Having served as a wealth and business manager to athletes for multiple decades, I can easily recognize the warning signs when a client’s wealth begins to take a turn for the worse. Most often, the athletes themselves are the architects of their own downfall – though it is not exactly their fault. Most of the time they are not aware of the mistakes they are making simply because they lack experience in dealing with financial windfalls. As a result, their personal financial foundation is not deep enough to withstand a change in fortune.
My primary goal, both in my personal practice at MGO Private Wealth, and in providing guidance for The Future Game, is to help young athletes become aware of these behavioral challenges before it’s too late. My secondary goal is for them to read this and accept that it can happen to them if they are not careful. Too often they will say that “it will never happen to me.” Unfortunately, history speaks for itself and far too many professional athletes find themselves in financial distress just a few years after their career is over.
Below are the five fatal financial risks athletes face:
- The Entourage – These are the group of friends from the neighborhood that have latched on like leeches to live off the athlete. While there are sometimes true friends, the majority are living the celebrity life through financial osmosis. The athlete, having promised his friends to “take them with – out of the neighborhood or out of poverty”, forgets that before he can help anyone else, he needs to put the oxygen mask on first.
What to do instead: Athletes can turn this potential risk into an asset. They can take their crew out of the neighborhood, but give them the tools to thrive. Whether it is responsible small business loans, or career training, they can make a positive, lasting impact.
- The Gatekeeper – This is a person who doesn’t have any experience or knowledge of finances but is the family member or long-time friend that has been knighted as the gatekeeper by the athlete. This person uses their power to make sure that no one can get to the athlete – shielding the athlete from knowledge of how bad The Gatekeeper’s decisions are and the negative consequences on the athlete’s finances. They refuse to let anyone in that might undermine their relationship.
What to do instead: First, athletes must take a careful look at who they’ve put in charge and consider whether their motivations are right, and perhaps more importantly, whether they have the skills needed to make these decisions. If one or both of those is lacking, they can either go the route of #1 and help them get there, or make the hard decision of letting them go and finding someone new.
- The Tantrum – When an athlete is finally rewarded for the amount of work and discipline required of anyone that turns pro, they suddenly feel that they deserve anything and everything. There comes a point when they feel that they can do no wrong and begin to enjoy the power that celebrities are given by our culture. When told not to buy luxury items such as jewelry or cars, the response is – “who the hell are you to tell me what I can or cannot buy!?” They throw tantrums like a toddler at a store when the parents don’t allow them to buy a toy.
What to do instead: This one is on the athlete. No one will ever truly understand what they’ve gone through to achieve success, but they also have to keep their feet on the ground. The best path forward is to implement a budget that lets them live a little and enjoy what they’ve earned, but also has controls in place to ensure they don’t unintentionally ruin their finances.
- The YES Men – As soon as someone in the athlete’s camp gets fired for not agreeing with bad decisions, the professionals hired to protect their client, like the agent, business manager or lawyer, are likely to mitigate any conflict with the athlete to avoid getting fired – becoming YES Men. They would rather ride out the financial storm that is coming then tell the athlete only what they need to hear. As soon as there are only yes men around, the end is almost certainly over.
What to do instead: Athletes must understand that getting different points of view on financial matters mitigates potential future financial hazards. They should get in the habit of always asking their team: “What could go wrong with this financial move?” The final decision is always yours, but there is tremendous value in having a team of advisors that feels confident to share financial knowledge and experience, even when you don’t want to hear what you need to hear.
- Financial Myopia – This is when an athlete has a defective vision of their financial future. The income earned is usually compressed into a few short years. The average career span of someone in the NFL is 3.3 years, someone in the NBA is 4.5 years, someone in MLB is 5.6 years, and someone in the NHL is 5 years. Sure they may earn a lot of money, but after paying their agent’s fees, taxes and for a luxury lifestyle, there usually isn’t much left over to invest to provide income the rest of their life. In their own limiting beliefs, they think that they can pull off another miracle in overcoming all odds to maintain their lavish lifestyle for another half century, just like they overcame insurmountable odds to become a professional athlete.
What to do instead: Budgeting and planning are the keys here. Just remember it isn’t a “one or the other” situation. With the right mindset and approach, athletes can still live (relatively) large, while putting away enough to secure a future for themselves and their family. It just takes some self-control and a willingness to do right for themselves.
So many athletes come into a level of money at a young age that no one is truly prepared to handle. Athletes just have to remember that true baller status comes when athletes can live like a king for a lifetime, not just for a couple years. If an athlete can build a trusted team, establish a plan, and follow it through, a comfortable lifestyle is highly attainable.
By Louis Barajas, MBA, EA, CFP
Partner and Chief Strategy Officer at MGO Private Wealth
Advisor to The Future Game
Author of: My Street Money – A Street Level View of Managing Your Money from the Heart to The Bank