The warning signs that an athlete’s wealth is about to take a turn for the worse
are easy to spot – because it happens in predictable ways. Lack of experience
and betrayals of trust are enough to take down all but the strongest financial
foundations. The biggest keys are to understand it can happen to anyone, and
take the simple steps to avoid these issues.
1. The Entourage
Friends from the neighborhood can latch onto the athlete, and live the celebrity life while being a persistent drain on finances and a source of bad ideas. The athlete has promised to “take them with – out of the neighborhood/poverty,” but forgets that before they can help anyone else, they need to put the oxygen mask on first.
What to do instead: You can turn this potential risk into an asset. Take your crew out of the neighborhood, but set them up to thrive. Whether through responsible small business loans, or career training, you can rise up together.
2. The Gatekeeper
Too often a long-time friend or family member, with no financial experience or knowledge, becomes ‘The Gatekeeper’ for the athlete. This person makes bad business decisions and controls access to the athlete, ensuring no one can expose the negative consequences on the athlete’s finances.
What to do instead: You must take a careful look at who you’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 is lacking, go the route of #1 and help them get there, or let them go and find someone you can trust.
3. The Tantrum
When finally rewarded for the work and discipline required to become a pro, many athletes go through a phase of feeling that they deserve anything and everything. 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!?” Increasingly disastrous financial decisions inevitably follow.
What to do instead: This one is on you. No one will ever truly understand what you’ve endured to achieve success, but you also have to keep one foot on the ground and understand how quickly you could lose everything you’ve worked for. The best path forward is to implement a budget with room to enjoy what you’ve earned, but also has controls in place to ensure you’re building an unshakeable foundation for the future.
4. 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 near.
What to do instead: You must understand how getting different points of view on financial matters helps avoid financial hazards. Get into the habit of always asking your team: “What could go wrong with this financial move?” The final decision is always yours, but there is tremendous value in advisors who feel confident sharing financial knowledge and experience, even when you don’t want to hear what you need to hear.
5. Financial Myopia
Athletes can have a defective vision of their financial future. The average career span in the NFL is 3.3 years, the NBA is 4.5 years, the MLB is 5.6 years, and the NHL is 5 years. Sure they may earn a lot of money, but after paying agent’s fees, taxes, and for a luxury lifestyle, there isn’t much left to support the rest of their non-playing years. They may think that they can pull off another miracle in overcoming all odds to maintain their lavish lifestyle, but the most common result is a broke 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, you can still live (relatively) large, while putting away enough to secure a future for yourself and your family. It just takes some self-control and a willingness to make the right decisions.
Final Thoughts
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
Private organizations, while not always smaller, often have limited resources in specialty areas, including accounting for income tax. This resource constraint —the work being done outside the core accounting team — combined with the complexity of the issues, means private companies are ideal candidates for, and can achieve significant benefit from, internal controls enhancements. Thinking beyond the present, the following are five reasons private companies may want to adopt public-company-level controls:
1. Future Initial Public Offering (IPO) – Walk before you run! If the company believes an IPO may be in its future, it’s better to “practice” before the company is required to be SOX compliant. A phased approach to implementation can drive important changes in company culture as it prepares to become a public organization. Recently published reports analyzing IPO activity reveal that material weaknesses reported by public companies were disproportionately attributable to recent IPO companies. Making a rapid change to SOX compliance can place a heavy burden on a newly public company.
2. Merger and Acquisition Deals – If the possibility of the company being sold to an M&A deal exists, enhanced financial reporting controls can provide the potential buyer with an added layer of security or comfort regarding the financial position of the company. Further, if the acquiring firm has an exit strategy that involves an IPO, the requirement for strong internal controls may be on the horizon.
3. Rapid Growth – Private companies that are growing rapidly, either organically or through acquisition, are susceptible to errors and fraud. The sophistication of these organizations often outpaces the skills and capacity of their support functions, including accounting, finance, and tax. Standard processes with preventive and detective controls can mitigate the risk that comes with rapid growth.
4. Assurance for Private Investors and Banks – Many users other than public shareholders may rely on financial information. The added security and accountability of having controls in place is a benefit to these users, as the enhanced credibility may impact the cost of borrowing for the organization.
