Professional Athletes and the Big Contracts that Don’t Last
Adam Molon of CNBC on January 31, 2014 reported on NFL quarterback Vince Young’s Chapter 11 bankruptcy protection filing in the Southern District of Texas (1). “CNBC underscored the unfortunate fact that Young is only the latest financial casualty among a string of NFL players who have gone from earning millions to coping with insolvency and limited prospects.” Says Rocco Beatrice, Managing Director of Estate Street Partners and parent company of UltraTrust.com; a firm dedicated to estate planning and asset protection for clients of all levels.
The inauspicious trend of professional athletes going broke picked up considerable interest in the midst of the Great American Recession thanks to a groundbreaking investigative report published by Sports Illustrated (SI) in March 2009. “How (and Why) Athletes Go Broke” (2) revealed that nearly 80 percent of NFL players fall into serious financial hardship three years after they stop playing. Their research goes on to say that the situation is marginally better in the NBA, where 60 percent of players are nearly penniless five years into their retirement. MLB players face a similar situation.
When executed correctly, many players can protect their assets and defer most of their income taxes while they are in the highest tax bracket and make sure that they have enough money for the rest of their lives.
On average, according the SI article, NFL careers tend to be short and lucrative. In just three years, players can earn $4 million and move on to the next stage of their lives. Vince Young is currently a free agent; he has spent most of his last two years away from the gridiron and embroiled in a couple of lawsuits related to a loan gone wrong. According to an MSN Money article, Young’s insolvency can be traced to bad investment choices, overspending and a lack of an effective asset protection strategy (3).
Yahoo Sports sheds some light into Young’s legal troubles: During the NFL lockout in 2011, Young reportedly obtained a $1.8 million cash loan through his financial advisor (4). Young claims that he never received the loan proceeds, and the amount he allegedly owes has ballooned to $2.5 million.
“Looking at the reported figures of Young’s Chapter 11 filing, it is clear that this judgment against him to recover the lockout loan is dragging him down,” explains Mr. Beatrice. “NFL players are often targets of lawsuits; for this, and many other reasons, and they should strongly consider setting up structured, personalized plans to protect their assets. Often that means the use of FLP or irrevocable trust.”
“The short careers of NFL players call for careful estate planning on top of the investment advice they usually receive. Financial stability is becoming just as important as good health and athletic skills for NFL players.” Mr. Beatrice explains: “On any given Sunday, NFL players take on considerable risk. They work hard and play hard, and they enjoy living the high life. The overspending and dubious investment choices have virtually become rituals for professional athletes; it’s almost as if they feel invincible when they come off the field, but they are actually vulnerable when it comes to their finances.”
“The financial turmoil experienced by many NFL players can take a toll on them when they take the field.” Mr. Beatrice comments and “It takes a lot of discipline to avoid overspending and making investment mistakes because the money is big and fast and these guys make a living on the field that requires them to believe they are invincible, which has a tendency to follow them off the field.”
Mr. Beatrice continued “Irrevocable trusts and other estate planning strategies can help in this regard thanks to their structured nature of asset management; these are instruments that actually encourage saving money and keeping it safe. The biggest mistake an NFL player can make in relation to their finances is to forego estate planning, which is something they should accomplish in their rookie season. When executed correctly, many of the players can defer most of their income taxes while they are in the highest tax bracket and make sure that they have enough money for the rest of their lives.”
“Young NFL players tend to live from one Sunday to the next without thinking about what life might have in store for them once they stop playing. For many of these players, playing at the professional level is a ticket to a very early retirement and a greatly diminished earning power. They need to establish a solid foundation for their finances, which is something that can be accomplished with thoughtful estate planning.”
Young is hardly the first NFL superstar quarterback to get financially sacked according to USA today; Super Bowl champion and Cleveland Browns legend Bernie Kosar (5) was yet another of the most notable players that was forced into a calamitous Chapter 7 liquidation back in 2009, more than ten years after his last game with the Miami Dolphins.
About Estate Street Partners (UltraTrust.com):
For 30 years, Estate Street Partners has been helping clients protect assets from divorce and frivolous lawsuits while eliminating estate taxes and probate as well as ensuring superior Medicaid asset protection for both parents and children with their Premium UltraTrust® Irrevocable Trust. Call (888) 938-5872 to learn more.