Financial Lessons from Professional Athletes

Growing up you may have wanted to dunk like Michael Jordan, hit a baseball as far as Ken Griffey Jr. or throw as many touchdown passes as Peyton Manning. Then reality set in. You weren’t as tall as you thought you were and the person next to you started to outrun you. So, you did the next best thing – started watching your favorite athletes compete at the highest level on television.

Today, these athletes command top dollar. At the end of August 2019, ESPN reported the average salary of Major League Baseball players to be $4,051,490; and last reported by the L.A. Times through the 2017 season, National Football League (NFL) players averaged a salary of $2,700,000. While some players make well above these amounts, and some just earn the league minimums, the majority of athletes spend less than 10% of their adult life earning bi-weekly paychecks that are higher than the average annual household income in the United States.

We have heard stories of athletes spending all of their earnings and we’ve heard stories of how athletes have turned their earnings into even bigger gains through various investments. But, are you really different than these athletes who, some create lasting financial legacies for generations to come and others who go broke? I believe you and I are not that different.

After leaving practice, the cameras may catch a professional athlete driving away in a Ferrari. Did they pay cash for the car? Is it leased? Knowing where your money goes and what you spend it on is important whether you earn $50,000 per year or $50,000 per week. Emergencies and opportunities can happen at any time. We may lose our job or be offered an opportunity to invest in a piece of real estate. Having the resources available to meet your needs is crucial when reviewing your financial health.

Some athletes maintain an entourage of attorneys, accountants and financial advisors. Others try to navigate the financial waters themselves. Trusting the right people and getting the right advice based on your goals and expectations are crucial to achieving and maintaining financial independence.

Time is a factor when comparing professional athletes to non-athletes. Most people will have 45 working years while most athletes only spend about 3 to 5 years in their sport. Let’s assume you are employed in the marketing field. There are numerous industries and types of marketing including online, television and print. Your skill set may allow you to stay at the same company for 30 years or move to different companies that offer more challenges and pay increases. An athlete has a finite amount of time to use their physical skills to earn a living. The wear and tear on an athlete’s body can make it harder to compete and win a spot on a team against someone who may be stronger and faster because they are younger. While there might be envy of someone’s skills for a sport, those skills don’t last forever; whereas other fields like nursing, engineering or law may put less physical stress on you and allow you to utilize other skills that are transferrable and last for long periods of time.

Now that we know the potential for years spent in a profession, who’s dollar is worth more? As I mentioned previously, the average NFL salary is $2,700,000. If the average time in the league is 3 years, the total income earned on a 3-year contract based on the average salary would be $8,100,000. Assuming a worker earns $100,000/year with a 5% raise every year, they would have earned $4,958,827 over the course of the next 45 years. While athletes may earn significantly more, time does allow the gap to narrow to where their earnings are just over 1.5x someone working for 45 years.

Along with time and earnings, age is another area to compare athletes to non-athletes. For most people, their last 3 years in the working world are where they earn their highest income. This can be attributed partially to experience, longevity and potentially wage inflation. The average NFL player also generally earns their highest amount of income during their last 3 years in the working world (as a professional athlete). While athletes may reach their professional retirement at an earlier age than non-athletes, they generally max out their income potential and longevity very soon after they begin to earn an income.

Why does it seem that athletes have more material items or take more lavish excursions? The answer is spending habits. When your neighbor gets a new 75” Smart TV or your sister buys a new Mercedes, these may not be as expensive as renting a yacht or taking a private jet to the Caribbean, but how we spend and budget has an effect on everyone’s financial future and how money affects anxiety and mental health. Understanding where your money goes and making sure you pay yourself first by saving towards your goals can help alleviate pitfalls that both athletes and non-athletes face during times of emergencies or opportunities.

What are some of these pitfalls? Can generosity be a pitfall? Does your budget reflect giving – whether it be to family, friends or other charitable causes? Phillip Buchanon, a former 10-year NFL defensive back, who retired in 2012 and earned over $20,000,000 in his career (according to Sportrac), gave hundreds of thousands of dollars to relatives early in his career, and even bought his mom a house and covered the maintenance costs. According to his book, New Money: Staying Rich, Buchanon writes that his generosity created financial burdens early in his career and even possibly led to being robbed at gun point. Putting yourself first does not mean you can’t help. It means that for you to be financially, emotionally and mentally strong, you need to create your own foundation and base that allows you to do all the things you want to do. When the airline safety says that if there’s a drop in cabin pressure you should put your mask on first before helping others who may not be able to put the mask on themselves, it isn’t because the airline wants you to be selfish. They know that for you to be in the best possible position to help a child is to make sure that you are breathing properly. The same is true when it comes to helping others financially and it doesn’t matter if you earn $100,000 per year or $100,000 per week.

Longevity also affects our spending habits. An athlete’s working years are significantly shorter than the majority of Americans. Athletes still need to save money for their future goals to make sure they are financially independent. A downturn in the economy may force companies to lay people off. When this happens income stops coming in but expenses don’t stop going out. Athletes may be able to buy a million dollar home but how will they pay their property taxes and mortgage when their playing career is over? How will the non-athlete make their mortgage payment if they lose their job or their bonus is less than expected. Athletes and non-athletes both have to deal with the realities of the potential for fluctuating incomes while expenses may stay the same or increase.

Navigating through budgeting, spending and saving may not be easy when dedicating most of your day to your profession, raising children and binge watching the first two seasons of Ozark to prepare you for the third season this year. Help can come in the form of third parties. An athlete who lives in one state and plays for a team in another state may need the help of an accountant to determine residency for tax purposes; but a non-athlete may also need an accountant to make sure they are correctly identifying expenses from a side business of selling personalized magnets online. Whether you are choosing a financial advisor, an attorney, an accountant, a dentist or any other type of professional you rely on for their expertise, trust is one of the most important factors in the decision making process. You and your family are the most important and making sure you find the right people to help you reach financial independence is just as important for the teacher earning $75,000 per year or LeBron James’ $35,654,150 salary (according to ESPN).

Some athletes have enough money to buy a whole building while some non-athletes may only have enough money to buy one unit in the building. In either situation, the investment recommendations have to match a person’s risk tolerance. Even though someone may have discretionary cash flow, they may not be willing to take certain risks. While an opportunity may present itself, it may either be too good to be true or may not fit with your investment and risk profile. Due diligence and trusted advice are necessary to understand the risks and potential costs involved in different types of investments whether it be stocks, bonds, real estate, car dealerships or restaurants.

Are athletes’ goals that much different than non-athletes? I don’t believe they are; and if the goals are the same, then it may just be the financial levels that are different. Do athletes want to take a cruise to the Bahamas? Do you want to take the same cruise – even if you aren’t staying in the two-story suite? Do athletes want to set aside money so that when they stop playing they can live off of what they’ve saved? Do non-athletes want to save so that when they retire they can create a steady stream of income during retirement? What about protection? Do you want to make sure you are protecting your family against a premature death or loss of earnings potential due to a disability? Are athletes worried about getting hurt and not being able to continue their careers? Risk management through insurance, tax planning and diversified savings strategies are important for everyone.

There are many stories of athletes spending all of their earnings but there are more stories of athletes who save first and live within their means. The same is true for the non-athlete. People go into debt by overextending themselves; while many others identify and prioritize their goals, save their hard earned money and live very comfortably before and during retirement.