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Pro Athletes: Carefully Vet Financial Advice

Professional athletes in major American sports leagues command enormous salaries, with contracts from the teams that employ them often amounting to millions of dollar each year. Endorsement deals can make those salary figures look small by comparison, in some cases doubling or tripling the earnings of already well-compensated athletes. The income numbers can sound outrageous in comparison to the wages the average American worker lives off of comfortably. So, why do so many of these high-earners end up broke?

A massive body of evidence suggests most pro athletes fail to make good investment decisions with their high incomes. More than three out of four NFL players end up bankrupt within two years of retirement. With NBA players, it's three out of five players. These high numbers are the result of a convergence of numerous factors, including reckless spending and short careers. However, there is one factor that stands out above the rest: deficient financial advice.

The Root of Poor Decision-Making

From well-intentioned family members who lack the financial experience to provide good guidance, to malicious actors within a player's inner circle, bad advice can come from many sources. For instance, former Tennessee Titans and University of Texas quarterback, Vince Young, filed for Chapter 11 bankruptcy within seven years of landing a $25 million deal with the Titans. Young later admitted he entrusted his finances entirely to his uncle and a vague "financial advisor," neither of whom encouraged him to make responsible investments or curb his unsustainable spending. 

Hall-of-Famer Dan Marino famously lost over $13 million on an ill-advised media investment when the company went bankrupt in 2012. Every investor is subject to poor decision-making and the tides of the market, but investments like these are fraught with risk from the beginning. A qualified financial advisor would have been able to decipher the vulnerabilities present on the media company's balance sheet.

Improvement on the Horizon

To respond to the well-documented trend towards financial irresponsibility, the NFL Players' Association recently amended its guidelines to mandate that all its registered player financial advisors have either a CERTIFIED FINANCIAL PLANNER™ (CFP®) or chartered financial analyst (CFA) certification. Requiring advisors to have a CFP® or CFA is important because it adds transparency to the level of service players are getting from their league-endorsed counsel.

The Players' Association's decision is a clear nod to the unique set of challenges its athletes face. They may enjoy annual incomes most of us can only dream about for a short period of time, but that cash flow can come to an abrupt halt with one injury. The average length of an NFL career is just over three seasons. For that reason, it is critical players make the most of their limited time at the apex of their earning potential. Taking a step toward ensuring players only work with qualified financial planners who can legitimately serve the best interests of the athletes will help mitigate these risks.

How Players Can Minimize Their Risk

While the Players' Association has done its part, it remains the responsibility of athletes to take a degree of ownership over their economic lives. It is increasingly a necessary step to ensure that only CFP® or CFA advisors are considered, but a level of vetting and decision-making still falls to the individual. Multiple candidates should be interviewed to assess their level of experience and fit for the athlete's risk and earnings profile. 

Ultimately, it is a step in the right direction to recognize that your financial future cannot be placed in someone’s hands if they have not demonstrated the proper level of experience. That cannot be the end of the process, however. Players should strike a balance between letting their advisors do their job and having a good sense of where their money is going. Blissful ignorance should never be an option, as Vince Young might attest. (For related reading, see: Understanding Risk: What Can You Tolerate?)

A level of understanding is the best safeguard against winding up as the next financial horror story. Every situation is different. Some players make more money than others and can afford to be flexible in how their capital is allocated. With that said, there are some shining examples of fiscal conservatism that new entrants to these professional leagues would be wise to emulate. Running backs Saquon Barkley and Marshawn Lynch, for instance, committed early in their careers to live only off their endorsement earnings and save the full amount of their salaries.

While this level of commitment may not be feasible for every player, the spirit of the decision is commendable. To the extent players can embrace conservative spending habits and maximize their rates of savings and investment, advisors should encourage them to do so. The risks are too well-documented to claim ignorance any longer. 

(For more from this author, see: Why Student Loan Debt Might Be the Next Financial Crisis.)


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