After the playing field, athletes score as financial advisers
NEW YORK |
NEW YORK (Reuters) - Former Major League Baseball pitcher Marc Wilkins remembers the euphoria he felt when he earned his first big league paycheck.
It was 1996 when he broke into the majors with the Pittsburgh Pirates. Wilkins, then a 25-year-old rookie, was handed his first check for roughly $10,000.
"That was more money than I had ever seen in my entire life," said Wilkins, now a 41-year-old financial adviser at Wells Fargo & Co, who recalled spending 80 percent of that first check. "I ... bought furniture, I bought a new car -- you name it -- I thought it was going to last forever."
It didn't. Wilkins earned several million dollars over the course of his baseball career before leaving baseball in 2003, several years after a shoulder injury.
Athletes like Wilkins who learned money management the hard way have made it their mission to help fellow players avoid the financial traps of short-lived big paychecks.
While no one tracks the number of athletes who turn to financial advising, advisers interviewed by Reuters said they see growing demand for people like themselves at firms trying to tap into the wealthy athlete client base. Several wealth firms have recently announced or launched divisions or teams focused on cultivating athlete clients.
Athletes-turned-advisers say their first-hand knowledge of professional sports pay, their ability to battle big egos, and their connections give them an edge in advising current players.
"These guys are fresh out of college, haven't learned how to balance a check book yet and are winning the lottery," said Wilkins, noting he would have been wealthier himself had he better planned "for that day when the check stops."
"Athletes don't ever want to think that the day will come," he said.
About 78 percent of National Football League players go broke or wind up in financial distress within two years of retiring, while 60 percent of National Basketball Association players are bankrupt within five years of leaving the court, a 2009 study by Sports Illustrated found.
The problem is one that some leagues have only begun to address. The NBA and its players union last week agreed on a program that forces athletes to save for retirement: 1 percent of a player's basketball-related income will automatically go to a post-career annuity. NBA spokesman Michael Bass said the league continually tries to educate and prepare players for their post-NBA life.
Critics say that's not enough. From the bankruptcy of football greats Warren Sapp and Jamal Lewis to basketball stars Allen Iverson and Antoine Walker, athletes' riches-to-rags tales are common.
"I'm tired of picking up the paper and seeing a guy that you thought made millions of dollars go bankrupt," said former MLB shortstop Royce Clayton, who played in the major leagues for 17 years and now works in the wealth management industry.
BEYOND THE FIRST PAYCHECK
The social pressure to show off wealth is always hovering over an athlete, said Wilkins, recalling teammates regularly reading luxury magazines about yachts and fancy watches to keep up "the bling factor."
While spending big might not seem out of whack for someone earning seven figures, it is often an unsustainable lifestyle once the checks stop coming in.
"You have to start making adjustments to life after your career, which is a hell of a lot longer than what you played on the field," said Clayton, now 42, who was drafted straight out of high school and first played for the San Francisco Giants when he was 21 and was part of the World Series-winning Boston Red Sox in 2007.
Clayton, who never attended college, joined New York-based Four Wood Capital Partners, LLC this year, as part of the firm's newly formed private wealth management team focusing on professional athletes.
Four Wood Capital views athletes as akin to a financial institution, with a similar risk profile and respective need for a long-term approach that focuses on preserving wealth. Signing a new contract or extension, payment of a signing bonus or performance incentive, all act as trigger events that create a large one-time payment or a stream of payments that need to be stretched out over time, rather than managed as a steady flow of income.
MAKING BIG MONEY LAST
Chester Pitts, 33, who played for the NFL's Houston Texans for eight years and is now studying to become a certified financial planner, said cultivating a relationship and creating a financial plan before an athlete leaves college is key.
Athletes only earn big money for a short period of time, primarily when they are young, which makes them atypical wealth clients.
Most people turn to an adviser only after building a career and seeing their earnings steadily rise. The average age of an ultra-high-net-worth client -- someone with $5 million to $25 million in investable assets -- is 61 years old, according to market research firm Spectrum Group LLC.
NFL and MLB players typically retire in their early- to- mid-30s, with stars earning $100 million or more in their career (think Alex Rodriguez, whose 2007 10-year $275 million contract was the most expensive in baseball history).
Some athletes ink sponsorship or merchandising deals even after retiring, but many go from big checks to nothing.
Pitts estimates that over his nine seasons of playing professional football, more than 40 teammates asked to borrow money because they fell into financial distress.
Most of those players made more money than Pitts, whose base salary in 2009 was about $4.4 million.
IT TAKES AN ATHLETE
For many firms, having an athlete-turned-adviser on staff is one of the only ways to build inroads in the industry.
Taseer Badar, co-founder and chief executive of Texas-based wealth management firm ZT Wealth Inc, met Pitts when he was a rookie. Shortly after his own retirement, Pitts -- a lifelong saver -- joined ZT Wealth, which hopes to add athlete clients.
"He basically spread the word in the locker room" about the firm and the need for proper money management, Badar said.
While some athletes, like Clayton, are hired by wealth firms to build and maintain athlete relationships and others are more involved in the money management, those who are certified financial planners or advisers must pass a series of exams before they become licensed advisers.
Wilkins, who studied business and finance before being drafted, for example, had to pass a state securities law exam, as well as a general securities representative exam, known as the "Series 7" exam, administered by the Financial Industry Regulatory Authority, Wall Street's self-regulator.
Beyond their connections and knowledge of the industry, former athletes say their ability to manage the outsized egos of their peers gives them an edge in advising athletes about their savings strategies.
Athletes, treated like stars in public and regularly glorified for their on-the-field work, can be overly confident in their own views.
Wilkins said he was guilty of that and remembers hastily reacting to market fluctuations after the September 11 attacks. He impulsively called his broker to cash out hundreds of thousands of dollars he had invested in aggressive growth equities. The broker didn't argue.
Wilkins said he made several foolish money moves, but his advisers rarely pushed back. A former athlete, he said, has the credibility and the personal experience to say no.
"When someone comes into my office," he said, "they're going to get a down-to-earth, blue-collared guy who's learned some lessons the hard way and doesn't want to see them make the same mistakes."
(Editing By Jennifer Merritt, Walden Siew, Leslie Adler)
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