Investing For Professional Athletes
The sudden riches and attention an athlete receives after signing a pro contract can be overwhelming. It’s only natural to want to live a lavish lifestyle, but living large now can mean a difficult life later. By taking steps early, pro athletes can secure a comfortable future after their career is over.
UNIQUE CAREER CHALLENGES
Pro athletes face unique career challenges. Even the most talented and successful players are one bad play from a career-ending injury. Even if an athlete avoids a season- or career-ending injury, most have to defend their position on the roster from teammates and new draft picks every year.
Pro athletes generally have short careers and long retirements. The career of the average NFL player lasts less than four years. The average MLB player spends six years in the big leagues, and NBA and NHL players spend an average of five seasons in the majors. Most late draft picks and undrafted players don’t last one season.
This makes it essential for athletes to insure against unexpected loss of revenue during their career. All pro athletes should carry:
- Permanent disability insurance for career-ending events;
- Temporary disability insurance for non-permanent injuries; and
- Loss of value insurance which protects against temporary loss of earnings.
THE FINANCIAL NEEDS OF PRO ATHLETES
Pro athletes have complex financial needs. The fact that they receive the bulk of their earnings at a young age and over a short period of their life presents unique challenges in handling taxes and retirement planning.
A total focus on physical training makes it difficult for pro athletes to manage their finances alone. A team of qualified financial professionals allows them to focus on their career, knowing that their present and future financial needs are being managed.
This financial team should consist of fiduciary advisors legally required to always put their client’s interests first. They should also be experienced in the special requirements of managing the finances of pro athletes. This team should include a fee-only business/financial advisor, a CPA, and an estate attorney.
While this financial team can handle the details, the pro athlete makes the overall investment decisions with the information provided by the financial planner, with an eye toward any tax implications identified by the accountant and attorney.
START EARLY - COLLEGE
An athlete’s financial plans should start before they get to the draft. They must approach their finances with the same dedication they put toward their training. They should take advantage of business literacy courses and wealth planning services offered to athletes in college.
Top college prospects are earning large sums of money since NCAA compensation rules have changed. Universities have lifted restrictions on college athletes signing NIL (name, image, and likeness) contracts and sponsorships.
Beginning in 2025, college athletes are entitled to compensation directly from their athletic programs. Colleges can spend up to $22 million per year to pay their athletes directly. This is the time for athletes to get their financial team in place.
Athletes should think ahead about their post-career future by earning a degree. Competition for a spot on a pro roster is intense. Many talented athletes go undrafted and have to live a regular life after college. Many others only last a year or two in the pros.
YOUR ROOKIE SEASON
It’s hard to think about retirement when you’re young and have just signed a million-dollar contract. But no budget = financial failure. Not keeping with your budget also = financial failure.
Get your investments and savings funded on Day One. Don’t immediately go into debt buying a mansion or Lamborghini. Explore your team’s benefits package (health care, pension, investment options like a matching 401(k).)
Set up automatic deposits to your savings and investments. You won’t miss or misspend this money if you never see it in your bank account. Many financial professionals who advise pro athletes recommend they put at least 40% to 50% of their pay into savings and investments.
Even making the rookie minimum, you will have plenty of money left after putting 40% aside. $445,000 a year still allows for a more than comfortable lifestyle your first year in the league.
Signing your first contract is also the time to set the expectations of family and friends. You have to put your own future first, always with the awareness that you could be one bad play away from involuntary retirement. Some athletes will, unfortunately, have family and friends constantly demanding money and generally wanting to be provided with a rich lifestyle. Many athletes will feel an obligation to help family and friends with whatever they want, to their own detriment.
It’s only natural to want to help those close to you, but by conferring with your financial advisor before the draft, you can set limits and boundaries for the financial demands of family and friends.
By focusing on the needs of friends and family instead of being everyone’s bottomless piggy bank, you can improve their lives now and in the future. Buying someone a good home, funding legitimate business plans, and paying a friend or relative’s college tuition will set them up for success now and in the future.
YOUR PRO CAREER
A pro career can bring you fortune and fame, and the urge to splurge can seem overwhelming.
Don’t be afraid to invest. Continue funding your investments and retirement funds at 40% to 50% (or more.) Take advantage of the retirement options the league and team offer.
Establish a goal-based investment plan to encourage focus. Get with your financial planner and ensure your investments are appropriately diversified and weighted according to your risk tolerance. Regularly sit down with them and ensure your investments still match your goals.
Work with your accountant to minimize your tax obligations. Pro athletes face many different tax obligations that other people don’t, including “jock taxes” in every city where they play an away game. Similarly, your accountant can structure your charitable giving to avoid paying unnecessary taxes.
Devote attention to maximizing sustainable passive and active revenue streams before retirement. Endorsement deals can often outlast your athletic career if your celebrity status endures.
POST-CAREER
Prepare yourself mentally for the significant lifestyle changes that come with retirement. One of the most jarring is the sudden absence of your professional and social network, and even a loss of identity.
A second career helps channel your drive and goal-oriented mindset, giving you a new sense of purpose. There are several career options for a retired pro athlete:
Staying In Sports
Ending your pro career doesn’t mean giving up on your sport. Look into transitioning into a coaching position with your team, elsewhere in the league, or for college teams. Show an interest in how your different coaches do their job while you’re playing to prepare for this career path.
Explore possible careers in sports media if you have name recognition. Many pro athletes have parleyed a seat in the broadcast booth into a career spanning decades.
Entrepreneurship
Name recognition can go a long way when starting a new business. Sometimes, a passionate interest or hobby can be a springboard for founding a new business that can harness the drive you cultivated as a pro athlete. The connections you made during your pro career can be an important resource when getting a new business up and running.
Professional Employment
Professional employment can include careers such as real estate or as a financial advisor for other athletes. Many athletes earn an MBA during or after their careers. Some, like NFL defensive tackle Brad Culpepper, finished his law degree after retirement. Even acting can be a career choice with the right connections and talent.
Investing In Businesses
Properly researched franchising investments are popular among pro athletes during and after their careers. Some famous examples include Eli Manning’s investment in Papa John’s franchises, Drew Brees in Jimmy John’s sandwiches, and Keyshawn Johnson’s investments in Panera Bread franchises.
