6 Biggest Mistakes Professional Athletes Make With Their Money... According to a Former Professional Athlete
Austin Coley
Financial Advisor
6 Biggest Mistakes Professional Athletes Make With Their Money… According to a Former Professional
Athlete
As a former minor league baseball player, I was fortunate enough to experience the joy of playing the sport I loved and getting paid to do it.
The journey is something I will carry with me through the rest of my life: being cheered on by incredible fans, playing on fields across the country, and meeting some lifelong friends along the way. I never quite made it all the way to “The Show” but for six and a half years I lived my dream.
With that being said, the culture of professional sports is unique, and it can certainly lead to some challenges one might not realize from the outside looking in. Not only are you expected to be successful on the field, but you feel pressure to act the part of a superstar: nice cars, jewelry, restaurants, clothes, and more. And somehow it seems that all of your teammates have enough money for the things, so shouldn’t you? On top of that, those outside of sports assume you have unlimited resources. Let me be the first to say, as an 8th round pick in the MLB amateur draft, I certainly had limited resources. And the truth is, even Mike Trout and LeBron James have a limited amount they can spend.
So that begs the question: What are the mistakes professional athletes make with their money? Why are 78% of NFL players broke less than two years after retirement, according to CNBC? After my own time in the professional sports world, here are six mistakes I saw (and experienced myself) and how to overcome them:
1. Wasting Your Wealth
Money, at the end of the day, is a tool. It can be used to fund whatever you want to do in life. Do you want to provide for your parents? Do you want to buy your dream home? Do you want to give to a charity? All of these things can be obtainable as long as you have structure to your financial picture. With the right model in place, you can plan to take the trip or buy the house and know that it works in your long‐term plan. Don’t assume your next paycheck is coming. Set guidelines now so that you know you and your family are maximizing your income.
2. Failing to Use Compounding Interest
Compounding interest is an incredible tool to grow wealth over time. Here’s an example to understand compounding interest: let’s say you made $5 million dollars last year, and you decide to invest $1 million in the stock market, leaving it untouched for 30 years. Since the S&P 500 has averaged 9.8% over its lifetime, let’s assume that continues during this illustration. With these numbers in mind, the first year, your $1 million would have grown to $1,098,000. The next year (since you’re making 9.8% off of $1,098,000) your money will grow to $1,205,604.
If you continue to do this for another 28 years, your initial $1 million dollar investment would hypothetically be worth more than $16.5 million dollars*. As a professional athlete who makes the majority of your life’s earnings in the first 15 years of your adult life, investments that compound interest over time could set you and your family up for generations to come.
3. Putting All of your eggs in one basket
As you have progressed in your career and made money, chances are you have grown fond of a specific investment, whether it’s real estate, franchise chains, or something else. While these are good investments and generate income, investing in one specific area can come back to bite you.
Just look around at what is happening in the world today‐ if you put all of your eggs in the real estate basket, you’ve likely lost some rental income and have had to dip into your own pocket to pay the bills. But by spreading your eggs around, you eliminate the possibility of one industry wiping out your wealth. Diversification is the ultimate hedge against unsystematic risk.
4. Failing to Surround Yourself With A Good Team
One of the biggest mistakes we see athletes make is enlisting a team of professionals that do not communicate. It’s crucial that these people who are helping you make important career, financial and life decisions are professionals and are working together for your best interest. They all might have good ideas, but unless they’re working together, they could be unintentionally pulling you in different directions. Introduce any professionals you may be working with to one another as soon as your relationship begins. That way, any decisions your new professional partner makes from the very beginning is made with the others pieces of the puzzle in mind.
It’s also likely that those without professional experience – like family members or friends – will want a say in how you handle your career. Of course it’s important to include your loved ones in any big decisions, but remember to discuss them with your professional partners as well for unbiased, expert opinions.
5. Supporting your friends and family with caution
I want to approach this subject carefully, as I know this can be a sensitive issue for a lot of athletes. You have been put in a very fortunate position, and you need to take care of those around you who matter most. You also need to be a good steward of the time and talents you have and the resources you have earned as a result. If you have people in your circle who are using your money for their own wants and needs, your financial well being could be compromised. Most importantly, the once fruitful and trustworthy relationships can become damaged, or even toxic, if healthy boundaries are not in place.
It's wise to have a conversation with family members before the issue arises so they aren’t surprised by your response when they ask for money. This concept isn’t going to look the same for everyone, as it depends on your financial position, relationship with the person, and other variables. Make sure to lean on trusted advisors, both personal and professional, to have third‐party opinions before making any decisions.
6. failing to hire a trusted financial advisor
Contrary to popular belief, a financial advisor does much more than invest money. They can advise you day‐to‐day on how to handle all of the financial benefits and challenges that come with your career, including the pitfalls mentioned here. One of the greatest values an advisor can provide you is by simply saying, “Don’t do that.” But, be careful: it’s crucial that you fully trust your advisor to make important decisions on your behalf. Look for red flags like the guy or girl who drives a Maserati and tells you everything you want to hear. A true financial advisor will tell you what you need to hear, even when it’s the tough thing to do.
If you follow these steps, your odds of becoming a statistic are drastically lower, and you and your family will be set up for generations to come
I became a financial advisor after I stopped playing ball because I saw a lot about what not to do, and I want to help athletes understand what they should do. It’s important that you navigate your financial journey with a trusted partner so you and your family will be set up for generations to come. If you’re interested in learning more about what financial success looks like in professional sports – whether you’re well into your career or just got drafted and aren’t sure what your next step is – contact us today.
*The S&P 500 index is comprised of approximately 500 widely held stocks that is generally considered representative of the U.S. stock market. It is unmanaged and cannot be invested into directly. This is a hypothetical example for illustration purpose only and does not represent an actual investment. Past performance is no guarantee of future results.
Any opinions are those of Austin Coley and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. No investment strategy, including diversification and the use of professional advisors, can guarantee your objectives will be met. Prior to making an investment decision, please consult with your financial advisor about your individual situation.