Sadly, the story has become a professional sports cliché. Extraordinarily talented athletes rocket to superstardom when they are barely old enough to buy beer. They land massive contracts that guarantee they will make more money in five years than most people could earn in five lifetimes.

Then, just as suddenly, a dream life collapses into financial rubble, with the athlete being sued by creditors and romantic partners, hounded by IRS agents, or filing for bankruptcy.

So how does it all go so wrong, so quickly? The common, easy answer is that young people who suddenly find themselves rich spend as if their money were on fire, without ever thinking about the future.

Yet there is often much more to these riches-to-ruins stories than mere financial recklessness. I have found that when athletes have the right mentors and professionals to help them see the big financial picture, they are far less likely to fall into those old, sad patterns that lead to financial ruin.

Sometimes the Broke Athlete Was the Good Guy in the Story

Songwriter Arthur Herzog’s classic, “God Bless the Child,” reminds us all of one of life’s bitter truths: the more money you have, the more friends you have… but when the money is gone, so too are the friends.

Those of us who never sign a multimillion-dollar contract cannot fathom the degree to which star athletes (and lottery winners) are beset by old friends, distant relatives, and complete strangers wanting a piece of that sweet paycheck pie. Far too many athletes succumb to feelings of guilt over their good fortune — particularly if they’ve ever had to struggle financially — overextending themselves in their efforts to help others. Worse, the people crowding around the athlete’s door often include all manner of swindlers, eager to ingratiate themselves and take advantage of the athlete’s giving nature.

Even brilliant former athletes like Kareem Abdul-Jabbar have lost large sums of money to crooks peddling junk investments. So yes, suddenly wealthy young stars contribute to their own demise by rushing to buy Ferraris and mansions, but often the many other hands grabbing for the athletes’ wallets deserve just as much blame when the other shoe drops. For wealthy athletes, long-term financial health begins with listening to the right voices.

An Equal Opportunity Destroyer

Few are surprised these days when another story breaks about a male pro athlete having money problems. One notable example is Adrian Peterson, arguably one of the most talented players to ever play in the NFL. Despite earning just over $100 million in his career thus far, he has been embroiled in litigation for unpaid debts, and is currently in arbitration with his money manager. Because the arbitration is private by design, details have not been released to the public, but Peterson’s attorney, Chase Carlson, has made public statements about his client’s financial situation resulting from trusting the wrong people.

Highly-paid female athletes have often befallen the same fate — for the same reasons — as their male counterparts. Sheryl Swoopes, the former WNBA superstar who is believed to have earned over $50 million in salary and endorsements, declared bankruptcy in 2004 reportedly due to poor decision making and misplaced trust in her advisers. And, Dorothy Hamill, the well-known figure skating darling, was forced into bankruptcy in 1996 after purchasing the Ice Capades in a failed attempt to revitalize the enterprise that had previously been her professional home for eight years. Some “tough love” from reputable levelheaded advisers could very well have saved her from this emotionally-based decision and major financial mishap.
 

Building a Winning Financial Team: Multiple Specialists, Multiple Layers of Oversight

Even the most talented athletes reach their full potential only with the help of great coaches — often a whole team of coaches with different areas of expertise. If coaching is that integral to the realm in which the athlete was born to excel, it is all the more critical for managing life as a multi-millionaire. Athletes who succeed financially have a team of trusted advisers, including:

The best personal managers are involved in almost every aspect of an athlete’s life, offering guidance on adding other advisers to the team, brand building, post-athletic career planning, and other business and personal choices such as what team to sign with and where to live.

The business manager (aka the accountant) should be a credentialed and experienced CPA. While many of the business manager’s responsibilities are relatively straightforward —  bookkeeping, bill paying, budgeting, insurance planning, and tax return preparation — the best business managers are also extremely well-versed in sophisticated tax planning, asset protection, and deal-structuring strategies, allowing them to act as the CFO watchdog to the CEO athlete.

Player contracts, endorsement deals, and licensing agreements (to name a few) all require astute legal representation. Every athlete, entertainer, business owner, and innovator relies heavily on the sharp eye of their lawyers. The attorney will work closely with other team members, ensuring the talented athlete can sleep at night without worrying about frivolous lawsuits, misleading or “gotcha” contractual requirements, and all sorts of other real and imagined legal troubles.

