For Wealth Managers, Athletes Can Be a Winning Play

Opportunities abound for financial advisers who can help athletes make the most of their short, if lucrative, periods of peak earnings.

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Professional athletes make more than just their fans happy. They’re a major win for the wealth management business too.

“Everyone wants to get their hands on athletes’ money and sell them something. Banks, brokerage firms, even the Big Four accounting firms are trying to do it,” says Mark Castell, a senior tax adviser at HPM Partners of Cleveland, whose wealth managers have handled the finances of several world No. 1 golf and tennis players.

Sports stars’ salaries have exploded in recent years. The average salary for a National Basketball Association player amounts to $3.9 million a year, for example. Yet the average athlete retires without great wealth. “With a career of five years, if you make $1 million a year, you are probably left with $1 million in the bank after taxes and spending,” says Frank Zecca, managing director of Octagon Financial Services, a wealth advisory firm in McLean, Virginia, that serves sports and entertainment clients. “You generally can’t live off that for the rest of your life.”

Athletes’ financial needs are unique in that their peak earnings occur when they are young and during a short time span — three to five years, in many cases. A relatively youthful crop of sports retirees is thus powering this wealth management growth trend. Octagon’s client base of athletes, including retirees, has soared 75 percent in the past five years, with assets under management totaling in the hundreds of millions of dollars, an increase of some 40 percent.

“Athletes are so different from normal investors,” says Dan Goldie, an independent financial adviser in Palo Alto, California, who once ranked No. 27 in global tennis rankings and was a Wimbledon quarterfinalist. Given their need for a nest egg, Goldie prescribes less risky investment portfolios for athletes than for most of his other clients.

Major players in sports wealth management include sports management agencies such as Octagon and New York–based IMG, as well as private banking providers such as Atlanta–headquartered SunTrust and Chicago–based Northern Trust. Given the nomadic nature of the profession, athletes also tend to require plenty of tax advisory services. “States and countries want their piece. That means a lot more tax filing and planning issues,” says Castell’s colleague Anthony Decello, who leads HPM’s wealth-planning practice. The firm’s clientele of athletes pay up to $300,000 a year for financial services.

Because of the public nature of their wealth, another wealth management tool that athletes must learn is how to say “no.” Notes Decello, “Friends and relatives will try to convince them to do something, like start a burger place.” Adds Octagon’s Zecca, “If athletes want to open a business, we try to dissuade them while they’re playing and stress that they have to be involved in the business and passionate about it.”

Goldie and others say that perhaps the most important service they offer is education. “Many athletes don’t come from a background of money. It can be difficult for them to know how to handle it,” he says. Many have not attended college, and those who did probably had to prioritize athletics at the expense of academics.

And the confidence and competitiveness that serve athletes well at game time can cause some to exaggerate their ability to choose profitable investments — potentially leading to financial distress. “When you’re a superstar in what you do, it can carry over into other things, [leading them to] think, ‘I can do anything,’” Decello says. “Everything is about ego with athletes. They talk about finances with their teammates.” Goldie particularly sees that when it comes to real estate.

Golf legend Jack Nicklaus, who now runs a successful golf course design business, came close to bankruptcy in the mid-’80s. Many athletes have fared far worse. Former NBA star Antoine Walker blew through more than $110 million of earnings on luxury cars, gambling and, eventually, real estate investments on the South Side of Chicago that went bust during the 2008–’09 financial crisis. Walker filed for bankruptcy and had his debt discharged in 2012.

But some excesses have disappeared. In the late 1990s, for example, baseball star Frank Thomas considered issuing bonds based on his earnings. “That’s gone away, thank goodness,” Decello says.

However, more athletes have become interested in alternative investments, such as hedge funds and private equity, as those vehicles have expanded and low interest rates have limited the appeal of many fixed-income investments. Philanthropy often comes into the discussion as well, especially since many athletes come from humble origins, Castell notes.

He and others expect the wealth management industry to continue expanding for athletes. “Any industry where salaries are going up as fast as sports has a need for this,” Decello says. “The opportunities run the gamut for providers.”

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