By now you’ve no doubt heard all the cautions and warnings:
- The average length of a career in professional sports is incredibly short: 3.5 years in the NFL; 4.8 years in the NBA; 5 years in the WNBA; and 5.6 years in MLB.1, 2
- For every lucky player whose career lasts a decade or longer, there are dozens more who won’t even reach the average career span.
- Despite earning a median annual income of $750,000, it’s estimated that 80% of retired NFL players are broke by the time they are three years out of the league.3
Sure, the annual income you generate can be incredible. Making that money last a lifetime, however, can be an even tougher challenge than making it to the pros. Given the short span of a professional career, the need for prudent long-term financial planning and preparation for a second career is incredibly important.
Unlike other professions where you gain years of life experience and lessons before ever seeing significant wealth, professional athletes have no learning curve. One minute you’re a struggling college student, and then suddenly you transition to managing incredible wealth.
1. Friends, family and cash flow
Sudden wealth can be an emotional challenge.
- You may feel guilty about your good fortune while family members and friends struggle financially.
- How much you make is public information—bringing a parade of requests for gifts, loans, and ‘investment opportunities’ from both inside and outside your trusted circle.
Saying ‘no’ can be awkward and uncomfortable. That’s why a player may want to create a layer of insulation from the flow of financial requests and solicitations. A trusted wealth advisor acting as a financial gatekeeper can help.
Truist Wealth Sports & Entertainment Specialty Group works with professional athletes to design detailed financial plans that direct all their income and cash flow. That way when friends, family, or business acquaintances approach you with a financial request, you can simply refer them to your wealth advisor who handles all your financial matters.
Of course, there will be times when you want to assist someone close to you. But an advisor can help you do so in a way that’s constructive.
2. Protect your financial exposure
As a professional athlete, you’ll be especially vulnerable to financial risks such as:
- Lawsuits from people looking to make a quick buck
- A disability/injury that could jeopardize your career and income
- Hacking attempts and other financial fraud
Even though you’re young and feel invincible, it’s important to insure your future. Talk to your wealth advisor and make sure all your bases are covered with enough property and casualty, umbrella, life, and disability insurance.
Start building a plan for funding healthcare costs after your career is over. It’s one of the largest post-career expenses you’ll likely have, so the sooner you start setting aside money, the better off you’ll be. The costs of keeping coverage under your league’s plan are usually very high.
3. Complex income requires thoughtful tax planning
The tax situation for a professional athlete is complicated. Careful analysis and consideration need to be applied to items such as state tax issues ranging from duty days calculation and state of residency issues, allocating signing bonus income over a period of years, when to pay certain charitable items, and the structure of multi-year arbitration and free agent contracts. An advisor can help you address the following questions:
- Does it make sense to set-up a separate corporation if you have off-field marketing income?
- What’s the tax impact if you get traded and need to change or split residence between two states or even two countries?
Not only can your wealth advisor work with your tax attorney to address all these issues, he or she can also offer league insights and make sure you receive all the benefits afforded by your league’s CBA. For example, did you know that MLB teams are obligated to pick up the cost to sever your property lease if you get traded during the year?
4. Funding a much longer retirement
It’s hard to think about retirement when you’re just starting your career. But it’s something you need to do. Remember that for all but a lucky few, playing careers tend to end before your thirtieth birthday. That means, without considering income from a second career, you’ll need to have saved enough from your playing days to last for 50+ years.
Different leagues have different retirement and pension plan structures, but all of them incorporate generous matching contributions. Make sure you take advantage of every opportunity for tax-deferred savings including:
- 401(k) plans
- Pension plans
- Traditional, Roth and SEP IRAs
- Other defined benefit plans
Talk to your wealth advisor about whether and when it makes sense to roll tax-deferred accounts into a tax-free Roth IRA*. The goal when you’re done playing is to have as many separate income streams and financial security blankets as possible by the time you’re done playing.
5. Life after your playing career
Maybe the greatest hurdle any professional athlete will face is transitioning away from the game. It can be a real challenge to identify new passions that provide similar motivation and reward. This adjustment incorporates the obvious financial changes, but also stretches to the emotional and mental re-centering that players must experience. Stepping outside the limelight causes players to find or re-establish their own personal identity.
The time to plan for your next profession isn’t the first morning you wake up after your sports career has ended. It’s today. Find the things that energize you outside of sports—whether business, finance, technology, or something else entirely—and start preparing by exploring those interests, taking offseason classes, and finding mentors who inspire you.
It may be difficult to picture yourself as a retired 50-year-old with kids looking at colleges. But that day will be here before you know it. The steps you take now to prepare for that financial future will make all the difference.