5. Peer-Focused Industries – While not all industries are peer-focused, some place significant weight on the leading practices of their peers. Further, some industries require enhanced levels of security and control. For example, cannabis companies with a heavy regulatory burden, industries with sensitive customer data like lifesciences, and tech companies that handle customer data, often look to their peer group for leading practices, including their control environment. When the peer group is a mix of public and private companies, the private company can benefit from keeping pace with the leading practices of their public peers.
Private companies are not immune from the intense scrutiny of numerous stakeholders over accountability and risk. Companies with a clear understanding of the inherent risks that come from negligible accounting practices demonstrate their ability to think beyond the present, and to be better prepared for future growth or change in ownership.
]]>The Basics of Financial Literacy: Saving and Investing >
The Basics of Financial Literacy: Getting and Building Credit >
The Basics of Financial Literacy: Everything You Need to Know about Diversifying >
The Basics of Financial Literacy: Budget Now, Enjoy Yourself Later >
]]>Living Your Vision, Part 2: How to Create an Honest Brand for Your Present & Future >
]]>The financial perils celebrities face in Hollywood
A professional athlete or a top tier individual in entertainment should look at their expanded wealth and the management of that wealth the same way a mid-sized company would. The person earning the income is the CEO of the business and their name is the brand. They need a CFO to manage finances who is supported by a team of experts who are the best in their fields of wealth management, diversified investing, and financial planning. This team then enables the talent to get the best use out of their wealth while still making provisions for a comfortable future.
A good partnership between a high earning professional and a financial team can yield endless results and allow earners to live comfortably now and long into the future when considering retirement. Trust is the key to a successful working relationship between a high-income client and their financial team. With that trust established; the future of an individual and their family will be assured with strategy, planning, and more than just a bit of market savvy.
The first step in working with a professional financial team is to take ownership of financial awareness and education. It’s important that the earner takes time whether over the phone, remotely through video conference, or when possible in person; to sit and talk to their financial professionals. This will help them understand how and why their money is being managed the way it is.
A financial team needs to be allowed to act as guardians of wealth
High-earning talent must allow their financial team to act as guardians and keepers of their money. In the worlds of sports and entertainment celebrity, very few things are ever denied top-earning talent, and quite often they are not acquainted with the word “no.”
This is where financial teams step in to not only shield talent from financial predators and bad investments, but to also protect the earner’s money from themselves by helping curb extravagant spending and off-the-wall purchases. A good financial professional team is the best line of defense against money disappearing with no return.
Establish current and future goals for the life you want
A series of goals must be set by the earner and their financial professionals to properly plan for the future. Where do you want to be when you retire? What kind of life do you want to have? With the money you have coming in, what sort of plans can you make for yourself and your family? It’s important that individuals set realistic goals that are guided by their financial team, and that they maintain solid credit through their more lucrative years so they have an excellent history to build from.
Work to establish a series of sound and profitable investments
Talent can work with their financial team to establish investments that will earn returns and dividends that they can draw upon once they are no longer working. Municipal Bonds and ETFs in efficient markets are examples of smart investments. There are a multitude of options available, and if your financial team is savvy; they can advise you in the world of alternative investments like casinos, restaurants, hotels, and newer
markets like cannabis.
Get the right insurance for your career and risk profile
The financial team must work to ensure that talent has adequate insurance. Athletes take risks with their bodies all the time, so it is important that a player maintains the correct type of insurance that will cover them if they are injured and are unable to return to playing for a season. Or in a worst case scenario, they are forced into early retirement by an injury. The same can is true for actors, directors, and professionals in the world of entertainment. On-set accidents do happen, and if a person is unable to work in their chosen field; their earnings drop to next to nothing.
There is an energy and synergy to money
There is a synergy and energy to the exchange of money. Money is like an electrical current and a flow must be maintained at all times for wealth to increase in size. There needs to be a give and receive in place when balancing an individuals’ investments and wealth, and there is always the value of giving vs. receiving to consider. This journey to finding a balance with a financial team and a true vision of what a person wants to achieve with their wealth and their life is a much broader topic; which we’ll be discussing soon enough. So, just keep your eyes open for further editorials in this ongoing series!
]]>