The Essentials of Wealth Management for Sports Professionals
Introduction to Financial Planning
In today’s sports industry, professionals earn more than ever. Tens of thousands earn six figures from their sport, while the world’s top 100 have a combined annual income of $5.4 billion.
But their journey to financial success comes with its own set of hurdles. With short careers marked by fleeting peaks and unpredictable earnings, there is a serious need for careful financial planning.
Early financial planning allows sports professionals to capitalise on their earnings during their prime and lays the foundation for long-term financial stability. A well-executed, robust financial plan opens doors to post-career ventures, allowing a smooth transition into the next phase of life without financial stress. Whether pursuing entrepreneurial endeavours, philanthropic ventures, or simply enjoying retirement.
The Importance of Diversifying Income
Income diversification ensures financial resilience and longevity. Endorsement deals with brands, appearance fees for public events, and strategic investments are all ways sports professionals can bolster their financial position.
Typically, 30%-50% of sports pro earnings are from endorsements.
Given their popularity and time in the limelight, sports professionals are a natural fit for promoting products. Many prioritise finding corporate partners that embody their values, with representatives often tasked with navigating the complexities of endorsement deals and ensuring favourable terms and long-term viability.
Bonuses and winnings represent a significant source of income, particularly in individual sports. However, any income source that relies on performance or standing has risks and unreliability, indicating the need for prudent long-term financial planning.
A multitude of options exist for growing wealth beyond the sporting arena, from real estate ventures to equity investments in businesses. Many sports professionals rely on advisors who understand investment vehicles and market dynamics to guide their financial decisions, all aligned with their goals and risk tolerance.
Few have demonstrated the power of income diversification better than the basketball icon LeBron James. James has leveraged his superstar status to secure several lucrative contracts with big companies, with endorsement deals ranging from KIA and McDonald’s to a big-money deal with Nike. He also owns stakes in sports teams, including Liverpool, Boston Red Sox and AC Milan, and is well-known for his philanthropy, from his relationship with the University of Akron, ensuring scholarships for children, to the work of his own LeBron James Family Foundation.
5 Steps to Successful Financial Planning
1. Manage Cashflow
Managing cash flow goes beyond simply tracking income and expenses. For sports professionals to stay ahead of the game, they need to understand the seasonal and cyclical nature of sports earnings. By using financial tools and apps specifically tailored for irregular income streams, they can set realistic, adjustable budgets to accommodate their earnings.
Categorising spending into needs, wants, savings and investments ensures discipline and prevents financial complacency. Whether quarterly or more frequent, reviews with a financial advisor can help adjust budgets in response to changes in circumstances or overall goals.
2. Prepare for Unforeseen Circumstances
For all the potential high points in a sports professional’s career, there are always looming obstacles that threaten to halt momentum and affect income. Being prepared for anything is key. Short-term and long-term disability insurance protects against lost income from injury or health issues. At the same time, critical illness coverage is another measure to soften the financial blow from severe health conditions.
An emergency fund that covers 6-12 months of living expenses offers a financial buffer against unexpected challenges. This fund should be easily accessible but separate from other investments to avoid the temptation of tapping into it for non-emergencies.
3. Build Cash Reserves
A tiered savings strategy can diversify, allocating funds into different buckets for varying financial goals, each with its own risk level and liquidity. Money market funds offer immediate emergency reserves, short-term bonds satisfy medium-term needs, while diversified equity portfolios cater to longer-term objectives. Each reserve should be regularly reviewed to maximise returns and mitigate risks per changing market conditions and personal circumstances.
4. Engage Tax Saving Strategies
Financial advisors can help educate by exploring tax-relief options, from savings accounts and pensions to other tax-efficient investment vehicles.
Understanding and utilising tax treaties to avoid double taxation can save significant amounts of money when it comes to international competition. Careful planning around domicile and residency can positively leverage different tax regimes, ensuring compliance with legal obligations.
5. Plan for Early Retirement and a New Career
Sports professionals should always have one eye firmly on what happens after, even in the early stages of their lives and careers. While financial stability is an evident focus for post-retirement life, educational and vocational training can open new doors and opportunities rather than simply closing one.
Networking within and outside the sports industry can help facilitate this transition, as can adding professional development courses and internships to their busy schedule, planting the seeds for a future after sport.
A Game of Risk and Reward
No matter the investment, there will always be risks within and outside an investor’s control.
These risks exist in every market, but so do rewards. Exploring global markets for opportunities will broaden horizons, from the developed markets of the United States, United Kingdom, and Germany to emerging markets like Latin America, India, and China and tax-beneficial jurisdictions across the globe.
Every country has potential risks, and non-domestic additions balance any portfolio. Nothing is guaranteed in these globalised and uncertain times, but working with an experienced, trusted advisor is the best form of mitigation, and spreading risk across multiple regions is a proven strategy.
Working with a family office
Effectively managing wealth is akin to a full-time job – a task many have delegated to family offices.
A family office is a bespoke wealth management advisory firm catering to the affluent. It offers a unified approach to overseeing a family’s financial and wealth strategy.
This model of wealth management, exemplified by some of the most well-known and wealthy families, has proven effective for decades. These private offices employ a team of experts dedicated to enhancing a family’s net worth and ensuring its continuity. With the rise of ultra-high-net-worth individuals globally, the family office model has gained prominence, built on three foundational pillars:
- Independent advice: Providing unbiased guidance tailored to the family’s unique needs and goals.
- Integrated strategy: Coordinating all aspects of wealth management, from investments to tax planning, under one unified approach.
- Personalised services: Catering to the specific circumstances of each family. This approach effectively manages the complexities of wealth for sports professionals, safeguarding their financial future and their families.
Affinity Sports – The Right Choice for Your Financial Future
Partnering with a trusted advisor can make all the difference.
At Affinity Sports, we understand the unique challenges and opportunities that come with success in the sports industry.
We want to be your trusted partner. Whether it’s managing income from endorsements, optimising investment portfolios or planning for life after sports, we provide personalised solutions and bespoke planning that can secure your legacy and maximise the returns from your assets across multiple jurisdictions. With a focus on asset protection, estate planning and concierge family office services, we’re here to simplify your financial future and empower you to do more with your money.
If you’re a sports professional looking to protect your assets, plan for the future and maximise your financial potential, we invite you to contact us for a personalised consultation.
Contact us today to learn more about our services and how we can tailor them to meet your needs.