes feel like they’re just along for the ride. The circle of trusted voices around your loved one increases, advice comes from many directions, and sudden wealth can feel overwhelming. As a spouse, parent, or family member, understanding the right questions to ask those managing your athlete’s financial future can help you feel empowered, educated, and secure that your loved one is in good hands.
Questions You Should Ask
“When an athlete signs a professional sports contract, it’s a dream come true for not only you, but also for your family and friends who have supported you throughout your journey. Everything seems to change overnight,” says Chris Izmirlian, a former hockey player. “Before you sign with a team, however, you most likely agree to work with an agent or an agency. Within the agency, you suddenly have a team of people who manage every aspect of your life while you focus on your sport. This team could consist of an agent, an attorney, medical professionals, financial professionals, coaches, and more. It’s important to work with a team you and your family trust above all else so you concentrate on being the best athlete you can be.”
So, as a family member or spouse, what questions should you be asking your athlete’s representatives? Here’s a few to get you started:
- Who are some other athletes you have worked with? Can I speak with them to understand their experience?
- What are the risks? People often focus on the rewards, but understanding the risks is likely more important.
- Would you make this same recommendation if we assume this is the only professional contract we ever get?
- What are the costs and how do you receive compensation for this strategy?
Financial Education
When advising athletes and their families, here are some key ways to help stay on top of the growing finances to ensure future financial stability and security:
- Budget, budget, budget. While the number of zeroes may have increased in a paycheck, it does not preclude an athlete and their family from creating a budget to establish transparency and organization of spending, saving, and investing. This gives families an opportunity to have healthy discussions with their athletes and their advisors about their earnings today and how they can ensure financial security for the future.
- Follow the Rule of 72. The Rule of 72 is a simplified formula that calculates how long it’ll take for an investment to double in value, based on its rate of return[i]. It applies to compounded interest rates and is fairly accurate for rates within 6-10%.
- Investments are only one aspect of a financial plan. Investments often get the most news and attention, but staying on top of your insurance plan, estate plan, tax plan, and cash flow plan are equally (if not more) important to your overall, long-term financial success.
- Save. According to the NFL Retired Players Association, the average NFL player lasts slightly less than three years in the league. For NHL Hockey, it’s five to five and a half years (according to Quant Hockey[ii]). The NBA average is 4.5 years [iii]. While wealth may come quickly and in abundance at a young age, it’s crucial for young athletes to be realistic about their career trajectory and save as much as possible as early as possible.
- Watch out for lifestyle creep. With wealth and status comes a natural desire to live better and to take advantage of the luxuries now suddenly available to a young athlete who has worked hard to achieve their wealth. While extravagant purchases and experiences aren’t always a bad thing, a good rule of thumb is to set a dollar limit for purchases made without discussion with a financial advisor.
In Summary
There are too many cautionary tales in our history about athletes who accumulated sudden wealth only to lose it rapidly due to bad decisions, bad people, or bad habits. There are just as many stories of success – athletes and their families who were grounded by education and who capitalized on the wealth they amassed in their careers to live incredible lives in their second acts. Empires have been built and generational wealth cultivated by good decisions.
Those first few years of your family member’s career are crucial for their financial future. Unfortunately, injuries are a real part of sports, which means the next contract is not guaranteed. Given the dollar amount associated with initial contracts and sponsorships, even an early injury does not need to mean financial ruin. Considering average annual salaries in the major sports, the amount earned in a year can represent earnings that might take most people decades to accrue. On the other hand, most people are in the work force for 30 to 40 years, while the average career of an athlete is much shorter.
Your role with your loved one doesn’t change after they achieve success – in fact, your responsibilities are likely going to expand. The more empowered you feel to ask questions, the better you can help them achieve success and focus on the things for which they are so generously compensated. If you are interested in learning more about these and other strategies we’ve employed for our athlete clients and their families, please contact us.
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[i] https://www.investopedia.com/terms/r/ruleof72.asp
[ii] https://www.quanthockey.com/
[iii] https://www.nba.com/nuggets/features/junior_bridgeman_20100610.html
