Are you ready for some finance?
Leland Faust, chairman of CSI Capital Management and financial adviser to many pro athletes, says even the rookies need to put serious thought into securing their financial futures.
That's not a challenge to be taken lightly, warns Faust, who oversees more than $1 billion in assets. Fortunes can be built or destroyed by a poor financial decision.
Faust spoke with
about the challenges facing the NFL's newest competitors and the pitfalls they need to avoid.
Q: What financial advice do you have for those entering the ranks of pro athletes?
A: The player should realize the great opportunity that he has for long-term financial security. Nevertheless, to take advantage of that opportunity requires responsible use of his money. A player has to be realistic. Even though the sums paid to high draft picks are substantial, this money must last a lifetime.
The athlete needs to set realistic goals and assume that the first contract will be the only contract he will ever have. If there is a second or third contract, then this will add to an already positive situation if the player plans properly.
We advise patience and long-term thinking, careful tax planning, avoidance of debt -- except for purchases of homes -- and conservative investments.
Q: How should they choose a financial adviser and agent because they will be handed a lot of business cards?
A: Retain an adviser who is both competent and honest.
Does the agent or financial adviser have the proper background? Has he done this successfully before? Does he have the proper education? Does he have the required business registrations and licenses? Has he encountered disciplinary problems before? Have any prior disputes with clients been based on legitimate claims and not just spurious claims raised by a disgruntled former client? Is he demonstrably honest?
Also, did he provide the client, the client's family or the client's friends anything of value in order to receive the business? If yes, then the athlete has been "bought" and should not allow himself to be represented by the prospective adviser or agent. If the athlete has previously received anything, then we encourage him to pay it back and choose a new and honest adviser.
Has the agent or financial adviser done anything to break the rules -- NCAA rules, union rules,
rules or the rules of any other appropriate governing body? If the representative does not play by the rules, then he has disqualified himself. The financial adviser should be paid a fee for services, not commissions or other fees on transactions. The athlete should seek someone who gives independent advice and is not influenced by financial conflicts of interest. The financial adviser should be independent of the agent.
Truly independent and honest agents and financial advisers should be able to work together professionally to serve their mutual client's best interests.
Q: Since their careers are short -- on average -- how should they make financial plans?
The financial plan should contemplate a career of realistic length. We like to assume that any long-term contract will be the last one for that client. We can then be pleasantly surprised when another contract is signed.
Athletes should make their financial plans by establishing reasonable budgets that provide them with a standard of living they can sustain from their investments after their professional sports careers are over.
For an athlete, the high earning years are limited; therefore the financial plan would include less risk-taking than might be taken by someone with similar income but with a much longer earning horizon.
Q: Can you give me the story of an athlete that did everything right?
A: Tiki Barber is an athlete who made the right choices throughout his NFL career. He saved money and diversified his investments. As his financial security and nest egg increased, only then was he able to enjoy a more expansive lifestyle. He also successfully transitioned out of sports and into a broadcasting career.
In the off-season, Tiki worked in various broadcasting capacities and learned the business. Once he retired from football, he did not have to regroup and start from scratch. It was a seamless transition because of the work that he put in during his sports career.
Q: Can you tell me the biggest pitfalls?
A: The biggest financial pitfall for athletes is spending, spending, spending. This is generally a much larger financial pitfall than making poor investments -- although, unfortunately, many do.
Another huge pitfall is providing family and friends with unproductive financial support. Allowing family members to share in an athlete's success can be a wonderful thing, if done in a manner commensurate with the athlete's financial prospects. However, we also believe that you are not helping someone you love by depriving them of the incentive to be successful on their own.
On the investment side, the biggest pitfalls we see involve athletes who are not cautious enough and who risk too much of their capital in high-risk ventures.
Q: How big a problem is it to get young men who may have grown up poor to adapt to all the money thrown at them?
A: It is a huge challenge to educate young men to adapt to instant wealth and properly handle their finances.
Too many of the young players believe that they are strong when they spend and weak when they save. In fact, it is just the opposite -- the strength is in savings and accumulating capital, thereby controlling your own destiny.
Q: How can you teach them to adapt?
A: We attempt to share success stories with our clients to motivate them to save. We share stories of clients who have been retired for many years and who have not had to change their lifestyles since retiring.
We try to contrast that with the horror stories of those who have been forced to move into smaller homes, see their families leave them and be forced to drastically curtail their lifestyle. We explain that the rules of finance apply to them regardless of their celebrity. This can often be tough, because for their entire lives, they have had special rules apply to them.
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.