The Stanford Financial scandal is a case in point. After Texas banker R. Allen Stanford lured customers into buying uninsured certificates of deposit that carried "improbable and unsubstantiated" high interest rates, the SEC froze all the assets of the three entities managed by Stanford. Innocent investors suffered, including those who didn't have money invested in these CDs, but rather just had their investments with broker-dealers whose accounts were with a Stanford affiliate. The scandal affected several athletes, including baseball players Johnny Damon, Xavier Nady and Mike Pelfrey. This incident underscores the importance of due diligence and transparency when forging affiliate relationships.
Becoming A Bank To Family And Friends
Family and friends, regrettably, often view the professional athlete as a money tree. It's common to see a professional athlete frequently approached for loans and other financial assistance by those close to him. It's a tough situation, especially for someone so young and inexperienced with money. That's why it's important for the advisor to be supportive and act as the gatekeeper, so to speak, to the athlete's money.
We frequently have conversations with athletes about whether they feel a request for money is warranted. If the client wants to lend assistance, we ask the athletes to have their friend or family contact us to structure the help in the form of a promissory note. If the client rejects a request, we will break the news to the friend or family member that lending the money at this point in time is not in everyone's best interests. There is a line between helping people and being taken advantage of. We try to help our clients see when the line is being crossed, and are happy to be the "bad guy" to take the pressure off of them.
Complex Tax And Estate Issues
Professional athletes are not only in high tax brackets, but they are also taxed in most states in which they perform. Among the details advisors need to keep track of to prepare an athlete's tax return are the days played in each state, days traveled with the team, days injured and expenses that were or were not reimbursed by their team. Advisors need to know the proper timing of estimated tax payments and the types of alternative investments that provide potential tax breaks.
The estate planning and risk management for a professional athlete can be very complicated. Wealthy public figures can be the target of frivolous lawsuits, so there is a need for not only asset protection but also anonymity. Among the tools for this type of planning are LLCs, trusts and partnerships.
The large size of a typical sports contract and the manner and timing in which the money is deployed are important factors in determining the best way to structure an athlete's estate plan. The net present value of a contract needs to be considered when calculating an athlete's potential estate tax liability. We will often advise an athlete to use gifting and ILITs-strategies that reduce the size of the taxable estate-as one layer of protection.
There is no cookie-cutter method to managing the financial health of a professional athlete. Since each client is unique, so are the strategies employed to secure his financial future. The one constant denominator, however, is the "trust factor"-particularly in today's scandalous environment. Providing athlete clients with transparency and full disclosure is paramount to forging a strong relationship.
Joseph Geier and Melissa Jordan are president and client relationship manager, respectively, of Geier Financial Group, a comprehensive wealth management firm in Marriottsville, Md., that serves professional athletes and other high-net-worth individuals. Further information is available at www.geierfinancial.com.