A Guide to Wealth Management for Professional Athletes
Young professional athletes may be new to the idea of wealth management, but few things could be more important for their future. With the excitement of beginning a career in sports, long-term financial planning is often delayed by players, their families, and team advisers. However, the consequence of putting aside wealth management for athletes is well known through the disheartening stories of now-retired professionals.
Some athletes are proactive and already work toward a second career, but many are focused on the current demands of their sport. Every individual is unique and will require a customized approach that suits their age, earning level, and investment goals. This guide will help you understand wealth management for professional athletes, and what steps to take to ensure financial security.
Why Do Pro Athletes Need Wealth Management?
Inconsistent Paychecks
Although the starting salaries and signing bonuses for many athletes seem impressive compared to other professions, those paychecks can become inconsistent over time. An athlete's career trajectory depends on several factors, including injuries, performance levels, and team success.
The assumption is that the initial paycheck will be the starting point toward much higher earnings, but sometimes athletes earn the most money early in their career, at a time when they are also most likely to spend freely. Any future fluctuations in salary can disrupt their expectations of a steady income to support their lifestyle. Wealth management provides methods to account for this possibility and its effect on overall net worth.
Uncertain or Early Retirement
A young athlete envisions a long career, but too often retirement may come sooner than expected. In sports such as basketball or tennis, it has been observed that peak performance by players occurs in their mid to late 20s. So, even athletes that are injury-free won't expect to excel well into their 30s, and sometimes retirement is warranted as performance declines. Athletes should be encouraged to have a realistic view of how long they can continue to play and earn in their respective sports.
By compiling data on over 400 athletes, one study showed that the average athlete retired between the ages of 27 and 32. These age-related realities of a sporting career illustrate the importance of early saving and investment through wealth management strategies.
What Is Wealth Management for Professional Athletes?
Wealth management for professional athletes involves four core strategies that blend together to create a sustainable, long-term plan.
Budgeting and Forecasting
The first step is to evaluate current earnings and create a realistic budget. The temptation to spend should be balanced against net earnings and the need for savings. Then, the athlete can begin forecasting future earnings and investment returns, with adjustments for changes in salary.
Tax Saving Strategies
One of the most common mistakes is not accounting for the effect of taxes on net earnings. In most countries, taxes on high incomes can result in a dramatic decrease in the net salary amount. Fortunately, there are tax savings strategies through certain retirement plans, trusts, and charitable giving, which will require an experienced tax professional.
Some athletes will even choose their legal domicile based on favorable tax treatment, just as David Beckham famously did in Spain in 2004. The same strategy can be used in the US in tax-free states.
Investment Advising
Another crucial need for professional athletes is to engage a skilled investment adviser to guide wealth management and planning. It is natural for an athlete to be influenced by friends and family when it comes to investments, but that is not always the best resource. Athletes are better off with registered and experienced investment advisers who can guide them in asset preservation and growth.
Trust and Estate Management
The final piece of wealth management is estate planning, to ensure the security of an athlete’s family. Once again, for a young athlete, this may seem like a low priority and a distant event, but there are very good reasons to begin estate planning early. Primarily, without an estate plan, the athlete will have no say in how assets are distributed to heirs, and won’t have a way to minimize estate taxes.
Choosing a Wealth Management Partner for Athletes
In order to accomplish all of these objectives, an athlete will want to have a wealth management partner with experience working in the sports industry. Because of the unique earning levels and limited career span, wealth management for professional athletes is highly specialized. For this reason, careful selection of a wealth management partner is essential early in an athlete’s career.
Premier Sports Network takes a comprehensive approach to athlete care, which includes wealth management tools and expertise. Our wealth management partners work within our athlete care matrix to ensure that young sports professionals receive the mentoring and advice they need.
Contact us to learn more about how Premier Sports Network’s partners can assist you with wealth management strategies.