Professional athletes and entertainers are among the highest paid employees in the world. Signing a big contract or getting a huge payoff on a movie or record deal can seem like a dream come true – and the financial reward for years of hard work.
But these professionals often find they are disproportionately affected by financial woes when the money stops flowing.
Just two years after leaving football, for instance, 78 percent of retired NFL players went bankrupt or experienced financial stress, according to a Sports Illustrated report. And within five years of retiring, 60 percent of former NBA players were broke as well.
Both athletes and entertainers tend to experience what experts call “sudden wealth syndrome,” meaning they come into a lot of money all at once.
Making the adjustment from penny pinching to privilege is not always easy: It can lead to overspending and result in someone being worse-off financially at the end of the day than they were before they hit the big payday.
When the initial “windfall” contracts and deals are being negotiated, that’s the time when athletes and entertainers must look to the future. It’s only through careful planning that those payouts will last for years to come rather than drying up after a short time of mindless spending and uninformed investing.
What’s important is “not how much you make, but how much you keep,” said Boris Gluzberg, a senior vice president at City National Bank who works with professional athletes. “I preach the value of saving and of surrounding yourself with the right advisors and the right talent. I also start talking about ‘post-career’ on day one.”
Rather than basking in sudden financial success—which is rarely sustainable—and then finding themselves unprepared for the future, athletes and entertainers can take steps to “draft” the advisors that help can make their success last.
Don’t Give in to Peer Pressure
Paul DeLauro, senior vice president and manager of wealth planning for City National Bank, calls it “the Entourage effect,” referencing the HBO TV show about four buddies navigating the life of Hollywood’s rich and famous.
Rather than feeling like they have to purchase expensive cars, homes and flashy clothing, DeLauro believes celebrities should enjoy their newfound wealth while also saving and investing for the future. That means allowing themselves to buy a few toys, like a flashy sports car or a yacht, but keeping purchases within reason.
“They should retain some play money,” said DeLauro. “They will benefit from the emotional outlet that comes from buying some fun stuff. It’s true for all of us” within our own financial means.
Watch Out for Predators
Pro athletes and celebrities need to be on alert for what DeLauro calls “creditors, predators and thieves” who are looking to take advantage of their new financial status. Many celebrities have lost huge sums of money they entrusted to people or investment schemes they believed were legitimate – and that in some cases made them feel like they belonged to a special class of investor.
“Be highly skeptical of everything. Question everything,” DeLauro said. “Surround yourself with a team of professionals with different incentives, all working for your best interest. Build a plan to protect your wealth if you want to be successful.”
Find a Trustworthy “Off-Field Coach”
An athlete’s or entertainer’s agent or business manager is an integral part of the decision-making process. People who have large sums of money newly at their disposal need someone who can help them negotiate contracts as well as plan for a life after sports or entertainment dollars stop rolling in.
For instance, the transition between a sports career and a life post-sports is most critical, as personal relationships, cash flow and even the athlete’s identity changes. Productively and honestly working through transitions with “off-field coaches” is crucial.
Expand Your Team
“One individual can’t know everything. Professional athletes and entertainers need to have bankers and advisors right there in the mix,” Gluzberg said. “The banker needs to have a relationship with the agent, the business manager and the family. Everyone needs to be focused on getting into the end zone. That means helping the athlete succeed not only while playing, but after the playing days are over.”
Look for advisors who are willing to spend time educating their clients about investments and ways to protect and preserve their wealth for the long term. Investing for the long game and building a balanced portfolio may not be sexy, but it will set you up for a sound financial future.
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The foregoing information is provided as a courtesy to our clients and friends of City National Bank (CNB) for their consideration. Unless otherwise stated, opinions expressed are those of the respective authors and not necessarily those of CNB. The information is provided without warranty and no recommendation or endorsement by CNB is intended or should be inferred unless specifically stated.
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