With possible lockouts looming in both the NFL and NBA this year, advisors need to prepare for a potential crisis that could cut off their athlete clients' income and cloud their financial future.
Since a lockout entails a complete halt in pay, the potential loss for athlete clients is significant. The average NFL salary, for example, is close to $800,000 per year. While the players unions have advised their members to financially prepare for this possibility, figuring out how to best do so falls to the professionals working with these athletes.
That leaves advisors with professional football and basketball player clients to plan for a worst-case scenario: dealing with a client that has had their income cut off for an indefinite period. That means it falls upon advisors to help clients manage their lifestyles and expenses during this potential personal financial crisis.
It should be noted that managing cash flow in response to lost income is a problem that affects many more individuals than just athletes. In 2008 and 2009, many senior executives were confronted with similar problems because of the credit crisis. Astute, adept professionals can work together to help successful individuals, such as athletes, when their income stops-even though their careers have not.
Cash Flow Is King
If an athlete's income is cut off, one of an advisor's first steps should be to establish the cost of maintaining the client's lifestyle.
Is the athlete's current cash flow adequate to pay his bills? To answer this question, a comprehensive assessment of expenses is required, including a projection of ongoing expenses as well as debt servicing. Along the same lines, it is essential to determine how long the athlete can maintain his current lifestyle without his income.
Based on the answers to this question, a number of related questions need to be addressed.
If the athlete has significant debts, what is the best way to manage the debt load? Here the client's professional advisory team is looking for ways the athlete can pay down debt or restructure the current loans. When it comes to dealing with existing loans, there are a number of solutions ranging from taking out new loans to consolidating loans to renegotiating the terms of existing loans. Overall, the objective is to free up cash flow.
How can the athlete's investment portfolio be structured to enable him to maintain the lifestyle he desires? The athlete's investment portfolio needs to be examined with a critical eye. The liquidity of the portfolio has to be determined. Even in cases of illiquid investments, there are often ways to pull out cash on a temporary basis. Moreover, it often helps to change the mix of investments to generate more free cash.
What other resources can the athlete tap? From cash value life insurance policies to equity positions in businesses, there are ways for athletes to enhance their short-term cash positions. The nature of the resources and the athlete's needs will determine the best way to unlock cash for lifestyle expenses.
How can the athlete lower expenses? A thoughtful review of the athlete's lifestyle and accompanying cost structure is in order. In many cases, a little downsizing is in order. Support personnel functions may need to be consolidated and luxury expenses streamlined. This may require a more global assessment of the athlete's lifestyle values.