Download Poor Financial Decisions Land Many Pro Athletes On The Bench

Poor Financial Decisions Land Many Pro Athletes On The Bench
By Eric Dunavant, CFP®
Professional athletes can prevent financial mismanagement with discipline and an
actionable plan.
Quincy Pondexter got his first glimpse of the downside of the NBA last fall. While he
expected to join the New Orleans Hornets with fellow first-year forward Craig Brackins,
that all changed once Brackins was traded last-minute to the Philadelphia 76ers.
Brackins and Pondexter grew up together and played on the Oklahoma City Thunder,
but with Brackins gone, Pondexter is the Hornets’ only rookie. Hailing from California,
Pondexter has been left to navigate his new city, career, and fame. With a $2.1 million
contract, will the 22-year-old Pondexter be able to successfully navigate his newfound
fortune by himself? Can he survive the financial pressure to spend big while playing
against all-stars like Kobe Bryant?
It’s no secret that professional athletes have unique financial needs. Blue chip athletes
are among the highest paid professionals in the United States and face many challenging
circumstances that come along with both fame and fortune. They tend to have very short
peak earning periods—and many become too “old” or injured and are forced into
retirement at an early age.
As reported by Sports Illustrated, by the time former NFL players have been retired for
two years, 78% are under financial stress or bankrupt. Within five years of retirement,
an estimated 60% of NBA players are completely broke. Many professional athletes
attribute such backward numbers to their rigorous schedules and lack of understanding
to the complexities of financial planning, while others spend their earnings with the
naïve idea that they will be able to supplement their spending habits with one more allstar season or contract extension. They spend money that they have not yet earned and
never begin to understand the proper way to plan and budget their earnings once they
enter the “big leagues.”
To begin the trend of money problems, many amateur collegiate and even high school
athletes gain their first taste of the “good life” through illicit payments from sports
agents and boosters. For example, when Reggie Bush was only 18-years-old, agents were
offering him thousands of dollars and he got carried away with the promise of a lavish
lifestyle. He accepted the illegal bribes as a high school football player only to have to
return his Heisman Trophy in June 2010, succumbing to rumors of his illegal business
dealings as an amateur athlete.
Other professional athletes are often guilty of blindly investing and squandering large
sums of money that wind up yielding little to no return, due to ill-advised information
and money managers. Professional athletes may rake in multi-million dollar salaries;
however, they also walk a tight rope risking career-ending injuries at any given moment.
The majority spend far more than what is realistically sustainable given their income
volatility and short career spans.
Therefore, the financial-planning process is essential for professional athletes. So many
rookie athletes—as well as seasoned veterans—find their paychecks both exhilarating
and daunting. And without the proper financial education, they do not know how to
maximize their wealth so that they can truly become successful both on and off the
court. With my expertise in financial planning and wealth management, I’ve come up
with several key steps to help professional athletes such as New Orleans’s beloved
Pondexter. Below are several ways that athletes can develop a solid financial plan.
• Take a time out. Don’t spend large amounts of money until you’ve assessed your
finances: how much is coming in, how much is going out, and how much you need to
sustain eventual retirement.
• Develop a financial plan for monthly spending. Many pro-athletes don’t get paid
during the off-season, so devise a plan that will work while you’re on and off the field.
• Research and contribute to retirement plans immediately. The majority of athletes will
have to pay for at least 40 to 50 years of retirement.
• Find a credible tax advisor to help you with filing. With such large income, there are
many forms and processes that many athletes neglect.
• Decide early on how you will handle requests for money from friends, family,
organizations, and charities.
• Develop an investment plan and make your portfolio pay you. If you are traded or
injured for a brief period of time, the extra income will help you in the short-term.
• Protect your assets. Asset protection plans should include risk management as well as
legal and business components.
Professional athletes provide for their families and give back to their communities, yet
many never stop to think about the sustainability of their habits. Many do not even have
a financial plan, so beginning the process is the most important step. As Quincy
Pondexter has said, “The hardest thing for a rookie is figuring out the nuances of the
game.” That, too, is the unfortunate case in the financial game.
Eric Dunavant, CFP® is President of Mandeville, La. based Dunavant Wealth Group, a
boutique wealth management firm that provides complete wealth management and
wealth consulting services, acting as a "family CFO", providing direction and solutions
to clients’ financial needs. Securities and Financial Planning offered through LPL
Financial, a Registered Investment Advisor - Member FINRA/SIPC.
Sources:
http://www.investmentnews.com/article/20110116/REG/301169985/1/INIssueAlert01
http://www.nytimes.com/2009/08/09/sports/football/09marriage.html