April 5, 2021
The importance of wealth preservation in sports
According to Sports Illustrated, 78% of NFL players who are retired for only two years file for bankruptcy, and after five years of retirement, 60% of NBA players suffer the same fate. These figures are shocking and reiterate the need for proper financial planning amongst sportspersons.
The concept of wealth preservation is important for any client operating in any industry, however, more consideration needs to be given to the presentation of wealth for sportspersons and athletes, for a number of different reasons.
The career of a sportsperson is typically extremely short. When compared with other industries and occupations, the career of a sportsperson and income generating window is extremely limited, ending in their mid 30s when, all of a sudden, revenues could drop considerably, sometimes disappear completely.
A lot of wealth is generated at a very young age. Most sportspersons earn most of their income during the ages between 23 – 27 years, at a time, when thinking about wealth preservation and management is the last thing on their mind. The truth is, that because most of them generate so much wealth at such a young age, it is almost impossible to think this will not last forever, and a time will come in their career when they do not continue to perform as they did in their earlier years, resulting in a significant drop in their income. The extravagant lifestyle which some athletes live could result in a quicker road to bankruptcy later in their career, or after retirement.
Injuries are a huge concern – they could slow down the development, or at times also end careers abruptly and without proper planning this could end up in financial ruin.
Bringing in competent and trusted advisors on board, at an early age, is crucial to ensure wealth preservation both during the sportsperson’s career and also during retirement. Trustees can play a crucial role in this – they can manage the individual’s wealth to ensure that it is preserved throughout, and beyond, their lifetime and not just during the few years of their sporting career. Having experienced trustees can make a significant difference in the life of the sportsperson, particularly after retirement, when income drops significantly, as this would have been planned for well before retirement-date.
Tax planning is also another important aspect to consider when deciding on structures, income streams and other related matters. This is particularly important for ‘mobile’ athletes and sportspersons who have income arising in different jurisdictions, with the different tax treatment and withholding tax considerations of a number of different countries. Management and Image right companies could be considered for this purpose – such companies need to ensure that they have the proper advisors on board and manage the sportspersons career, holistically.
Starting at a young age is important. This is because it creates the right frame of mind for the sportsperson when it comes to managing their wealth and being financially responsible. It is also good to plan at a young age, because it is far more difficult and, at times, more expensive, to move assets around or restructure operations once a material amount of wealth is generated.
Should you wish to obtain further advice on this topic please get in touch with:
Partner Senior Consultant Senior Consultant