It is no surprise that so many professional athletes have difficulty with their financial affairs, according to a white paper released last month by Rothstein Kass.
Two-thirds of pro athletes aren't focused on the business side of their careers, and less than a third are concerned about how they are financing luxurious lifestyles, the white paper, "Changing the Game Plan," suggested.
"There's a real disconnect. They're spending on multiple homes and cars and jewelry and taking care of other people, but they don't concern themselves with the amount of money they are spending," said Rick Flynn, a principal for accounting firm Rothstein Kass of New York and a member of its family office group.
He contributed to the report.
Femi Shote, a founder and board member of the Sports Financial Advisors Association of Phoenix, said that excessive spending is the most persistent problem he sees among pro athletes.
"They can be their own worst enemy," he said. "They spend more than they earn, and now there's a double whammy because their portfolios are down and they're still spending a lot of money."
Mr. Shote, a certified financial planner, is managing director of Asset Harvest Group LLC in McLean, Va., which has about $80 million in assets under management.
NO PLAN IN PLACE
The report also found that 85% of pro athletes didn't have a plan in place to protect their assets.
"It's somewhat shocking that despite obvious and well-founded concerns regarding legal risks, only 15% of athletes have an asset protection plan in place," said Alan Kufeld, a tax principal at Rothstein Kass who contributed to the report. "This suggests that as a group, professional athletes are largely unaware that these plans can help to mitigate liability exposure."
Asset protection plans should include risk management, and legal and business components, Mr. Flynn said.
"The athlete should have the right types of insurance, as well as trusts to protect his net worth. Assets that are placed in trusts in the athlete's name while they are single are not accessible to a spouse after a divorce," Mr. Flynn said.
"And businesses owned by the athlete should be properly structured, such as by using a limited liability corporation, which can protect the athlete from lawsuits against him or her personally," he said.
Lawyers who specialize in divorce should also be part of an asset protection plan, Mr. Shote said.
"Divorce can be a major issue for athletes," he said.
"I would estimate that over 60% of athletes get divorced either while they are playing or when they stop. They need to keep the money they make when they are single in a separate will or trust, because the money they make while they are married is marital property," Mr. Shote said.
According to the report, three-quarters of pro athletes think that they are being exploited by friends, family members and advisers.
While those individuals may have the best interests of the athletes at heart, they are often underqualified to provide advice, Mr. Flynn said. As a result, he said, Rothstein Kass recommends creating a "coordinated management and planning team" for the athlete, including his or her agent, business manager or accountant, investment adviser, attorney and, in some cases, a family representative.
"This way, if an athlete is approached about a business opportunity, an investment or a loan, he or she can consult with the team and get the separation that's necessary before making a decision," Mr. Flynn said.
The survey was conducted in September for Rothstein Kass by Redding, Conn.-based Prince & Associates Inc., and it was written by Russ Alan Prince, president of the firm, and Hannah Shaw Grove, an equity partner in the firm. She is also principal of HSGrove Private Wealth Consultancy in Edison, N.J.
Fully 89 sports agents spoke to clients who had a minimum net worth of $5 million, and then provided the information to Prince & Associates by phone.
E-mail Charles Paikert at firstname.lastname@example.org.