Top 10 tips for athletes on how to protect their financial welfare
The financial welfare of athletes is an often-overlooked issue. Headlines will scream about outrageous salaries and conspicuous spending, but rarely clarify that the majority of athletes earn far more modest incomes. And what is also overlooked is that, no matter how much an athlete earns, they face having those earnings end abruptly at a vulnerable age when the majority of professionals can look forward to comfortable salaries for another 30+ years.
This can cause significant stress. Randy Kessler points out the link to family problems in his recent blog: “Why does it seem like professional athletes often have issue with family law.”1 And of course we all know sad stories about Paul Gascoigne2 and other Premiership footballers.3 In the U.S., the National Football League is now running Personal Finance Camps4 to teach about the financial industry and how to make their money last after they stop playing.
In this Feature, Adam Osper - a Chartered Financial Planner with extensive experience in advising sports clients - shares his Top 10 Tips for athletes on how they can effectively manage their finances to achieve financial security and independence during and after their sporting career ends:
1. Understand your income and expenditure early
One of the first things athletes can do is to fully understand their income and expenditure, knowing exactly what is coming in and going out. It sounds simple but sportspeople lead busy lives with regular travel, moving around the country or even to different countries altogether, and outgoings can quickly build up to levels that will no longer be sustainable once their career has ended. If athletes can fully understand their outgoings, their finances will become much easier to control going forward.
2. Get into good habits
The sooner athletes start saving the better. Getting into good habits early will leave them in great stead for the future, as there are so many uncontrollable variables that can impact upon them over their time in sport. (How much they will earn, how often they are injured… the list goes on.) The earlier an athlete can plan for their future, the sooner they can safeguard their retirement. Finishing sport at around 35 is a very young age to retire, and there will be a lot of time left in which they will have to provide for them and their family.
This is another case of sooner the better. Athletes should insure themselves at an early age when fit and injury free. An athlete’s body is central to their earnings for the present and future of your sporting career, so it’s important that it is protected straight away. There are a number of sport specific insurance policies, like career-ending insurance, that can pay out a lump sum if injury forces an untimely retirement. Other insurance policies can replace monthly income, but not to the levels of high earning sportspeople like footballers.
4. Steer clear of get rich quick schemes
As athletes are in the public eye and are perceived to generally earn well they may well be the target of “get rich quick” schemes or aggressive tax schemes.5 Steer well clear of these - anything that sounds too good to be true will be! Always try to maintain a clear solid investment approach.
5. Surround yourself with a team of professional advisers
Having a strong, trustworthy team working together around the athlete is key to them not having to worry about off-field events, leaving them to remain wholly focussed on their profession. Often families or agents like to keep professional advisers at arms length to remain in control, and this can do far more harm than good. In the author’s experience, having an agent, lawyer and tax adviser working alongside each other as part of a team will ensure a much smoother handling of your affairs and reduce the risk of things going wrong.
6. Pay down debt
As an athlete’s career is relatively short, and can be cut shorter through injury, paying down debt (especially a mortgage) is important. Athletes may be tempted to spend excess income on other luxuries, but from a financial management perspective it will be far better spent on clearing your debts first. A short-term mortgage that is mostly or entirely repaid at retirement will reduce their expenditure throughout their post-sporting life, with the added security that comes from owning outright your family home.
Property is often a preferred investment asset. There is nothing wrong with this but, as with any asset, athletes should be careful of the price they are paying and the location of the property. Appreciate that properties (especially in some locations around the country) may be overvalued and can be bought for too high a price. This can end up causing problems in the future if an athlete has taken out an expensive mortgage and/or have issues selling it. On the flip side, buying smaller properties in less affluent areas, which have minimal chance of capital growth and low rental income after tax, can also be a financial burden. The author has met sportspeople with properties they no longer want in areas they no longer live, which are draining their finances, as they cannot sell.
8. Diversify your assets
Athletes would be well advised to “spread your risk” by investing their monies into a “well diversified” portfolio, which means that it includes a number of different assets such as property, cash for emergencies, shares and bonds. Investing in just one asset, like property, can be dangerous as it leaves the athlete exposed to one particular market. Also, athletes need to make use of all your available tax “wrappers”, including ISAs and pensions and family members tax efficient allowances if available. Athletes should always seek the advice of an independent financial adviser on these issues.
9. Enjoy yourself but always have one eye on the future
Whenever I sit with clients I always tell them to enjoy themselves and the perks that come with being a sportsperson, but to also keep one eye fixed firmly on the future. A good career can last 15 years or more, but for most athletes peak earnings may only be between a six to eight year period. Before they know it, it will all be over. So athletes should enjoy themselves, buy the things they can afford, but always think about what happens afterwards. Balance is the key.
10. Aim for Financial Independence
My main aim with my sporting clients is to help them achieve financial independence. For different people in different sports, playing at different levels, this means different things. But for me it means getting athletes into a position where they are in comfortable control of their future at the end of their professional sporting career. Athletes are then in an enviable position of being able to make decisions over exactly what they want to do for the rest of their life without having any financial pressures weighing down on them. This independence will make their transition into post-sporting life all the more easy.