Sports agents have the most direct involvement with the sports side of an athlete’s career, most importantly by negotiating contracts. Finding the right agent means the difference between a contract that provides decades of security, and one that evaporates if a major injury occurs. A good agent will also ensure the athlete is only involved with deals or endorsements that accurately reflect that athlete’s beliefs, morals, or public image — rather than simply those that provide the largest paycheck.

While many successful people see their incomes steadily increase over working lives spanning four or five decades, most star athletes haul in the lion’s share of their lifetime earnings during one brief window in early adulthood. Receiving sound wealth management and investment advice is therefore hyper-crucial, starting with the day that first big pay stub arrives.

A Consistent Message to Never Overspend, for Any Purpose

While burning through a fortune in a well-meaning attempt to help others is nobler than endless spending on self-indulgent luxuries, the end result is the same: broke athletes who can’t help anyone, including themselves. As money piles up, so do temptations to outdo the luxurious spending of their peers, jump in on fly-by-night or “too good to be true” business deals, and save every long-lost relative under the sun.

An athlete’s management team must sound a consistent refrain of save, save, save. Given that athletes’ prime earning years represent only a fraction of their lifetime, it stands to reason that they should spend only a fraction of their income during those years. However, it is almost impossible for a 22-year-old to truly comprehend the decades of financial burdens that lie ahead. Preparing for a distant future (including a post-athletic second career) must be a central theme of every discussion between the athlete and his or her team.

Taxes, Taxes, Taxes – Why It’s Easy for Athletes to Fall Behind

Traveling around the country to play games creates extremely complex tax obligations, with many athletes required to pay taxes and file returns in 20 or more states.

Tax considerations can also heavily influence where an athlete should live, sign business deals, and more. For pro players, the tax difference between living in a high-tax state (like California) and a state with no income tax (like Texas) can reach into the hundreds of thousands of dollars annually. By eliminating the federal tax deduction for state and local taxes (SALT), the Tax Cuts and Jobs Act of 2017 only amplifies this difference.

On the other hand, saving on state taxes in the short run might not be in the athlete’s best interest if it means passing up the opportunity to play for a top-ranked team in a major city, which could lead to generous endorsement deals capable of providing income long after the athlete retires from competition. Once again, a big-picture view is critical.

One Voice to Rule Them All – The Value of a Top Adviser Overseeing Everything

Perhaps the greatest challenge athletes face in managing their finances is that fraudsters have far more experience at pretending to be trustworthy than any athlete has at seeing through such shenanigans. Many now financially-strapped pro athletes actually made a good faith effort to seek sound financial advice, and genuinely believed they were receiving it.

The best way to avoid getting conned is to latch onto a proven expert who knows how to sniff out sharks. A sports star’s management team should begin with, and revolve around, a single adviser whom the athlete would trust with his or her life.

This top adviser must be someone the athlete will listen to even when the message is, “Nope, you will not be buying that Caribbean island today.” This person must serve as a gatekeeper, working closely with — and vetting where necessary — every individual who intends to play a part in the athlete’s financial livelihood. Serving in this role requires a broad knowledge base that touches on the expertise of every team member, and a willingness to put the athlete’s best interests above all else.

The more people gathered around an athlete’s door vying for their piece of the action, the greater the danger of the wrong person steering the athlete’s decisions. The road to becoming one of the uplifting stories — the tales of athletes who came from nothing and transformed a brief career on the field into a lifetime of success—begins with finding that one person who can always be trusted to take the wheel.

This article is not tax, legal, or other professional advice and cannot be relied upon for any purpose without consultation and advice from a retained professional.

As one of the most knowledgeable and well-connected tax & accounting professionals in the world, Harvey Bezozi's mission as a CPA and CFP ® is to provide concierge-level work product and service, along with seamless communication, high energy, and a super-positive attitude. Located in Boca Raton, Florida, Bezozi has been in business since 1994, and serves clients in all 50 states and internationally. More information can be found at YourFinancialWizard.com