Becoming a Pro Athlete Is Hard Work. So Is Managing Their Finances.
An athlete’s income is generally earned quickly, and their careers can end just as fast.
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It may sound like a cliched line from SportsCenter, but athletes are just built differently — especially when it comes to their finances.
Professional athletes earn their wealth very quickly and at young ages, and they sometimes spend it even faster. Their careers can also end before they know it. Nearly 80% of NFL players experience financial stress or even bankruptcy after retirement, 40% of UK professional footballers go bankrupt five years after retirement, and MLB players file for bankruptcy at four times the rate of non-athletes, according to a recent Wells Fargo report.
“With stats like that, professional athletes need to take their financial planning seriously,” said Frederick Blue, head of new business development at Wells Fargo Wealth and Investment Management. Advisors need to be well aware of the complexities of athletes’ income streams, tax obligations, and personalized insurance strategies if they want their financial plans to succeed.
Free Agent
A major problem for athletes is divorce. The major life event can have huge financial implications on anyone, and roughly a third of US marriages end in break-ups, according to the latest figures from the Centers for Disease Control. The divorce rate for athletes is significantly higher, between 60% and 80%, per Wells Fargo.
“Athletes are required to travel a lot, their schedules can be unpredictable, and they often become public figures, which can add challenges to a relationship,” Blue told Advisor Upside, adding that premarital agreements are something advisors should always recommend to their athlete clients.
But, it’s not just ex-spouses that can erode an athlete’s net worth. With federal tax rates of 37% at the top income bracket, on top of some state rates that exceed 10%, athletes might find themselves paying nearly half of what they make to various authorities, the Wells Fargo study found. Most states also have a “jock tax,” which is applied to visiting athletes when they compete in away games. For a baseball player, that could mean having to file up to 25 returns each year.
Advisors can lessen that shock — and overall tax obligations for athletes — by recommending they live in states with no income tax like Nevada, Florida, or Texas, the Wells Fargo study suggested.
Time In. Of course, the biggest factor influencing an athlete’s finances is how long they stay in the game. The average person works for four to five decades, all the while building wealth and saving for retirement. The average NFL player’s career? About three years — and that’s if they don’t get hurt.
Advisors need to work quickly, as they could have decades of retirement to plan for in a short amount of time, Blue said. “While being one of the best in their chosen sport may have gotten them to the big leagues, an unforeseen injury can alter their career and their financial horizon significantly,” he said.
