Professional athletes may earn substantial incomes on the field, but a dearth of business experience can lead them to lose
major portions of their net worth off the field.
Professional baseball players Bernie Williams, J.D. Drew and Carlos Pena, for example, were reportedly among the athletes who invested in a Ponzi scheme allegedly run by Allen Stanford. Athletes such as NFL quarterback Michael Vick sometimes offer their complete trust to a financial advisor, only to later see him indicted. The three D's-debt, disability and divorce-commonly conspire to separate an athlete from his fortune after he has retired. With the economic downturn, the situation has only worsened. More former stars have sold their championship rings than ever before.
Athletes need high-quality financial and related advice, but this isn't anything new. What is new is the extent to which sport agents are moving into the advisory business in response to this trend.
The Expanding Role Of Sports Agents
The world of the sports agents has become ever more competitive. Today there are over 3,000 sports agents in North America and they're dealing with an increasingly transient clientele. Athletes are switching agents to save a percentage of a percentage point in commission.
Sports agents are now forced to deal with client issues beyond the scope of their traditional role. For example, it is now acceptable for an athlete to ask his sports agent to review contracts for outside business ventures. Agents aren't compensated for this type of activity but it's regularly expected of them.
To generate revenues and better serve clients, large agencies usually have in-house financial planners. But financial planning goes only so far with professional athletes. That's why there's been an explosion in the number of sports agents that are setting up multifamily offices.
The Special Needs Of Athletes
The multifamily office provides its wealthy clients with a holistic, integrated set of solutions to the total array of financial matters, plus a broad spectrum of support services. On the wealth management side, multifamily offices provide investment management services and advanced planning, including sophisticated income and estate tax planning and asset protection planning. Wealth management also encompasses private investment banking, including deal making and capital raising.
There are two sets of multifamily office support services: administrative services, such as accounting and bill paying, and lifestyle services, such as concierge health care and family security services.
These are the components of a standard multifamily office, but professional athletes are not standard clients. Sports stars constitute a special clientele that has unique needs and service demands. The following are some of the services they require:
Asset protection planning: Professional athletes need legal strategies and products that protect their wealth from litigation. The wealth and celebrity of pro athletes makes them a target for unjust lawsuits. They need all the tools and techniques available for dealing with gold-digging litigants.
Disability insurance: The broadest disability coverage in the most diverse settings is optimal. This often entails going to international firms and sometimes involves constructing blended product solutions. It's also essential to mitigate costs, which might involve integrating disability insurance into other financial products, such as defined benefit plans.
Family law: From prenuptial agreements to divorces to child custody fights, many athletes run into sticky, intense, anxiety-provoking situations. Multifamily offices have to be able to address these matters if they want to work with athletes. How the athlete's wealth is structured becomes a critical element in conjunction with this type of planning-more so than with any other affluent population.